Crypto Week: The Future of the Market Depends on New Defaults

Discussions about the pricing of L1 Blockchain tokens that are designed to compete with Ethereum is a rather interesting subject. The development of such platforms in 2021  contribution greatly to the crypto market rally last year. One of the perspective tokens was Solana (SOL) that was closely associated with Sam Bankman-Fried, who was behind the infamous recently defaulted FTX, and his companies. SOL prices rose by a mad 21,000% from January through to November 2021. Such a generous yield attracted many to similar tokens. Now, as the market knows about his scheming, the valuation of such projects should not be compared to the SOL story.

Many infrastructure projects have lost a large sum of their market cap.: Solana lost 95%, Avalanche – 90%, Harmony – 96%, Near – 91%. Some perspective blockchain projects like Aptos are trying to stay afloat but it is unlikely that they will survive for a long time. Some of these projects, like Celestia Labs that has received capital from only a few venture investors,  have not yet been through Initial Coin Offering (ICO) The valuation of these investments in current circumstances are likely to be discounted amid the revaluation of the project itself. So, investors are likely to lose money.

Stablecoins continue to crash and burn.. Binance had to perform mandatory conversion of some stablecoins into its own native BUSD token this September and this hit other projects that issue stablecoins badly. This conversion pushed USDC capitalisation down by 20% to $42 billion. USDC managers are now calling on investors to convert USDT into USDC without any commissions to secure investors in “times of uncertainty”. Circle, a regulated fintech company that is behind USDC, has recently reported revenues of $274 million. That is two times less the amount the company should receive if it  invested its capital in short-term Treasuries as it declared it would do.

So there are many reasons for anxiety in the market now as liquidity has contracted dramatically and many crypto projects went bankrupt or had to scrap their ambitious plans. But there is an upside to  this as these bankrupt projects are not going to weigh on prices as they have made all possible efforts to sell their assets before going bankrupt. So, only new bankruptcies will be a threat for the crypto market now.

The bad news is that over one million retail crypto enthusiasts who were clients of FTX may leave the market forever after a complete loss of their money or even if their money is blocked for an uncertain period of time. The exodus of such a significant portion of retail investors after many institutional investors have left the market amid expensive borrowings, weaken risk appetite and great reputational damage could cause a very long correction.

Targets for BTC prices remain at $14,800 per coin after a possible recovery up to $20,000 per coin.