- The FTX implosion is not a Lehman Brothers moment that will spread risk to stocks, according to Jeremy Siegel.
- "It's not a Lehman moment because the value has already gone down so much," Siegel said.
- One thing traditional assets like stocks and bonds have that crypto doesn't is the backing of the Federal Reserve.
The implosion of Sam Bankman-Fried's FTX and its related impact on crypto prices isn't a "Lehman Brothers moment" for traditional asset classes like stocks and bonds, according to Wharton professor Jeremy Siegel.
Siegel doesn't see contagion risk from this week's meltdown in crypto spreading to stocks and bonds for two big reasons: crypto prices were already down big, and there's no backstop for crypto like there is for traditional assets.
"I don't think that it poses a threat [to stocks and bonds]. As some people say, 'Is this a Lehman moment if it [prices] really goes down?' No! because it actually more than half the value has already gone down and the financial system has survived very well," Siegel told CNBC on Thursday
"So if it [crypto] goes down another 50% or 75%, that's not going to impair values," Siegel added.
But what's even more important is that during the 2008 downfall of Lehman Brothers, customers who held money market funds and other assets at the firm were protected from losing all of it thanks to the Federal Reserve. The same can not be said for customers who held onto their crypto in FTX accounts.
"One thing that's really important: back when Lehman went under, I had money in money market mutual funds. I had money in banks and all the rest. And I said to myself thank god the Fed is backing those assets. Crypto doesn't have that," Siegel said.
Ironically crypto was founded via the launch of bitcoin in 2009 on the principle of being decentralized and is essentially the antithesis of central banks. But not having a centralized body to lean on right now is what could very well lead to the industry's downfall, as contagion risk is no doubt spreading throughout all areas of the crypto market right now.