JPMorgan Sees Wave of Crypto Deleveraging From FTX’s Woes

JPMorgan strategists said bitcoin's production cost could be an indicator of the market bottom.

AccessTimeIconNov 10, 2022 at 3:47 p.m. UTC
Updated May 9, 2023 at 4:02 a.m. UTC
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The crypto deleveraging sparked by the apparent collapse of crypto exchange FTX and its sister company Alameda Research will be “more problematic” than earlier ones because there’s a lack of strong entities and balance sheets that could come to rescue, JPMorgan strategists led by Nikolaos Panigirtzoglou said in a note to clients Wednesday.

“Given the size and interlinkages of both FTX and Alameda Research with other entities of the crypto ecosystem including DeFi platforms it looks likely that a new cascade of margin calls, deleveraging and crypto company/platform failures is starting similar to what we saw last May/June following the collapse of Terra,” JPMorgan’s strategists said in their note to clients. DeFi, or decentralized finance, is an umbrella term for a variety of financial applications carried out on blockchains.

JPMorgan said investors can potentially look for a bottom in bitcoin (BTC) pricing through its production cost, which has sometimes acted as a floor. The current production cost is about $15,000, though it's likely to revisit the $13,000 it hit in recent months, implying a decline of around 25% from here, the bank noted.

On the optimistic front, JPMorgan said the hit to crypto’s overall market cap may be less than after Terra as deleveraging has been occurring.


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