Solana
Why was Solana hit hard by the FTX collapse? UBS explains By Investing.com
Swiss banking giant UBS recommends remaining cautious with cryptocurrencies, citing a range of macroeconomic and sector-specific concerns.
UBS analysts say aggressive moves by central banks to combat inflation with higher interest rates have seriously dented growth expectations and investment appetite, particularly affecting sectors like cryptocurrencies. currencies, which are closely linked to high beta technology stocks.
They also noted “a significant increase in the correlation between and these stocks throughout the year.”
The report highlights how the crypto industry has faced additional disruption due to specific events, such as the collapse of stablecoin Terra Luna, which sparked a chain reaction of bankruptcies within the sector.
This included major platforms like Celsius and hedge funds such as Three Arrows Capital. Additionally, November 2022 saw the dramatic failure of FTX, once the world’s second largest crypto exchange, along with its sister trading company Alameda.
“FTX’s bankruptcy was particularly damaging, given its widespread influence over the crypto ecosystem and its previous role in helping other struggling companies,” he adds.
The fall of FTX and Alameda not only impacted their direct operations, but also sent shockwaves through related companies and investment vehicles, including a $175 million exposure by Genesis.
The UBS research report also provides a detailed analysis of the dramatic downturn that followed the collapse of FTX, focusing particularly on the serious consequences for (SOL) and the broader venture capital landscape.
According to the report, “via Alameda, Bankman-Fried invested directly in certain crypto projects, including Solana. In early November, Alameda revealed a SOL position valued at over $1 billion, representing approximately 10% of the total SOL market. capitalization.”
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This investment became problematic as the fall of FTX/Alameda occurred, severely affecting Solana’s market position and investor confidence.
The report also addresses concerns related to Bitcoin and Ether being “wrapped” in the Solana ecosystem, highlighting the complexities and risks of cryptocurrencies backed by other tokens, particularly when the custodian faces issues solvency.
On the venture capital side, the UBS analysis highlights that while the downturn in the crypto market has caused disruption, the venture capital sector’s overall exposure to digital assets remains relatively low.
However, the report notes: “Some growth-oriented venture capitalists and private equity managers have been significant investors in digital assets, and the collapse of Terra Luna and FTX has raised questions about the potential losses and the survival of managers. »
Finally, the report states that each crypto boom and bust cycle, while difficult, is a necessary step toward the industry’s maturation.
UBS concludes that “with less competition for capital, more realistic valuations and greater transparency and regulation, we believe digital assets will provide a better investment environment in the future.”