In a recent statement, Evgeny Gaevoy, CEO of Wintermute, expressed skepticism regarding circulating rumors about potential bankruptcies within the cryptocurrency market. Gaevoy emphasized that, at present, there are no observable “side effects” indicating severe issues among market participants.
Reflecting on past events, Gaevoy noted that the bankruptcy of Three Arrows Capital (3AC) following the collapse of Terra was quickly acknowledged, as information spread rapidly through direct messages. This led to initial shock, but the situation clarified itself within a few days. In contrast, the fallout from FTX took longer to unfold, primarily because discussions about a potential rescue by Binance suggested underlying issues.
According to Gaevoy, current indicators do not exhibit similar warning signs. Most reports concerning alleged bankruptcies originate from accounts lacking credibility, with no confirmation from reputable sources. He pointed out that the previous cycle was marred by opaque lending practices on platforms like Genesis and Celsius, which created an unsustainable level of unsecured leverage.
Current Market Transparency
Gaevoy believes that the current market cycle is markedly more transparent than that of 2022. He identified the primary risks now as being linked to futures liquidations or hacking incidents. The CEO highlighted that exchanges have improved their management of margin trading, reducing the likelihood of widespread liquidations.
Additionally, Gaevoy referenced the case of Deribit, which faced financial losses due to a credit line extended to 3AC. He noted that the industry has since adopted a more cautious approach to risk management.
Identifying Real Risks
In Gaevoy”s view, exchanges are no longer engaging in the FTX model of investing user funds into illiquid assets. He outlined two potential scenarios that might lead to losses: attacks by hackers—an area where the industry has become more proficient in detection—and large-scale liquidations of client futures positions, which have become less common due to mechanisms like the ADL (Auto-Deleveraging).
He cautioned that denying the existence of a bankruptcy could be a perilous decision, especially for companies registered in jurisdictions such as the United States, the United Kingdom, or Singapore, where legal repercussions could arise.
As a final note, it was reported by Bloomberg that the wave of bankruptcies within the cryptocurrency sector had generated $751 million in legal fees for law firms, underscoring the financial implications of market turmoil.
