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What is happening in the world of cryptocurrency? – Forbes Australia Advisor
The catastrophic collapse of crypto titans FTX and Alameda Research has rocked the cryptocurrency world over the past fortnight. The rumor that the two men had blurred the lines between users’ deposits and their investments quickly turned into a cascade of events that sent shock wave in the industry. Bitcoin and other cryptocurrencies were sent into a downward spiral following the implosion, earning November 2022 a place in the history books as one of the worst months in crypto history. crypto.
But what really caused FTX to fall, what was the impact, and why is Bitcoin falling?
The final quarter of 2021 proved to be the start of what turned out to be a sharp downward trend for Bitcoin and crypto markets ever since. Despite hitting a staggering US$69,000 almost exactly a year ago, Bitcoin is down almost 75% from its all-time high. The entire cryptocurrency market peaked at a total value of $3 trillion around the same time in November last year, but lost nearly $2.2 billion over the past year.
2022 has proven to be a challenging year for investors around the world, with both Russia’s invasion of Ukraine and massive fiscal stimulus implemented by governments during Covid-related lockdowns. 19, causing high inflation for countries around the world. To bring the inflation rate back to acceptable levels, central banks have interest rates increasednegatively impacting investment markets, such as stocks and crypto.
Since the start of the year, the value of cryptocurrencies across the board has generally trended downward, exposing vulnerabilities for some industry players. THE Earth of Moon The May collapse caused significant fallout across the entire crypto space, wiping nearly $60 billion from crypto markets in a matter of days. Many businesses have been directly affected; notably, Celsius, Voyager and 3 Arrows Capital filed for bankruptcy following the incident.
By October, crypto markets had finally started to shake off the dust from Terra’s collapse, and the space appeared to be moving in a positive direction. However, on November 2, 2022, CoinDesk ended this brief moment of tranquility by revealing that giants FTX and Alameda Research appeared to have put themselves in a risky position. A cascade of events quickly followed, creating mass hysteria in the crypto world and derailing the Bitcoin price as investors sold their assets in panic to recover the money they had left.
Some Context: The FTX Implosion Explained
Sam Bankman-Fried, more commonly known as SBF, is a crypto tycoon known for founding foreign exchange giant FTX and quantitative trading firm Alameda Research. CoinDesk revealed that although Alameda Research and FTX were supposed to be separate companies, the balance sheets of these companies had become closely intertwined. Alameda Research’s holdings were dominated by the FTX token, denoted by the ticker symbol FTT.
Several days after this information surfaced, a rival exchange and investor in FTX, Binance, announced that it would sell all of FTT’s remaining holdings, for a reported $580 million. Naturally, the price of the FTT token fell following the news. This price drop caused immediate panic among FTX users, and a “bank run” on the exchange ensued. After only $4.5 billion worth of crypto assets were removed from the FTX platform, withdrawals stopped being processed without warning.
This situation left $10 billion in user funds stranded on the exchange, potentially affecting millions of users. Fearing the worst, some concerned crypto investors began selling whatever assets they had left to get out of the market, causing Bitcoin and cryptocurrencies to fall rapidly across the board. Rival exchange Binance briefly intervened, offering to buy FTX and fulfill its obligations; however, after less than a day of due diligence, they announced that the issues were beyond their scope. “ability to help”.
After that, Chinese crypto tycoon and TRON founder Justin Sun offered to support any FTX deposit of TRON-based tokens. Seeing a way out, users immediately flocked to buy the Sun-backed tokens and exit, driving the price on the platform up nearly 50 times the original. Of course, in the event of a withdrawal, this meant suffering an immediate loss of up to 99%. Many FTX users decided that it was better to accept this loss than to leave assets on the exchange.
FTX has since filed for bankruptcy, both in Australia and overseas, and has suffered a alleged hacking worth nearly a billion dollars in user funds, and is currently under investigation by the Bahamas Government for Criminal Misconduct. It’s really a fall.
Impacts of the FTX collapse
The collapse of the SBF empire has far-reaching consequences for the crypto industry. FTX and Alameda Research were considered industry powerhouses and had investments or debt with many companies in the industry. Other companies affected by FTX’s collapse have already begun to come forward, suspending user withdrawals from the platform while they determine the extent of the damage.
Aside from the direct impact of FTX’s relationships with other companies, there has also been a degree of collective hysteria and panic. Some crypto investors have all but lost faith in centralized platforms and exchanges and are frantically withdrawing every penny possible from their accounts. Mass exits from exchanges show the scale of this loss of trust, with more than $3.7 billion worth of Bitcoin removed from exchanges, as well as billions of dollars in other currencies.
Some users may have been so shaken by the disaster that they decided to sell their assets and leave the crypto space altogether. The falling prices of many crypto assets suggest that this could be a distinct possibility and could be one of the reasons why Bitcoin is falling. However, despite the negative impacts of the past week, there are some positives to take away.
One of the key takeaways will be the need to improve regulation of centralized crypto exchanges to ensure user funds are properly managed. The SBF presents the file to regulators which offered a light touch, benefiting FTX and most severely affecting competitors and decentralized finance applications.
Another crucial awareness for crypto investors is that centralized platforms are not necessarily the safest places to store cryptocurrencies: those who chose to keep their crypto assets in their wallets were not affected by the events of last week and still have access to their cryptocurrencies. Some may be so scarred by the collapse of FTX that they will opt for this method of storage in the future. Either way, watch this space.
This article does not constitute an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.