The downfall of the crypto market following the LUNA crash will not likely hit the wider financial system, says Citi in a recent report.
Citi blames the downfall on already weak risk assets and does not expect it to affect the already well-established traditional markets owing to the fact that the digital-asset class is relatively small.
No lead effect was observed from Bitcoin to S&P futures by the analysts. Citi says that the recent weakness in Bitcoin and equities appears “contemporaneous”. Given the already low equity market, a low crypto market doesn’t help, according to the report.
The report further states that it is expected that Bitcoin will remain highly volatile and is influenced by many factors, including potential regulatory factors.
The report also points out that the price of Bitcoin has fallen close to “production cost and spot adoption model implied valuations.”
According to the bank, the production value is the floor because at these levels it is “less economical for mining, which may lead to a decline in hash rates, and an adjustment in algorithm difficulty to keep the bitcoin mining reward rate constant.”
The bank says that regulatory interest in the stablecoins will likely increase following this UST depegging incident.
Read Also: Do Kwon Raises Proposal For Hard Fork To Revive Terra
