According to a research report by Bernstein, the collapse of FTX has been the catalyst for a new bullish cycle in cryptocurrency markets. The report states that the demise of the crypto exchange has cleaned up the final tranche of “toxic crypto leverage” and taught digital asset investors the importance of decentralization and self-custody wallets.
The report also highlights that macro catalysts are aligning for bitcoin, the world’s largest cryptocurrency by market cap. Continued weakness in U.S. regional banks and further deposit outflows towards money market funds and the big four U.S. banks reflect concerns around the “centralisation of money.”
The note added that any potential dislocation, whether on the bank’s credit side or on the sovereign side, positions bitcoin perfectly as a safe haven asset alongside gold. The report’s analysts, Gautam Chhugani and Manas Agrawal, wrote that the new crypto cycle is still not fully appreciated, with a number of positive factors lining up. These include macro catalysts, a new bitcoin mining cycle, the continued successful upgrades of the Ethereum blockchain, and the success of Ethereum scaling ecosystems such as Arbitrum.
Bitcoin has rallied 80% this year, with prices surging 23% in March amid multiple bank failures in the U.S. Meanwhile, Ethereum’s native token ether is up 76% on a year-to-date basis, according to CoinDesk data. The highly-anticipated Shapella hard fork was implemented by Ethereum last week, opening doors for users to stake and unstake ether at will. This resulted in ether rallying 13% post the upgrade, lifting the broader market higher. The Ethereum blockchain’s fees are up threefold, “reflecting the growing user intensity and token prices, post FTX,” the note said.
Bernstein’s report concludes that the opportunity to build a new institutional financial stack on the blockchain remains a worthy goal, and serious participants remain focused on the long term. This will be the “first crypto cycle which will see participation from leading institutional investors.”