CK Zheng, the former head of valuation risk at Credit Suisse and now co-founder of crypto hedge fund ZX Squared Capital said that FTX will be the last giant to fall this cycle.
It has been reported that FTX’s fall was part of a “deleveraging process” that began after the COVID-19 pandemic and further accelerated after the fall of Terra Luna Classic (LUNC), formerly Terra (LUNA).
“When LUNA blew up a few months ago, I expected a huge amount of deleveraging process to kick in.”
However, before its collapse, FTX was the third largest crypto exchange by volume after Binance and Coinbase, according to him.
“I’m sure there are multiple players that will probably get impacted [...] in the following weeks, you know, small, large — but I would say this one in terms of magnitude will be one of the larger ones before the whole cycle really ends.”
The report said that on November 14, crypto exchange BlockFi admitted to having “significant exposure” to FTX and its affiliated companies. A day later, a Wall Street Journal report suggested it was preparing for a potential bankruptcy filing. A number of exchanges have also halted withdrawals and deposits this week, citing exposure to FTX, including crypto lending platform SALT and Japanese crypto exchange Liquid.
Likewise, on November 16, institutional crypto lender Genesis Global said it would temporarily suspend withdrawals citing 'unprecedented market turmoil.' The fate of these businesses are yet to be determined.
Zheng noted that moments like this are all normal signs of a lengthy, stressful crypto winter which “basically wipes out many of the weak players.” On a positive note, however, Zheng said that the FTX collapse is unlikely to shake institutional investor confidence, at least for those investing in blockchain technology and certain cryptocurrencies such as Bitcoin and Ethereum.
Thus, he concluded:
“For many of the institutional investors [...] as long as they think about the longer term, they think about how blockchain technology is going to advance in the future to help the financial industry [...] that’s still in place.”