Bitcoin Returns With Vengeance – Crypto Liquidity Crisis Over, Citi Report
Bitcoin may see the proverbial light at the end of the tunnel, at least that’s what a US multinational investment bank says in its latest findings.
Numerous evidence suggests that the liquidity crunch in the broader cryptocurrency markets may have seen the worst. This is the conclusion that Citibank proposed in its recent study.
Since its peak in November last year, the value of Bitcoin has more than halved, causing the entire cryptocurrency market to plummet.
Terra (LUNA) and TerraUSD (UST) both saw sharp declines, including Bitcoin, which worried a large number of investors.
Who would have expected that when both cryptocurrencies were at their best a month ago, they would face such a painful crash?
Suggest reading | Improving Retail Demand for Cryptocurrencies, Says JPMorgan — Is the Coast Clear?
Bitcoin’s feeling of pain disappears
As a result, investors have withdrawn their funds from the cryptocurrency market, causing Tether (USDT) to lose its peg to the dollar and forcing some of the largest Bitcoin companies to lay off a large number of employees.
The global economic consequences have exacerbated the problem, leading to a drop in token prices and a liquidity crunch. However, there are now many indications that the worst part is over.
Image - Bleeping Computer
Citi believes that the cryptocurrency markets are too small and relatively isolated to have a multiplier effect on the financial sector or the economy as a whole, but they can nonetheless affect the mood of investors. The bank’s assessment suggests that contagion fears have likely peaked, at least temporarily.
Financial analysts recently told CNBC that they are not interested in the full impact of cryptocurrencies on the broader US economy due to the fact that the cryptocurrency is not tied to debt.
According to University of Toronto economist Joshua Gans:
People rarely use cryptocurrencies as collateral for commitments in the real world. Without it, these are just paper losses. Therefore, this issue ranks low on the list of economic concerns.”
“Stablecoin and ETF outflows are beginning to show signs of stabilizing, and Coinbase’s opponent is back to normal,” Citi said.
Crypto total market cap at $1.06 trillion on the daily chart | Source: TradingView.com
It does not affect the economy
Citi’s analysis indicated that at $990 billion compared to the $34 trillion US stock market, crypto is still too small to make a significant impact on financial markets.
This assessment is similar to that made by Diego Vera of Buda.com, who stated that Bitcoin has experienced many cycles in the past and has always rebounded with a “revenge.”
Sam Bankman-Fried, CEO of FTX, acknowledges that the disaster was “much worse” than expected. According to a Reuters report released on July 7, the 30-year-old billionaire feels that the worst of the liquidity turmoil has dissipated despite the ongoing crypto winter.
Suggest reading | Crypto donations to boost California politicians’ chance of winning elections
Featured image from The Coin Republic, chart from TradingView.com