FTX’s Chapter 11 bankruptcy unlikely to cause financial market contagion, Citi says


By Vivien Lou Chen

The rapid takedown of cryptocurrency exchange FTX, which culminated in a Chapter 11 bankruptcy announcement on Friday, raises questions about whether it could produce spillovers to broader financial markets.

Read:FTX has filed for bankruptcy. Here’s what account holders need to know about this “very complicated and complex bankruptcy case.” On Monday, for example, the chief executive of rival exchange Crypto.com, Kris Marszalek, tried to play down contagion fears, CNBC reported. Meanwhile, a Citi team said on Friday that the size of the cryptocurrency market is a key reason why FTX’s troubles are unlikely to turn into something much bigger.

“We believe cryptocurrency markets remain too small and siloed to cause contagion in financial markets, with a market capitalization of $890 billion compared to US stocks’ $41 trillion,” they said. analysts Joseph Ayoub, Alex Saunders and others at Citi. See also:You Need to Understand the FTX Debacle Even If You Have No Crypto Investments

Still, Ayoub told CNBC on Friday that he sees “a serious risk of wider contagion to the ecosystem itself” and, “within cryptocurrencies, it’s unclear how far and how far this go”. In a note published on Friday, Ayoub and his colleagues wrote that “over four years, FTX has raised $1.8 billion from venture capital and pension funds. This is the main way financial markets could suffer. , as this may have other minor implications for portfolio shocks in a volatile macro regime.” Calm returned to the cryptocurrency market on Monday, with the price of Bitcoin relatively stable, although down 0.2% to $16,341. Meanwhile, all three major US equity indices ended lower for the day, while Treasury yields climbed, led by the policy-sensitive 2-year rate .

– Vivien Lou Chen


(END) Dow Jones Newswire

11-14-22 1632ET

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