November 30, 2022

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Margin Call Flow Warns

Margin Call Flow Warns

Analysts at JPMorgan are warning that the ongoing collapse of one of the world’s largest cryptocurrency exchanges, FTX, could lead to “a flow of margin orders.”

Given the size and interdependence of FTX and Alameda Research with other entities in the crypto ecosystem, including DeFi platforms, there is likely to be a flood of margin calls, as well as downgrades and bankruptcies for crypto companies. This may be similar to the market we saw earlier this summer after the collapse of Terra, JPMorgan strategist Nick Panigirtzoglou wrote.

Cryptocurrency markets lost more than $500 billion in the weeks following the collapse of Terra.

FTX CEO Sam Bankman-Fried is said to have loaned NOK 100 billion of client money to his own company. Panjerzoglu sees this amount as large enough to create a similar wave of downsizing seen during the collapse of Tira.

“The downgrade is likely to continue for two weeks, unless a rescue of Alameda Research and FTX is found very soon,” says the note to JPMorgan.

Organizational pressure will increase

What is certain, according to Panigirtzoglou, is that the collapse of Alameda Research and FTX will increase demands for transparency in crypto companies from both investors and regulatory authorities.

Here, the strategist in particular notes that companies will likely have to provide more comprehensive information about their balance sheets in the future. This is to protect customer assets, reduce asset concentration and improve risk management.

On the positive side, the JPMorgan strategist believes that “the decline in the crypto market is likely to be less brutal than what happened after the Terra crash because the market is already relatively immobile.” Panigirtzoglou further wrote that a 25 percent drop is likely in the crypto market – meaning Bitcoin will drop to around $13,000.

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