The Crypto Ponzi Collapse Has Now Led To Crypto Contagion.

Last week when the FTX crypto exchange collapsed, we issued two warnings. The first was that the panic would not be limited to FTX but would quickly spread to other crypto players. The second was that the financial damage would not be contained in the crypto world, but would leak into mainstream finance, including institutions, banks, and hedge funds.

The first warning has already come true. The second warning is not far behind in its impact.

As reported in this article, other crypto players are in various stages of collapse, either because they loaned money to FTX or because they are experiencing their own runs on the bank due to lost confidence in the crypto ecosystem.

The crypto lender BlockFi is contemplating bankruptcy because it kept funds in custody with FTX, according to CoinDesk. Another crypto lender, Genesis, is suffering a run on the bank and has suspended withdrawals. The Genesis story is noteworthy because its biggest lender is Gemini, the leading crypto exchange founded by the Winklevoss brothers.

Other crypto players, including Voyager, are also reportedly in distress. This contagion in the crypto ecosystem will grow and may lead to a full-scale meltdown across many crypto platforms and currencies.

The bigger question for investors is whether this fiasco will impact non-crypto financial players, including banks. That outcome seems likely, but it may take time. Investors should recall that the Russia-LTCM crisis in September 1998 actually started in Thailand in 1997.

The September 2008 Lehman Brothers bankruptcy was part of a crisis that began in the spring of 2007. Past fiascos suggest that it can take a year for the full impact of a global liquidity crisis to be felt.

It’s too soon to put FTX in the rearview mirror. We’ll follow the story closely.

The one aspect we can report with complete certainty today is that the crisis is far from over, and it will be getting closer to your portfolio by the day. An increased allocation to cash or physical gold and silver are good precautionary moves as the crisis grows.

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