Bitcoin ‘Back With A Vengeance’ – The Crypto Liquidity Crisis Is Over, Citi Report Suggests

Bitcoin may be seeing the proverbial light at the end of the tunnel, at least that’s what a major American multinational investment bank is saying in its latest findings.

More evidence suggests that the liquidity crisis in the broader cryptocurrency markets may have seen its worst. This is the conclusion proposed by Citi Bank, in its latest study.

Since peaking last November, Bitcoin’s value has dropped by more than half, sending the entire cryptocurrency market plummeting.

Both Terra (LUNA) and TerraUSD (UST) have witnessed steep falls, including Bitcoin, which has spooked a large number of investors.

Who would have predicted that when both cryptocurrencies were at their best a month ago, they would experience such a painful crash?

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Bitcoin feels the pain disappear

Investors pulled their money from the crypto market as a result, causing Tether (USDT) to lose its link to the dollar and forcing some of the biggest bitcoin companies to lay off significant numbers of employees.

The worldwide economic fallout exacerbated the problem, resulting in a drop in token prices and a liquidity crisis. Nevertheless, there are now many indications that the worst part is over.

Image - Bleeping Computer

Citi believes that the crypto markets are too small and relatively isolated to create a ripple effect on the financial sector or the economy as a whole, but they can still influence investor sentiment. The bank’s assessment indicates that the fear of contagion has probably peaked, at least temporarily.

Financial analysts recently told CNBC that they are not concerned about the full impact of crypto on the broader US economy due to the fact that crypto is not tied to debt.

According to University of Toronto economist Joshua Gans:

“People rarely use crypto as collateral for real-world obligations. Without it, this is just paper loss. Therefore, this issue is low on the list of financial concerns.”

“Stablecoin and ETF outflows have begun to show signs of stabilization, and Coinbase’s discount has also normalized,” Citi writes.

Crypto total market cap at $1.06 trillion on the daily chart | Source: TradingView.com

Not a dent to the economy

At $990 billion compared to the US stock market’s $34 trillion, crypto is still too small to significantly affect financial markets, Citi’s analysis pointed out.

This assessment is comparable to that of Diego Vera of Buda.com, who stated that Bitcoin has seen many cycles recently and has always returned “with a vengeance.”

Sam Bankman-Fried, CEO of FTX, admits the disaster was “significantly worse” than he expected. According to a July 7 Reuters report, the 30-year-old billionaire feels the worst of the liquidity crunch has passed despite the ongoing crypto winter.

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Featured image from The Coin Republic, chart from TradingView.com