As if the recent FTX implosion wasn’t enough, news has emerged that crypto firm Genesis Financial Capital decided to temporarily suspend loans and redemptions. What might this signal for the marketplace and could it actually be time to think about buying in?
The past few weeks have been nothing less than harrowing in terms of cryptocurrency price movements. The recent downfall of FTX as a trading platform sent shockwaves throughout the marketplace and caused many investors to run for the digital hills. It now seems as if optimism is a commodity in short supply, and for good reason. As always, Ron at Crypto Lists will provide his personal perspective below.
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Assessing the landscape
Genesis Financial Capital is the latest crypto firm to be infected by the meltdown of FTX as a viable entity. They recently announced that all new loans and redemptions will be suspended for an indefinite amount of time. Considering the fact that Genesis held $2.8 billion dollars in active loans in 2022 Q3 (1), this is certainly mo minor incident.
Let’s take a look at the rationale behind this move before discussing why it could actually be a good time to capitalize on such perceived market volatility.
A Prudent Step or Smoke and Mirrors
Genesis claims that their recent move was in direct response to crypto price fluctuations alongside a lack of confidence following the FTX debacle. However, we should also note that this strategy does not currently impact the daily trading operations of Genesis.
From a technical perspective, this makes a fair amount of sense. Assuming that Genesis investors had capital locked into FTX assets, it’s not unreasonable to assume that withdrawal requests that exceeded Genesis’ liquidity might have caused such a firewall to be activated. However, its important to note the italicized word currently in the previous paragraph.
Some financial firms are notoriously hesitant to discuss the extent of their exposure to negative external events and how these may impact their internal balance sheets. The main question here involves whether or not the custodians at Genesis are being fully transparent to their clients. Considering the acidic taste left in the mouths of those involved with FTX, such a stance seems perfectly reasonable.
Digesting the Big Picture
Although the actions by Genesis have resulted in further ripples through the crypto ecosystem, things might not be as bad as they appear at face value. We need to remember that this firm is not nearly as large as FTX was during its heyday.
For instance, Tether recently confirmed that it was not exposed whatsoever to Genesis (2). This chances are high that other altcoins will soon make similar statements. The main point here is to quell any rumors that might otherwise cause a further withdrawal of liquidity from the markets. So, it may be better to view the actions taken by Genesis as a hiccup more than a crippling case of heartburn.
Following Institutional Investors
Unlike average crypto traders, institutional investors normally have access to proprietary news that is simply not available to the general public. This is probably the reason why they will not be scared away from the current climate anytime soon.
In fact, there’s no doubt that some will be looking to take advantage of the very same fears that have crippled large firms in recent times. We are not necessarily claiming that they will begin to embrace an “all-in” mindset. It’s instead more likely that they will seek to reevaluate their short-term positions until the market infrastructure stabilizes.
As a result, large investors might soon begin to swoop in on the lows and take advantage of prime buying opportunities between now and Q4. The only real question is how long it will take for the crypto markets to absorb the losses posted by FTX and how this will impact levels of liquidity in the near future.
All Eyes on the Horizon
It’s clear that 2022 has been a rough year for the cryptocurrency markets. Actions by FTX and Genesis confirm this unfortunate observation. Still, it’s crucial to remember that the bulls will return once a tangible level of support emerges. Like any other type of asset, prices are always cyclical in nature. This is why we should be looking ahead as opposed to wallowing in the current mire. The odds are high that institutional traders have already begun to adopt this mindset. As always, Crypto Lists will keep you in the loop as the story develops.