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The collapse of Sam Bankman-Fried’s FTX exchange is likely to hasten the crypo market’s evolution to a less-concentrated structure resembling the one underpinning traditional currency markets, according to crypto trading firm Cumberland.
The firm, an offshoot of the Chicago-based trading giant DRW, tweeted on Monday that a few parties had dominated crypto spot trading and derivatives markets. But the bankruptcy of one of the world’s biggest crypto trading platforms could change that. Crypto’s future remains unpredictable, Cumberland noted, but its market structure might start to mirror that of “FX – a world where assets and capital aren’t parked on centralised exchanges.”
“The functions of custody, lending, settlement, clearing, and [most importantly] liquidity will be offered by an array of intermediary nodes and providers in an interconnected but non-interdependent web,” wrote Cumberland.
Bankman-Fried’s FTX empire filed for Chapter 11 bankruptcy on Friday, solidifying the meltdown of yet another centralised crypto player. Cumberland expects that the empire’s undoing will, by 2023, give rise to regulated entities that provide defined services. In carving out specific niches, the groups will partner with one another “to offer a full-service stack to end users,” according to Cumberland.
That structure would mimic traditional currency markets. In the foreign-exchange world, banks gather over-the-counter liquidity to offer their clients various services, said Cumberland.
Towards the end of the post, Cumberland compared FTX’s meltdown to the likes of Enron and Theranos. Even so, the cryptocurrency trading firm offered an optimistic outlook for the sector.
“FTX’s insolvency absolutely must be differentiated from the viability of blockchain technology,” wrote Cumberland. “These industry-defining events are usually the predecessors of market recovery.”
Crypto prices paint a grimmer picture, at least for now. Through Sunday, Bitcoin sank 23 per cent in its worst week of trading since mid-June, when crypto lender Celsius experienced a meltdown of its own. The largest cryptocurrency by market value touched $15,731 on Wednesday, its lowest price since November 2020.
Bitcoin rose around 1 per cent to $16,527 as of 9:43 a.m. in New York. It’s down about 75 per cent from a record high of around $69,000 reached last November.
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