As the FTX collapse shows, the shenanigans guarantee smooth and efficient contagion inside the crypto zone. But beyond it?
By Wolf Richter. This is the transcript of my podcast on Sunday, Oct 30, THE WOLF STREET REPORT.
Exactly a year ago, in November 2021, during peak crypto craziness, the market cap of all of the many thousands of crypto tokens combined, from bitcoin on down, hit $3 trillion globally. Today, the market cap is at about $850 billion, so that’s down by 72%. In other words, $2.1 trillion have vanished in 12 months.
All kinds of cryptos have imploded, some so-called stablecoins that are supposed to be pegged 1 to 1 to the US dollar, have collapsed overnight.
The collapse of the cryptos has triggered the collapse and bankruptcy of a number of crypto exchanges, crypto lenders, crypto hedge funds, crypto miners, etc.
It seems the fundamental principal in the crypto zone is that every firm must be deeply interconnected with other firms, each lending to the other, and lending to affiliated hedge funds that then make huge leveraged bets on cryptos, and they’re bidding up each other’s tokens. This, as I like to call it, makes for very smooth and efficient contagion.
They all went to heaven together until November 2021. And now they’re all going to heck together.
But where is the contagion to the broader market, to other asset classes, to banks, to other players in the economy?
FTX, Alameda Research, and affiliated companies imploded spectacularly…
