By
Bhushan Akolkar
April 12th, 2024
Citi believes that crypto contagion has peaked, and according to its new report, a number of indicators suggests so.
According to a Thursday research report by Citi, crypto contagion may have ended, at least, for the time being. The report was issued in a note by one of Citi’s analysts, Joseph Ayoub. And it does well to douse the fears of investors regarding whether or not, the contagion will extend into the broader financial markets.
Could Crypto Contagion Seep into Traditional Financial Markets?
Without a doubt, there have been fears in this regard as the crypto market recently saw one of its worst downturns in history. The downturn led to a host of top crypto firms filing for bankruptcy, while other ones who had exposure to them also got hit in the process.
However, the new Citi report has now issued some sort of verdict on the subject saying it is highly unlikely that the contagion gets into the broader financial markets. The reason is that Citi believes the size of crypto is relatively small, compared to other asset classes. Ayoub said in part:
“We believe most mainstream financial firms are waiting for further regulatory clarity or are still at an early stage of exploring crypto investing. We therefore don’t think, by itself, the crypto market travails will spillover into broader contagion.”
Positive Signs
The belief that the contagion is over might not be just mere guesswork though. This is because there are certain indicators that Ayoub says may be signalling that the contagion has peaked already.
First and foremost, Ayoub mentions the price of staked Ethereum (ETH-USD), also known as stETH. According to the note, stETH’s discount to ether has now narrowed closer to parity. As per the note, this goes to show that “the acute deleveraging phase has now finished.”
Recall that in mid-July, former top crypto lender Celsius filed for bankruptcy. At the time, it held over 410K stETH, and that sparked more fears of liquidation, causing selloffs to happen. Ayoub claims that the move was responsible for moving “the stETH price further away from par.”
Another sign that the bank highlights is that stablecoin outflows are now curtailed. And recently, outflows from crypto exchange-traded funds (ETFs) have also stabilized.