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• Cryptocurrencies have also reached institutional investors
• FTX bankruptcy breaks trust with industry
• Binance bailout fund to help crypto companies get back on their feet
Cryptocurrency acceptance has increased in recent years
Although trading in Bitcoin & Co. has been possible for several years, the trend towards digital currencies is still a young phenomenon among institutional investors. Some major banks, to which the crypto veteran was developed 14 years ago as an alternative, have only recently offered increased support for cybercoins. Part of the reason cryptocurrencies have become more widely accepted over the years is certainly the ease with which they can be traded through a variety of trading platforms. However, the collapse of the FTX market size has now spoiled the mood for crypto fans.
FTX bankruptcy joins list of crypto scandals
The bankruptcy of founder Sam Bankman-Fried’s crypto exchange, which followed a series of scandals and inconsistencies, is not the first bad news on the crypto market that investors have had to digest this year. The crash of the stablecoin Terra/LUNA and the insolvencies of the crypto lenders Celsius and Voyager Digital have already caused uncertainty – and price slumps for the entire digital currency market. Almost a year ago, the crypto veteran Bitcoin seemed to be unstoppable and jumped to an all-time high of $68,789.60, but the price has melted away in recent months. Currently, the largest cryptocurrency is trading at around $16,195 (as of November 28, 2022). The sharp drop in prices and the numerous scandals in the industry are now apparently causing institutional investors to reconsider their investments in cybercoins.
JPMorgan pulls back after bullish price target
At the beginning of 2021, JPMorgan analyst Nikolaos Panigirtzoglou wrote in a customer note that Bitcoin could replace gold as an “alternative currency” in the long term and then reach the $146,000 mark. However, the internet coin is currently a long way from this price target. And Panigirtzoglou is now also striking other tones. “What makes this new phase of crypto deleveraging, sparked by the apparent collapse of Alameda Research and FTX, even more problematic is the fact that the number of companies with stronger balance sheets that are able to invest in low-capital businesses and a high proportion of debt capital is decreasing,” it said recently in an analysis available to the news agency “Bloomberg”. Recent market events could push bitcoin as low as $13,000. “The argument to invest in crypto as a diversification died a while ago,” Panigirtzoglou told the agency.
The viability of the crypto market is questionable
“It has always been difficult to argue for the inclusion of cryptocurrencies, but the pressure on the industry has increased,” Fidelity strategist Salman Ahmed told Bloomberg. With the FTX bankruptcy, the question increasingly arises as to whether the crypto market is even viable, as the expert pointed out. It was only in February that the asset manager launched the Fidelity Physical Bitcoin ETP, an investment product for the European market that maps the Bitcoin price and, according to its own statements, is fully covered by the cryptocurrency. The stock is currently down more than 50 percent.
No gold alternative
Hani Redha, portfolio manager at the British investment company Pinebridge, also sees no future for cryptocurrencies in the portfolios of professional investors. “It has become clear that it will not find a place in institutional asset allocation,” the market watcher told the agency. “There was a time when it was viewed as a potential asset class that every investor should have in their strategic asset allocation, and that’s completely off the table.” BlueBay Asset Management’s Mark Dowding, meanwhile, says it’s long overdue for cryptocurrencies to fall out of institutional investors’ stashes. “It should have been clear that an industry that produces nothing, burns money and offers tempting returns was doomed,” said the expert. The assumption that bitcoin will replace investments in gold as a “safe haven” has also been refuted in the long term.
Binance wants to save crypto industry with relief fund
On the other hand, Changpeng Zhao, head of the crypto exchange Binance, who also had a hand in the debacle about competitor FTX, dares to try a rescue. At the beginning of November, the trading platform announced that it wanted to take over the struggling competitor, only to back down the next day. Shortly after the bankruptcy of FTX, Zhao then wrote on his Twitter profile that they wanted to reduce the negative consequences of the collapse of Bankman Fried’s company with an aid fund. “In order to reduce further cascading negative impacts from FTX, Binance is forming an Industry Recovery Fund to help projects that are otherwise strong but are facing a liquidity crisis,” the executive said. “Crypto will not go away. We are still here. Let’s rebuild.”
Also welcome other industry players with cash who want to co-invest.
Crypto is not going away. We are still here. Let’s rebuild.
– CZ ? Binance (@cz_binance) November 14, 2022
Zhao also insisted on shooting Bankman-Fried. When asked by a Twitter user whether the fund also applies to FTX, the Binance boss replied: “Liar or cheating are never considered strong projects. This is for other projects in the ecosystem.”
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