JPMorgan: Crypto Markets Face ‘Cascade’ of Margin Calls

  • The turmoil unleashed by the insolvency and subsequent bank run of FTX and Alameda Research could push the price of Bitcoin to $13,000.
  • The problem is that there are fewer companies financially strong enough to bail out the chip exchange and its sister company, the strategies claim.

For JPMorgan Chase & Co. analysts, the current crisis marked by high volatility observed in the cryptocurrency markets is as a consequence of a “margin call cascade.” This is due to the high interaction between the crypto exchange FTX, its sister company Alameda Research, and the rest of the crypto ecosystem.

A margin call is sent to investors to keep alerting them that their funds are below the minimum necessary for an open position. In the event of insufficient capital, the investor must add more funds to their account or close the position in order to reduce the required maintenance margin.

“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 low capital and high leverage is shrinking,” the team led by Nikolaos Panigirtzoglou said in a note.

The cataclysm caused by the collapse of FTX, after a report related to its financial status was released, has brought down the crypto market this week. Concerns have spread after Binance CEO Changpeng Zhao said he would drop out of the deal to bail out FTX, alleging mishandling of user funds.

Bitcoin Could Sink Further

The bank’s strategists base their forecasts on the behavior of the crypto market, taking as reference the cost of production of Bitcoin. This cost is measured in hashrate, that is, the necessary amount of electricity used in the equipment used to mine the cryptocurrency.

The production cost of BTC stands at $15,000, the strategists wrote. But they anticipate that this value could fall back to the low of $13,000, as seen last summer.

This level has been described by other analysts as a possible floor for the cost of production. This is believed by the portfolio manager of King River Digital Assets Fund, David Adams, who considers that the cost will reach $13,000 and altcoins will see further declines from now on.

Another who shares this view is Hayden Hughes, CEO of the social trading platform Alpha Impact. Although it places the potential production cost of Bitcoin at $13,800, it also suggests that the price of the digital currency could fall below $13,000, based on its history of fluctuations.

On Thursday at 10:04 (GMT-4) Bitcoin was holding at 17,539.35 with a loss of 0.87% in the last 24 hours, according to data from Coindesk.com. Meanwhile, Ethereum was trading at 1,274.50 with a recovery of 5.38% during the day.

On the Flipside

  • Now the fear among investors around the world is that the possible bankruptcy of FTX ends up totally collapsing Alameda Research, also owned by Sam Bankman-Fried. This could cause a cascading effect on other crypto companies, similar to what happened with Three Arrow Capital and Voyager.
  • If the rescue attempts of FTX promoted by Justin Sun, the crypto entrepreneur and founder of Tron, fail, and the company cannot obtain funds to stop the bleeding, it will inevitably go bankrupt. This is the view of Bankman-Fried himself, according to Bloomberg.

Why You Should Care

The JPMorgan team considers that the impact of the collapse of FTX, and perhaps Alameda Research, would be less damaging than the collapse of the algorithmic stablecoin TerraUSD. This is because there are fewer investors exposed to risk.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

Author

Santiago is a Venezuelan blockchain reporter specializing in economic and financial issues, with special emphasis on stablecoin trading as well as political and regulatory issues related to Latin America. Every day he reviews and analyzes movements in the crypto market to offer readers first-hand information that can help them make sound decisions in the exciting world of crypto.