Is the FTX contagion real? Multiple “trading firms will be wiped out”

Sahana Kiran
Source – Unsplash

It is quite clear that the crypto industry did not learn its lesson from the downfall of Terra. This Do Kwon-led project caused such havoc that multiple platforms had to shut shop following exposure to the Terra collapse. It seems like FTX could be taking a similar route.

In a recent announcement, Multicoin Capital, a prominent crypto venture firm told its investors to expect more downfalls. Similar to an array of firms, Multicoin Capital regretted pouring their funds and trust into FTX. Multicoin managing partners Kyle Samani and Tushar Jain affirmed that they “had too many assets on FTX.”

The firm also warned its investors noting how the downfall of FTX caused the fund down by 55 percent this month alone. In addition to this, Multicoin also believes that the market is expected to get worse before it could rebound. Along with this, the firm expects to see more platforms failing. The letter said,

“We expect to see contagion fallout from FTX/Alameda over the next few weeks. Many trading firms will be wiped out and shut down, which will put pressure on liquidity and volume throughout the crypto ecosystem. We have seen several announcements already on this front, but expect to see more.”

However, the firm believes, the builders as well as developers in the industry would help the market get back on its feet.

In the meantime, the former head of risk at Credit Suisse believes otherwise.

Was FTX the last prominent massacre in the market for this season?

As mentioned earlier, CK Zheng who was previously working at Credit Suisse suggested that FTX was the last big player to crash this season. He said,

“I’m sure there are multiple players that will probably get impacted […] in the following weeks, you know, small, large — but I would say this one in terms of magnitude will be one of the larger ones before the whole cycle really ends.”

Zheng further noted, ‘When LUNA blew up a few months ago, I expected a significant amount of deleveraging process to kick in,’ and he, therefore, made the assumption that FTX would be the last of the major companies to get “cleaned up” in this cycle.

While it’s hard to predict the direction of the market, investors are urged to tread carefully.