Analysts at Bank of America, the second-largest U.S. bank, have argued that concerns surrounding a so-called crypto winder or contagion risk associated with the collapse of the Terra ecosystem are unfounded.<\/p>\n
In a note shared with clients, first reported on by CoinDesk, analysts led by Alkesh Shah noted that investors should take into account that cryptoassets aren\u2019t outperforming traditional assets because the cryptocurrency ecosystem is an \u201cemerging tech asset class\u201d and the tokens within it \u201ctrade like high growth, speculative risk assets.\u201d<\/p>\n
The analysts added that digital assets face the same headwinds as traditional assets, including surging inflation and higher interest rates, as well as an increased risk of a recession. Nevertheless, they suggested that worries of a contagion risk within the crypto ecosystem or a spillover into traditional financial markets over the collapse of the Terra ecosystem are unfounded.<\/p>\n
Terraform Labs\u2019 algorithmic stablecoin UST lost its peg last week after a $500 million withdrawal from its Anchor Protocol led to a large sale on Curve, where liquidity was low. The sale saw UST lose its peg and triggered a bank run. Because of the algorithmic system behind UST, trillions of LUNA were printed while the stablecoin\u2019s value kept on dropping.<\/p>\n
While Bank of America\u2019s analysts noted the collapse could have contributed to recent volatility in cryptocurrency prices, they noted that UST\u2019s loss of its peg showed the durability of the wider stablecoin market, because other larger stablecoins managed to maintain their pegs.<\/p>\n
According to the analysts, the collapse of the Terra network came because the growth of UST\u2019s adoption was prioritized over its price stability. While the bank\u2019s analysts weren\u2019t positive about the revival of the stablecoin, they noted an algorithmic stablecoin is still a possibility.<\/p>\n
Regulators are now expected to further police the stablecoin market, but an outright ban of algorithmic stablecoins would be \u201cpremature,\u201d the analysts said, as it could slow down the ecosystem\u2019s growth.<\/p>\n
Their note comes at a time in which institutional investors dominated the cryptocurrency space\u2019s trading volume in the first quarter of this year, based on on-chain data and data from Coinbase\u2019s shareholder letter.<\/p>\n
As CryptoGlobe reported, earlier this year analysts led by shah revealed they believe Solana has the potential to \u201cbecome the Visa\u201d of the cryptocurrency space as it focuses on scalability, low transaction fees, and ease of use.<\/p>\n
At the time \u00a0Shah pointed out that Solana has settled over 50 billion transactions since it was first launched in 2020, while Visa processed 164.7 billion transactions in the year ended September 30.<\/p>\n
In a research note sent to clients, the Bank of America analyst noted Solana may soon take a share of Ethereum\u2019s market share over its low transaction fees and focus on scalability, pointing out Ethereum \u201cprioritizes decentralization and security, but at the expense of scalability, which has led to periods of network congestion.\u201d<\/p>\n