February 9, 2023

Since the FTX debacle, crypto-related assets have been crushed. Crypto bears believe that a bubble has burst and that some sanity is slowly being restored to the financial markets. Maybe, but when fear and liquidity issues affect any financial asset, forced selling tends to push prices down further and faster than fundamentals alone.

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Bears who don’t like crypto fundamentals should watch for the end-of-fear surge that usually follows events like the FTX bankruptcy. Crypto assets will not go down in a straight line. never does anything

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With all the recent chaos, it’s still fair to ask what just happened. FTX founder Sam Bankman-Fried blamed a classic bank run. “There was a lot of leverage – more than I realized,” He tweeted on 15 November, “A run on the bank and a market crash eliminated liquidity.”

Bank Runs Aren’t Easy To Understand, But Thanks To Frank Capra’s Film, Everyone Knows More About Them it’s a wonderful life, Bailey Brothers Building & Loan acted in that film. Jimmy Stewart’s George Bailey tried to reason with his clients, telling them that his lender’s assets were essentially homes that couldn’t be quickly converted to cash.

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FTX, Bankman-Fried’s brokerage, was about $9 billion in liabilities before filing for bankruptcy. The assets side of its balance sheet had illiquid assets, including the so-called serum token Which could not be easily converted into cash without reducing the price.

Exactly how FTX found itself in this situation is up to the regulators and authorities. FTX did not respond to a request for comment about recent events or its balance sheet.

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Serum tokens have dropped from roughly 80 cents to 25 cents as a result. Bitcoin, the largest cryptocurrency, has also been caught up in all this, falling in value from around $20,000 to $16,000.

Those looking for a bitcoin boom may be disappointed. “Recent volatility in the cryptocurrency market has generated a long-term breakdown in bitcoin below key support near $18,000,” Katie Stockton, founder of Fairlead Strategies, wrote on Wednesday. She sees a drop in the price to around $14,000 in the coming months.

CappThesis founder Frank Cappeleri sees some technical trading support for bitcoin around $15,000, but like Stockton, he sees no reason for a big post-FTX bounce. Cappelleri noted some support for Coinbase Global stock (COIN) at $40, “which lines up with the low point of May,” he states. Baron’s. Coinbase is a crypto broker, similar to FTX, and its shares were caught in the same crypto shock as CryptoSquare.

Coinbase stock fell roughly from $75 on Monday to hit a post-FTX low of $40.68. It now sits at around $44. The selling pressure may end for now. (In this bank-run-like episode, Coinbase is actually the Bailey Brothers Building & Loan figure. Bailey was the victim of a run that started at a local bank.)

Traders looking to take advantage of market dislocations arising from non-fundamental selling pressure may want to look to Coinbase instead of the currencies traded on its platform.

Whether cryptocurrencies and brokerages are a good investment for the long term remains a hot debate. Cathy Wood of ARK Invest says that the value of bitcoin will $1 million each by 2030, Berkshire Hathaway Vice Chairman Charlie Munger Says Crypto mix of deception and illusion,

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The truth may lie somewhere in between.

write to Al Root at [email protected]