The collapse of FTX may extend crypto winter to the end of 2023, according to a monthly outlook report by U.S.-based crypto exchange Coinbase dated Nov. 15.
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- “The drama around FTX upset what was otherwise an emerging positive setup for crypto as the significant deleveraging in May and June 2022 had left few if any large marginal sellers in this space. But the recent market turbulence and absence of large buyers has left the asset class vulnerable, potentially extending an already long crypto winter,” analysts David Duong and Brian Cubellis wrote in the report.
- Coinbase said that poor liquidity conditions could last until “at least” the end of 2022 with much also dependent on the U.S. Federal Reserve’s moves on interest rates.
- The U.S. Fed has been raising interest rates since March to tame inflation, raising rates from almost zero to a 15-year high of 3.75%-4%. The Fed is likely to continue to increase rates until it achieves its target of a 2% inflation rate.
- The U.S. consumer price index, a key inflation indicator, was up 7.7% in October from a year earlier, less than an expected 7.9%, and down from 8.2% in September, indicating a slowdown in inflation.
- Stablecoin dominance has risen to a “very high” 18% of total crypto market capitalization, which dropped to US$800 billion as of Nov. 12 from US$1 trillion at the end of October, Coinbase said.
- The report also noted that the industry is likely to see “second order effects” following the FTX debacle, as more information emerges on which crypto businesses have exposure to FTX or Alameda.
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