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FTX’s bust and crypto crash come with two silver linings

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Monday, November 14, 2022

Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.

Let’s look at the bright side of the FTX-driven crypto crash to kick off what will likely be another long week for the industry.

There are probably two positives worth considering here.

First, the crypto crash has not spread over into the stock market. The S&P 500 is up 5.9% in the past five trading sessions compared with a 19% drop for bitcoin. Why is this you ask? Simple. The rout is not as huge as the headlines suggest.

“We think Bitcoin and ETH remain a too small part of the market to cause broader financial market contagion, with a total crypto market cap size of $890 billion vs $41 trillion for U.S. equities,” Citigroup digital asset analyst Joseph Ayoub said in a note to clients. “The FTX shortfall is still relatively small in comparison to other crypto events, such as Luna ($40 billion lost) or market cap losses in public tech names.”

So there’s that.

And two, what has happened with FTX should ultimately set the groundwork for a more stable crypto market over time (hopefully). Maybe that means less booms and busts, which is a positive for investors. There are a couple reasons for that, such as regulators coming in next year with new guardrails and the washout removing froth (maybe fewer crypto events in the Bahamas with Lambos parked outside for the Gram) and bad actors (we’re looking at you, SBF).

What we have witnessed in the past week is a flush out and it’s all good — even if there is pain to be had today.

“This should be a wake-up call that what you thought was worth something is actually not worth anything,” said Mizuho analyst Dan Dolev on Yahoo Finance Live.

Happy Trading (of all kinds, even crypto)!

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