What a year for the Cryptocurrency market, Bitcoin now down -75% from 2021 high of $68,789.63 now trading around $16,000 levels investors have lost more than $2 trillion since. The industry has been hit with macroeconomic challenges, market forces and scandals. We are yet to see the bottom as the FTX fiasco sent shockwaves in the financial market that we might see regulators feast on other crypto exchange and projects related to Sam Bankman-Fried (SBF).
FTX the world’s third largest cryptocurrency exchange filed for Chapter 11 bankruptcy protection on Nov. 11, 2022 after a swift fall from grace. The company’s valuation plunged from $32 billion to bankruptcy in a matter of days, dragging down founder and CEO Sam Bankman-Fried’s $16 billion net worth to near-zero.
The trigger for the problem was a Nov. 2 scoop by CoinDesk that revealed that Alameda Research, the quant trading firm also run by Bankman-Fried, held a position worth $5 billion in FTT, the native token of FTX.
The report indicated that Alameda’s investment foundation was also in FTT, the token that its sister company had invented, not a fiat currency or other cryptocurrency. That prompted concern across the cryptocurrency industry regarding Bankman-Fried’s companies’ undisclosed leverage and solvency.
Binance later announced it had reached a non-binding agreement to buy the non-U.S. business of FTX for an undisclosed sum, effectively the world’s largest cryptocurrency exchange bailing out its close rival. But Binance later backed out of the deal a day later after corporate due diligence raised concerns about the mishandling of customer funds, among other issues.
FTX filed for Chapter 11 bankruptcy protection on Nov. 11, 2022 and within hours of filing for bankruptcy, the exchange was hacked. The exchange noted “unauthorized transactions” which may have stolen close to $500 million in assets. FTX’s valuation plunged from $32 billion to bankruptcy in a matter of days, pulling SBF’s $16 billion net worth to near-zero.
The future of FTX as a cryptocurrency exchange is in serious trouble. As of mid-November 2022, withdrawals are disabled. House lawmakers called on U.S. bank regulators Wednesday to step up oversight of the cryptocurrency industry as they investigate the collapse of FTX. Crypto exchanges will now be under a microscope from every regulator.
The crash is inevitable because of the incoming global recession with retail and institutional funds pulling out their money in the markets. But what happened with FTX is awful, they just don’t have the money to cover the funds of their clients and defrauded everyone. Now, the cryptocurrency market is in free fall, maybe the market is already at the bottom with all this negative news or maybe the worst is to come. Just like the stock market crash, industry gems will be born out of the ashes.
Coinbase the second largest exchange felt the pain as it dropped even deeper. Their stock $COIN now down -80% year-to-date.
Major cryptocurrencies Bitcoin and Ethereum took a heavy hit but they do have better chances of pulling through periods of significant volatility compared to others cryptocurrencies.
There’s a lesson here for everyone, it’s that crypto is still an inherently risky investment. To have a solid investment portfolio minimize your exposure to speculative assets like cryptocurrencies and keep it at 5%-10%. I bet most investors especially the newbie bet more than that, remember high-risk investments are not for everyone, and don’t chase the hype. While that doesn’t necessarily mean you shouldn’t buy, it is an important reminder to only invest money you can afford to lose.
The silver lining, however, could be increased regulation in the crypto space. Lawmakers have long encouraged more crypto regulation, and the FTX downfall could be the push they need. The Securities and Exchange Commission and the Justice Department are already investigating this incident, and it could potentially lead to more policies to prevent future meltdowns like this.
What to do?
The market is still in a downtrend, and we are yet to see the bottom but we are close. It’s not an easy time to be a crypto investor, but a long-term outlook is key right now. Nobody knows for certain what will happen over the coming weeks or months, but increased regulation could make crypto safer for everyone.
The Crypto Fear and Green index. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in an irrational reaction to seeing red numbers, and right now it’s in extreme fear.
The last time Bitcoin was trading at the $16,000 level was in 2017 and cryptocurrencies have advanced technology and community-wise. It’s not just the crypto market even the stock market is on a downtrend.
The key here is to identify patterns and market cycles. Immediately, we can see that the next support is at the $10,000 level. Just like the stock market, this is an opportunity for us to get these assets at a discount.
What’s next for Crypto?
Cryptocurrencies have caught the attention and imagination of a new generation of investors across the world. From Bitcoin to Ethereum to the growing list of altcoins, there’s little question that the volatile and fast-moving crypto industry keeps participants, observers, and regulators on edge.
More and more, though, mainstream companies are looking at cryptocurrencies and adjacent technologies as a way to tap into new markets—or to create them from scratch in new, virtual worlds.
Crypto investors in the U.S. have filed a class-action suit accusing FTX CEO Sam Bankman-Fried and the company’s host of paid celebrity promoters. Gemini, BlockFi, Genesis announcing new restrictions as FTX contagion spreads. We might see more bad news in days to come.
Investing in cryptocurrencies and related assets like NFTs is risky. But that doesn’t mean crypto has no staying power. What it eventually looks like and how it will fit into day-to-day life remains to be seen. If you invest in crypto at all, do so with the knowledge that this remains a very speculative area of the investing universe. Keep any bets very small and diversified.
I strongly believe that the cryptocurrency market especially Bitcoin is here to stay and these headwinds are just part of the journey to improve the foundation of crypto.