Dhe bankruptcy of the crypto exchange FTX continues to spread at the beginning of the week. On Monday, announcements by Binance boss Changpeng Zhao, called “CZ” for short, caused price gains. Bitcoin rose by almost $1000 to more than $16,700, Ethereum rose from around $1185 to around $1260 most recently. “CZ” had announced that it wanted to set up a fund to save the industry. This should avoid a domino effect from the FTX bankruptcy and support “strong projects” that ran into liquidity bottlenecks. Even the price of Solana, which is seen as closely related to the FTX empire and which had fallen by around two-thirds in the past week, recovered from around $12 to $15.
Why was there often no further information about the fund, such as how large it should be. Meanwhile, Zhao invited other crypto companies to participate in this fund. In addition, “CZ”, which is actually better known for being at odds with regulators, called for clear regulations for the industry at the G20 meeting in Bali. The industry has the common task of protecting consumers. However, this is not the sole task of the regulatory authorities. Rather, the industry must increase transparency – precisely the lack of it is one of the accusations often made against Binance. On the other hand, Zhao called for Indonesia to reform crypto taxation and make licensing easier.
Following recent events, many wealth managers are threatening to steer clear of crypto assets. In this respect, Zhao’s current demands are at least understandable. It has become clear that these will not find a place in institutional asset allocation, Hani Redha of Pinebridge Investments told Bloomberg news agency. There was a time when they were viewed as a potential asset class that every investor should have in their strategic asset allocation. This is now “completely off the table”.
The collapse of FTX raises questions about the viability of the crypto ecosystem, Salman Ahmed, chief investment strategist at mutual fund Fidelity International, told Bloomberg. It has always been difficult to find arguments for the inclusion of cryptocurrencies. Now the system has come under even more pressure.
A year ago this sounded different. JPMorgan strategist Nikolaos Panigirtzoglou attributed a theoretical price of $146,000 to bitcoin over the long term by displacing gold. As recently as April, 42 percent of crypto hedge funds predicted a Bitcoin price of $75,000 to $100,000 by the end of the year. Last week, Panigirtzoglou said Bitcoin could revisit summer lows of $13,000. The argument to invest in cryptocurrencies for diversification has been dead for a while.
For Mark Dowding, chief investment strategist at BlueBay Asset Management, the argument that bitcoin can become a digital version of gold doesn’t hold water. It is only a matter of time before more investors jump out and crypto prices collapse again. It should have been clear that an industry that produces nothing, burns money and offers enticing returns is doomed, Dowding said.
Exchange AAX suspends withdrawals
The fact that the events did not affect other assets also suggests that the alleged associations with other asset classes – one time it was gold, then risky assets again – have either been loosening or were random statistical patterns. The correlation between bitcoin price and the S&P 500 index has fallen to its lowest level this year, and the Nasdaq index to a two-year low, according to Bloomberg.
