Recovery of the crypto market depends on how many companies go bankrupt

The recovery of the crypto market will depend on how many companies go bankrupt, as stated by Cumberland.

According to the company, the speed of recovery of digital assets will depend on “the speed with which assets can be transferred from companies with problems to safer companies”.

Cumberland noted that the assets owned by these distressed companies will have to be liquidated. After all, it will be necessary to sell the assets to offset the outstanding liabilities.

Bankruptcy will dictate recovery

According to the company, this selling dynamic is having a big impact on cryptocurrency prices:

“Uncertainty around the size and timing of these asset sales is hanging over the market.”

Furthermore, the company highlighted that after 3AC and Celsius, a number of companies in the cryptocurrency industry are under heavy pressure.

“All this shows that the market is full of companies ‘to go bankrupt’. So as long as the market doesn’t clean up the excesses, nothing will go up,” she said.

As Cumberland pointed out, any market recovery depends on this “cleaning up”.

The company highlights that this liquidation and insolvency scenario reduces liquidity and increases market volatility.

Cumberland, part of the DRW family of companies, is a trading company with over 25 years of experience working in financial markets.

Similar concerns

QCP Capital, a cryptocurrency trading company in Singapore, shared similar concerns.

According to the company, the credit crunch in the crypto sector is not over yet, with more potential liquidations on the horizon. The company went on to say that the details of Babel’s insolvency, for example, have yet to come to light.

“Miners constitute a large part of Babel’s clientele,” said QCP.

The company emphasized that an eventual revelation that Babel is in default would cause cash in the market. That’s because miners would be forced to reduce inventory for working capital.