Bank of America (BofA) downgrades one of the largest surviving Bitcoin exchanges to neutral. The events around FTX were influential in his decision.
FTX collapse hits one of the biggest Bitcoin exchanges in the market
Events around FTX in November put other centralized exchanges, including Coinbase, in jeopardy. According to Bank of America, Coinbase does not appear to be “another FTX danger” as it has $5 billion in cash on hand and only $15 million in deposits on the FTX platform. In addition, Coinbase is preparing to grow its market share with the disappearance of one of its biggest competitors. However, BofA, one of the largest banks in the USA, took the opposite side to Coinbase, citing the chaos in the market.
The bank downgraded Coinbase from “Buy” to “Neutral” on November 18. It also updated its price target from $77 to $50.
There are three headwinds behind this decision, according to the bank
lack of confidence
Institutional transactions account for over 80% of the transaction volume on Coinbase. The main area of activity of the stock market was individual investors, which accounted for 76% of its net income since the beginning of the year. It means that individuals’ lack of trust in crypto can negatively impact the stock market. According to BofA’s statements:
Declining trust in the crypto ecosystem seems to reduce overall trading activity. Following the FTX news, transaction volumes skyrocketed, but we expect this to be short-lived as some users sell their funds and abandon crypto entirely, while others move their crypto to cold wallets.
Following the collapse of FTX, #Bitcoin investors have been withdrawing coins to self-custody at a historic rate of 106k $BTC/month.
This compares with only three other times:
– Apr 2020
– Nov 2020
– June-July 2022https://t.co/92aYVYU4Yt pic.twitter.com/em7CsDBWUf— glassnode (@glassnode) November 13, 2022
Delay of regulatory clarity
Bank of America also stated that the regulatory framework is not yet adequate. He said the passing was linked to the bankruptcy of FTX. According to the bank, future regulations will bring certain risks for the stock markets:
2023 was expected to bring some regulatory clarity for crypto, but as a result of the collapse of FTX, we think regulatory clarity may be delayed. We also think that any proposed/enacted regulation to prevent another FTX would likely be restrictive and/or expensive for exchanges.
The effects of bankruptcy may continue to spread throughout the market
With the bankruptcy of FTX, many projects from the Solana ecosystem, especially FTT, lost volume. It also ceases trading on crypto companies and exchanges linked to FTX. BofA says these effects will remain on the market for a while:
The risk of contagion and the wider repercussions of the FTX crash may continue… Coinbase CFO Alesia Haas said it may take a few more weeks to fully understand the full impact of this event, and that a meaningful and sustained drop in cryptocurrency prices (the sudden $10k Bitcoin price) will have a significant impact on Coinbase revenues. He says it will be an obstacle.
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