Crypto analyst on FTX risks: ‘I don’t see a lot of spillover’

Citi Digital Assets Analyst Joseph Ayoub joins Yahoo Finance Live to discuss crypto exchange FTX on the brink of collapse and what that means for the broader digital asset space and regulation.

Video Transcript


BRIAN SOZZI: For more on this crypto action, let's turn to Citigroup Digital Assets Analyst Joseph Ayoub. Joseph, good to see you here today. You just heard, I'm sure, Emily's comments right there. What-- what's going to happen with FTX? And what does would that mean-- whatever happens to FTX, what does that mean for the broader crypto landscape?

JOSEPH AYOUB: It's hard to say at this current point in time what's going to happen with FTX. Sam Bankman-Fried has just announced that apparently his exchange has more assets in collateral than customer deposits. But it's very unclear what's going to happen.

One thing that is for sure, as of about 10 minutes ago, is that Alameda is set to shut down their trading. With respect to what happens in the broader market, I think we're yet to see what happens. And there is going to be probably a larger fallout from this.

BRAD SMITH: We're taking a look at the timeline of events that's really taking place here. When you think about the number of investors that have poured in to different rounds at different stages for FTX, is it likely that any of them come back knocking in order to make sure that FTX is saved?

JOSEPH AYOUB: It's a-- that's a really hard question to answer. You know, there have been a lot of people and a lot of speculation about who might come in and save, so to speak, FTX. You know, rumors of Justin Sun, the founder of Tron, potentially coming in with a package.

I think it would be less likely for one of the previous investors to step in and save FTX. I think they probably have some mandates into how much crypto exposure they're allowed.

And you know, we're talking about some of the biggest funds in the world. Tiger Global being involved in some of these-- in some of these rounds. So I would be caution-- be cautionary to suspect that some of these larger investors would buy out FTX in its current state.

BRIAN SOZZI: If this is the early-- just the early stages of a broader fallout in crypto, do you think that spills over into the broader stock market?

JOSEPH AYOUB: Yeah, that's a great question. I think-- I think it is unlikely in its current setting. And you know, yesterday, was a really good example of that, where crypto was down something to the likes of 10% to 15%, and SPX was up on the day by a few percent. And that shows broader correlations between crypto and-- crypto and the traditional finance market.

I don't see many avenues of exit for this contagion to spill over. If we look at the larger global market caps of cryptocurrency, which stands at around $800 billion, you know, Bitcoin at, you know, something like $400 or $350 billion, it doesn't even break the top 10 of the S&P largest constituents in market cap size.

So I don't see a lot of spillover and contagion into traditional markets. But we're yet to find that out. And you know, that's yet to be investigated quite thoroughly yet.

BRAD SMITH: Does this alter at all how some of the larger banks start to set up their own crypto trading desks or alter the ambitions that they may have to get further into crypto, knowing that you've got regulators out this morning, Gary Gensler, even saying in interviews what this means for the future of regulation within crypto?

JOSEPH AYOUB: Yeah, I mean, I absolutely can't comment on the banks proposal on crypto trading and their assets. What is definitely the case is that banks are waiting on-- or at least in some way waiting on regulation and clearer regulatory frameworks before they start offering, you know, spot trading and some of these more granular-- more granular products.

Gary Gensler, of course, is gonna be-- it is gonna be very interested in what's going on in current events. And I think that will-- it might have an impact on how-- on how banks-- well, I think it will have an impact on the speed of regulation, rather than banks trading in particular. So the speed of regulation affects how banks will manage the products. And the regulation is the key thing to focus on here for Gary Gensler and the CFC-- CFTC lot.

BRAD SMITH: Joseph, when I think back five years ago, it was the Thanksgiving table talk was Bitcoin. This year at Thanksgiving, are people talking about crypto? Are they-- and what are they saying about it from your perspective? If you had to just take a bird's eye view into the dinner tables as Bitcoin gets thrown onto the table.

JOSEPH AYOUB: I think-- I think they'll be asking their-- you know, their grandkids, what happened? What went on? How could this have happened? [LAUGHS] It's a difficult question for especially the younger generation to answer because I think this is such a nascent industry and such a nascent space.

That how could one have expected such an experienced player in FTX and Sam Bankman-Fried, who was a former James Street trader, you know, with tons of regulatory compliance in terms of, you know, their employees. How could something like this have happened over, you know, a series of events, such as Luna, or BlockFi, Celsius, and now FTX.

I think the dinner chat table will be very, very confused. And asking-- or at least questioning whether this will ever see a resurgence again, to be quite frank.

BRIAN SOZZI: You have to invite me and Brad over, Joseph, because we have more questions to ask you over that maybe at Thanksgiving Day dinner table. Joseph Ayoub, Citigroup Digital Assets Analyst, good to see you. Appreciate it.