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Citi Report: The Bitcoin & Crypto Liquidity Crisis Is Over

 


Bitcoin could see the proverbial light at the end of the tunnel, at least that's what a major American multinational investment bank says in its latest findings. Several indicators show that the worst of the liquidity crisis in cryptocurrency markets in general may be behind us. This is the conclusion reached by Citi Bank in its most recent study.


Since its peak in November last year, Bitcoin's value has fallen by more than half, causing the entire cryptocurrency market to plummet.


Both Bitcoin and other cryptocurrencies have seen rapid declines that have shocked many investors. The best example is Terra Luna and Terra's stablecoin UST, which have become almost "worthless". Months ago, who would have thought that both cryptocurrencies would experience such a painful crash?


The bitcoin pain is fading

Investors then withdrew their funds from the crypto market, causing Tether (USDT) to lose its peg to the dollar and forcing some of the largest bitcoin companies to lay off a significant number of employees.


The global economic fallout exacerbated the problem, leading to a drop in token prices and a liquidity squeeze. However, there are now numerous signs that the worst is over.


Citi believes that crypto markets are too small and relatively isolated to have an avalanche effect on the financial sector or economy, but they can still impact investor sentiment. The bank's assessment suggests contagion fears have likely peaked, at least temporarily.


Financial analysts recently told CNBC that they are not concerned about the impact of cryptocurrencies on the US economy in general since cryptocurrencies are not associated with debt. According to University of Toronto economist Joshua Gans:


“People rarely use cryptocurrencies as collateral for debt in the real world. Otherwise it's just a waste of paper. Therefore, this issue is not on the list of economic concerns.”


“Stablecoin and ETF outflows are showing early signs of stabilization, and Coinbase's discount has also returned to normal,” Citi said.


No threat to the economy

At $990 billion compared to the US stock market's $34 trillion, cryptocurrencies are too small to significantly impact financial markets, according to Citi's analysis.


This assessment is similar to that of Buda.com's Diego Vera, who noted that Bitcoin has historically gone through numerous cycles and has always 'recovered with force'.


FTX CEO Sam Bankman-Fried admits the disaster was "substantially worse" than he anticipated. According to a Reuters report on July 7, the 30-year-old billionaire believes the worst of the liquidity turmoil is over despite the ongoing crypto winter.


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