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How Wall Street Was Able to Avoid the Crash in the Cryptocurrency Market

TechHow Wall Street Was Able to Avoid the Crash in the Cryptocurrency Market

Some 50 equities were compiled by BNP Paribas analysts at the height of the cryptocurrency market‘s exuberance, many of which had a strong connection to digital assets.

The frothiness of the equities led to the collection being dubbed the “cappuccino basket.” To provide its most intelligent customers a chance to wager on the asset’s impending collapse, the bank created a product based on those stocks.

While several cryptocurrency organisations that had popped up to help people trade Bitcoin and other digital currencies were taken down, the value of the coffee basket dropped by half.

BNP’s Wall Street customers who predicted this outcome are now very wealthy. Small investors who bought expensive crypto assets and equities during a retail trading boom are hurting on the other side of the deal.

BNP’s head of U.S. stocks and derivatives strategy, Greg Boutle, said the changes in cryptocurrency “coincided with retail money streaming into U.S. shares and equity options.” A “huge divide” exists between retail and institutional positioning, according to the author. However, he refused to reveal which individual equities BNP customers were given the opportunity to wager on against.

Wall Street is winning the Bitcoin bloodbath of 2022.

It’s not that financial titans didn’t want to be a part of the celebration. Regulators enacted in the wake of the 2008 financial crisis compelled Wall Street banks to sit this one out — or, like BNP, to tackle crypto with inventiveness. The hazards of investing in cryptocurrencies were well understood by large money managers, who implemented sophisticated measures to restrict their exposure. As a result, they were able to limit their losses when the market fell.

Professor Reena Aggarwal, director of Georgetown University’s Psaros Center for Financial Markets and Policy and a Georgetown University finance professor, noted that although institutional investors have shown some interest, it is a relatively tiny percentage of their overall investments.

Wall Street and Main Street’s fortunes have diverged more than in the financial crisis, when the souring of subprime mortgages backed by complicated instruments brought down both banks and the general public, leading to a recession. Last time, bailouts protected the banks. The current turmoil in financial markets was largely unrelated to the collapse of digital asset values and the struggles of crypto start-ups.

Many ordinary individuals who invested in the cryptocurrency industry have suffered greatly as a result of the crypto crisis, even though Wall Street has mostly ignored it.

Ms. Aggarwal expressed concern for the small-cap investors, saying, “I genuinely do care about them.” “They’re taking a beating.”

As a result of the promise of fast returns, enormous riches and an industry that isn’t regulated by the financial system, many individual investors acquired freshly formed digital currencies or holdings in funds that held these assets. Meme companies like GameStop and AMC Entertainment were popular with first-time investors who were unable to leave their homes during the outbreak.

As a result, they were besieged with advertisements from cryptocurrency start-ups, such as applications that promised investors outsized returns on their crypto holdings or funds that provided them exposure to Bitcoin. Online forums like Reddit were used by these investors to encourage one other to make bad investment choices that weren’t always based on sound economic principles.

The bitcoin sector grew swiftly, in part because of the craze. The digital asset market peaked at $3 trillion, which is a lot, but not as much as the balance sheet of JPMorgan Chase. With low oversight and a “anything goes” ethos, it sat outside the established banking system in an alternate realm with less control.

It all started in May when TerraUSD, a currency that was intended to be tethered to the dollar, began to drop, pulled down by the collapse of another currency, Luna. The collapse of the digital asset market as a whole was caused by the death spiral of the two cryptocurrencies.

On June 18, the value of one Bitcoin decreased to $19,000, down from $47,000 in March. Celsius Networks, a cryptocurrency lender that provided high-yield crypto savings accounts, had ceased withdrawals five days earlier.

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