Cryptomarket ‘Contagion’ Seems to Have Ended – Citi

In the last few weeks there has been a series of negative news that has disturbed the cryptomarket. Several companies and exchanges in the sector paralyzed withdrawals from their customers, declared bankruptcy, became insolvent, laid off employees en masse and needed bailouts.

However, it seems that this “contagion” triggered by the collapse of the TerraUST (UST) stablecoin and the LUNA cryptocurrency, which affected numerous organizations, has already ceased for the time being. That’s what Citi said in a recent report signed by analyst Joseph Ayoub.

Citi says the worst is over

As Citi highlighted, some indicators suggest this:

“Either way, we believe that fears of contagion from the crypto market may have peaked. The fact that stETH has returned to parity is indicative of declining liquidity stress and a vector of recent ETH performance.”

But that’s not all that suggests to Citi that the worst is over. According to Ayub, stablecoin outflows have been contained and ETF outflows have also become more stable. This suggests that the stress may have passed.

Also according to him, the “acute deleveraging phase” has also come to an end. Likewise, “the award of the Coinbase is returning to historical levels (although it is still discounted)”, which may indicate new entrants or a new demand from institutions.

CryptoMarket ‘Too Small’ to Affect Economy

Finally, Citi said that the crypto market is still too small and isolated to have spillover effects on the broader financial markets or the global economy:

“Crypto remains small to significantly affect financial markets. With a market cap of $990 billion versus $32 trillion for the US equity market, stress on cryptos is unlikely to impact the broader market as they deal with similar challenges (growth, inflation and monetary tightening).”

With regard to greater institutional investment in crypto, Citi stated that most major financial firms are waiting for more regulatory clarity. Or else, they are still at an early stage of exploring cryptocurrency investing.

“So we don’t think that, by itself, cryptocurrency market difficulties will spread to wider contagion.”