JPMorgan Team Says Crypto Markets Face “Cascade” Of Margin Calls


(Bloomberg) – Crypto markets are facing weeks of deleveraging following the fallout from the crisis on digital asset exchange FTX.com, a period of turmoil that could see Bitcoin plummet to $13,000, according to strategists at JPMorgan Chase & Co.

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A “margin call cascade” is likely underway given the interaction between the exchange, its sister trading firm Alameda Research, and the rest of the crypto ecosystem, a team led by Nikolaos Panigirtzoglou wrote in a note. .

“What makes this new phase of crypto deleveraging induced by the apparent collapse of Alameda Research and FTX more problematic is that the number of entities with stronger balance sheets able to rescue those with weak capital and high leverage is decreasing” in the crypto sphere, the team said on Wednesday.

Digital asset investors are still coming to terms with the rapid collapse of FTX.com and concerns surrounding Alameda Research, both founded by 30-year-old Sam Bankman-Fried. There are fears that the potential bankruptcy of FTX.com could lead to a contagion that destroys other crypto outfits.

Strategists have pointed to Bitcoin’s cost of production as a way to calibrate how low it can drop further. The cost of production is primarily the electricity needed to run the powerful computers that run the Bitcoin network.

“At this time, this cost of production stands at $15,000, but is likely to revisit the low of $13,000 seen over the summer months,” they said.

The $13,000 level is where other tipsters also consider a possible floor. David Adams, portfolio manager of the King River Digital Assets Fund, said that’s the price he’s asking alongside a further drop in so-called alternative tokens. He added that “we will start to see value” at such levels.

Hayden Hughes, managing director of social trading platform Alpha Impact, listed $13,800 as potential support. Meanwhile, the history of previous routs suggests Bitcoin would need to drop below $13,000 to begin to match the magnitude of these drawdowns, according to data compiled by Bloomberg.

Bitcoin broke four days of declines, including a nearly 16% drop on Wednesday, to add around 6% to hit $16,690 at 7:53 a.m. London Thursday.

Bankman-Fried told investors at FTX.com that without a cash injection, the company would have to file for bankruptcy, according to a person with direct knowledge of the matter.

The episode is the latest imbroglio to descend on virtual coins, exacerbating steep losses this year caused by a wilting of speculative ardor under the sobering influence of aggressive interest rate hikes.

The last major upheaval took place in May, when stablecoin TerraUSD and its sister token Luna imploded. The JPMorgan team said the impact on the overall crypto market value this time around would likely be smaller, as the TerraUSD episode has already triggered a pullback in risk taking.

–With the help of Akshay Chinchalkar.

(Updates with more views on Bitcoin from the seventh paragraph.)

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