The crash
of FTX cryptocurrency exchange has hit the crypto market hard. Not only has it
greatly affected retail investors but also large market players who had invested
their funds with FTX or who had invested largely in native tokens. The scale of
the aftershock caused by the manipulation of the founder of FTX, Sam
Bankman-Fried, has not yet been felt but when it is finally felt in all its
glory, it may shake markets for a long time to come. One thing is clear, the
crypto market has suffered a severe blow to its reputation and it is likely to
divert large amounts of money from the industry.
The
situation with Grayscale investment trust stocks (GBTC) is widely being debated
now as this fund is one of the cornerstones of the crypto market and these
stocks are used as alternatives to direct investments into crypto assets. These
stocks are largely correlated with Bitcoin prices but are trading 45% off the
asset’s net value.
Digital
Currency Group (DCG), a parent company of Greyscale fund, suffered during the
Terra bankruptcy as 3 Arrow Capital fund (3AC) received $2.5 billion from the
collapse of GBTC. The market is now buzzing
with rumours that DCG is in a lot of trouble as it borrowed money from its prime broker Genesis
to cover the funds lost in 3AC’s bankruptcy. If the rumours are true then GBTC
stocks may see a substantial dive and there will be no money left over to cover
losses. That is not the worst-case scenario, the worst case would be if this
dive also sweeps away the funds needed to cover clients’ claims. In this case
GBTC and ETHE trusts should be liquidated in order to complete U.S. Dollar
compensations to its clients. Trust has around 633,000 BTC and 3 million ETH.
So, the pressure on prices would be very high.
Nobody can
save DCG now after so many negative events have been linked to the crypto
market over the recent months. “Traditional” large investment houses may believe
that crypto investments are not worth the hassle. So, large capitals will shy away
from crypto assets for a long term, at least before proper government
regulations and supervision is introduced.
Bitcoin is
trying to push through the $16,000 support level and continue to move towards
$10,000 per coin. This downslide may last for quite a long time without, while
the recovery would certainly take more than one year. The middle of 2024 could
be a threshold for the crypto industry to start on its recovery path.