"FTX is Lehman, Genesis is Deutsche Bank, Coinbase is JPM"
Is the crisis in crypto like the financial crisis of 2008? No, it's not. This time, there will be no bailouts by central banks. But there are certainly parallels.
In the financial crisis, the first bank to fall was Bear Stearns. In crypto terms, the comparator is Three Arrows Capital, the Singapore-based crypto hedge fund that was forced to liquidate its assets and file for bankruptcy in July. Three Arrows was the first meltdown and it paved the way for the crises to come - there are suggestions that Alameda Research, for example, lost money when Three Arrows blew up and had to be bailed out by FTX as a result.
Three Arrows' implosion was localized, however, compared to the blow-up of FTX and Alameda. Like the collapse of Lehman Brothers, the collapse of FTX has shaken the market to the core. FTX was a key player in crypto and the dominant exchange for derivatives. It was a focal point and one of the institutions that everyone thought was unassailable. It was the last place anyone thought would go.
These leaves the door open for crises of confidence about other players in the market. Today, that's been Genesis, the lending partner of crypto exchange Gemini. Genesis has suspended redemptions and new loan originations after a rush of withdrawal requests. This may prove temporary, but like Deutsche Bank before the financial crisis, Genesis has been one of the most aggressive players. It's a big lender and a big OTC derivatives trader and as the market is rocked, it's likely to take some big hits.
So, which is the safest place to work in crypto right now? I'd suggest Coinbase. Coinbase is unlikely to rescue any of its contemporaries in the way that JPMorgan rescued Bear Stearns, but it's one of the better run players in the industry. Coinbase is a public company, it's listed in the US, and it has quarterly accounts compiled by a major accountancy firm. There's a limit to how much leverage it can take.
Coinbase is what people thought FTX was. And when the dust has settled, I would bet that it will be one of the major crypto players that's still standing.
Andrew Ball is a pseudonym
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