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The Tell: FTX’s Chapter 11 bankruptcy unlikely to cause financial-market contagion, Citi says

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The swift unraveling of cryptocurrency exchange FTX, which culminated in a Chapter 11 bankruptcy announcement on Friday, is raising questions about whether it might produce a spillover into broader financial markets.

Read: FTX filed for bankruptcy. Here’s what account holders need to know about this ‘very messy and complex bankruptcy case.’

On Monday, for instance, the chief executive of rival exchange Crypto.com, Kris Marszalek, tried to downplay contagion fears, CNBC reported. Meanwhile, a team at Citi said on Friday that the cryptocurrency market’s size is one big reason why FTX’s troubles are unlikely to morph into something much bigger.

“We believe cryptocurrency markets remain too small and too siloed to cause contagion in financial markets, with an $890 billion market cap in comparison to US equity’s $41 trillion,” said analyst Joseph Ayoub, Alex Saunders, and others at Citi.

See also: You need to understand the FTX debacle even if you have no investments in crypto

Still, Ayoub told CNBC on Friday that he sees “a serious risk of broader contagion to the ecosystem itself” and, “within cryptocurrencies, it’s unclear as to how far and how deep this goes.”  

In a note released Friday, Ayoub and his colleagues wrote that “over four years, FTX raised $1.8 billion from venture capital & pension funds. This is the primary way financial markets could suffer, as it may have further minor implications for portfolio shocks in a volatile macro regime.”

On Monday, calm returned to the cryptocurrency market, with the price of Bitcoin
BTCUSD,
+0.96%

up 0.8% at $16,508. Meanwhile, U.S. stocks
SPX,
-0.11%

DJIA,
+0.12%

were mixed in morning trading while Treasury yields shot higher, led by the policy-sensitive 2-year rate
TMUBMUSD02Y,
4.428%
.

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