Bitcoin may see the proverbial light at the end of the tunnel, at least that’s what a major American multinational investment bank is saying in its latest research.
Multiple lines of evidence indicate that a liquidity crunch could be worst in the broader cryptocurrency market. Citibank came to this conclusion in its recent study.
From its peak in November last year, Bitcoin’s value has more than halved, causing the entire cryptocurrency market to collapse.
Both Terra (Luna) and Terra USD (UST) have witnessed rapid declines along with Bitcoin, which has alarmed a large number of investors.
Who would have predicted that a month ago when both cryptocurrencies were at their best, they would face such a painful crash?
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Bitcoin makes pain disappear
Investors pulled their funds from the crypto market, causing Tether (USDT) to lose its peg to the dollar and forcing some of the largest bitcoin companies to lay off significant numbers of employees.
The global economic fallout has exacerbated the problem, causing token prices to plummet and liquidity crunches. However, there are now numerous indications that the worst part is over.
Image - Bleeping Computer
Citi believes that crypto markets are too small and relatively isolated to make a major impact on the financial sector or the economy as a whole, but they can still affect investor sentiment. The bank’s assessment indicates that contagion fears have peaked, at least temporarily.
Financial analysts recently told CNBC that they are not concerned about the full-blown impact of crypto on the broader US economy because crypto is not linked to debt.
According to Joshua Gans, an economist at the University of Toronto:
“People rarely use crypto as collateral for obligations in the real world. Other than that, they are merely paper losses. Therefore, this issue is low on the list of economic concerns.”
“Stablecoin and ETF outflows are beginning to show signs of stabilization, and Coinbase’s discount has also returned to normal,” Ctt.
Crypto total market cap at $1.06 trillion on the daily chart | Source: TradingView.com
Not a dent for the economy
At $990 billion compared to the $34 trillion U.S. stock market, crypto is too small to significantly impact financial markets, Citi’s analysis noted.
This assessment is comparable to Buda.com’s Diego Vera, who said that Bitcoin has seen numerous cycles in the past and has always bounced back “with a vengeance”.
Sam Bankman-Fried, CEO of FTX, admitted that the crash was “much worse” than he expected. According to a July 7 Reuters report, the 30-year-old billionaire thinks the liquidity turmoil has gotten worst despite the ongoing crypto winter.
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Featured image from The Coin Republic, chart from TradingView.com