Deutsche Bank expects the cryptocurrency ecosystem to remain “particularly fragile” in its analysis of the market, while identifying “uncertainty” around the future of both Binance and the largest stablecoin Tether.
Specifically for Binance, Deutsche Bank believes that questions remain “open” about the transparency issues that have surfaced following the move by audit firm Mazars to withdraw a recent report on the cryptocurrency platform’s reserves.
Read Also: Mazars stops providing accounting services to crypto exchanges
In detail, the German firm maintains its view that cryptocurrencies are high-risk products that can lead to significant personal losses. The recent problems with the platforms and the significant drop in the price of cryptocurrencies add to the already existing uncertainty in this space.
For this reason, Deutsche Bank believes that regulators may need to consider requiring cryptocurrency companies to comply with the most stringent regulations applicable to traditional investment products.
While this is not expected to solve the problems in the industry immediately, this practice would help to limit cryptocurrency companies from ‘fishing’ for customers without financial expertise while governments develop the overall regulatory framework governing the market.
The collapse of the FTX versus other historically large crises
The German house draws parallels between the FTX’s performance and the dot.com bubble, the Enron bankruptcy and the collapse of Lehmann Brothers.
As regards the link with dot.com, Deutsche Bank points out that the ‘boom’ in the crypto market echoes the ‘excessive euphoria’ that characterized the internet bubble at the turn of the millennium.
However, it points out that despite the fact that many online companies failed at the time, the technology on which they were based still exists today and we use it on a daily basis. Deutsche Bank believes it is “likely” that the same will be true for digital assets and blockchain.
On Enron, the German house notes that the collapse of FTX mirrors the crisis seen nearly two decades ago. The liquidator of FTX, who had also dealt with the Enron counterpart, said that the challenges “inherited” from FTX are “unprecedented” and “never in his career so far has he seen such a complete failure of corporate controls and complete absence of reliable financial information” as in this case.
Finally, Deutsche Bank says that in the absence of meaningful government regulation, entire financial sectors can collapse from within, as happened with the subprime mortgage bubble in 2007.
In that crisis, financial institutions had benefited from a weak regulatory framework. Similarly, the German house points out that “the collapse of FTX underlines the real risks that unregistered cryptocurrency market asset platforms pose for investors and customers”.
Read Also: Top Deutsche Bank Officials Predict Cryptocurrency Becoming Mainstream by 2030
Previous Articles:
- These Are The Most Environmental Friendly Blockchains As We Speak
- Ripple (Crypto) vs SEC: Why the final outcome matters
- The Danger of a new big “bang” in crypto
- These Are The Two Major Milestones of 2023 For Bitcoin And Ethereum
- Banks will be allowed to hold up to 2% in cryptocurrencies in their reserves from 2025
