JPMorgan team says crypto markets face 'cascade' of Margin Calls

(Bloomberg) — Crypto markets are facing weeks of deleveraging in the wake of the crisis at digital asset exchange, a period of turmoil that could send bitcoin as low as $13,000, according to strategists at JPMorgan Chase & Co.

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A “cascade of margin calls” is likely underway, given the interaction between the exchange, its subsidiary trading house Alameda Research and the rest of the crypto ecosystem, a team led by Nikolaos Panigirtsoglu wrote in a note.

“What makes this new phase of crypto deleveraging, triggered by the apparent collapse of Alameda Research and FTX, more problematic is that the number of entities with stronger balance sheets able to bail out those with low capital and high leverage, is declining” in the crypto sphere, the team said on Wednesday.

Digital asset investors are still coming to terms with the rapid demise of and concerns swirling around Alameda Research, both founded by 30-year-old Sam Bankman-Fried. There are concerns that the potential bankruptcy of could lead to a contagion that takes down other crypto teams.

Strategists pointed to bitcoin’s production costs as a way to gauge how much further it could fall. The production costs are mainly the electricity needed to run the powerful computers that run the Bitcoin network.

“This production price currently stands at $15,000, but is likely to revisit the lows of $13,000 seen in the summer months,” they said.

Bitcoin suffered a four-day slide, including a nearly 16 percent drop on Wednesday, to rise about 3 percent to $16,200 as of 9:35 a.m. in Singapore on Thursday. The crypto market was generally stable, but it was on the edge of what other risks might lie ahead.

Bankman-Fried told investors that without a cash injection, the company would have to file for bankruptcy, according to a person with direct knowledge of the matter.

The episode is the latest mess to befall the virtual coin, exacerbating steep losses this year as speculative fervor wilted under the sobering influence of aggressive interest rate hikes.

The last major shakeout was in May when the TerraUSD stablecoin and its sister token Luna collapsed. The JPMorgan team said the hit to the overall value of the crypto market this time around is likely to be smaller as the TerraUSD episode has already caused a pullback in risk-taking.

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