FTX and Market Collapse — Is This The End of Crypto?
No, it is not the end of crypto assets and the entire space, so hold your horses. I am happy about this drop for several reasons (more on these points later).
For those of you who missed the news: FTX, which was, up until recently, one of the top-3 crypto exchanges in the USA, experienced (the crypto equivalent of) a bank run earlier this week, causing the exchange to suspend withdrawals.
This turmoil also extended to an affiliated company, Alameda Research. This entire situation has revealed massive flaws in how FTX and Alameda were run.
An excellent overview of this situation is provided here by Cold Fusion.
How significant was this frenzy to take crypto assets off the troubled exchange? A recent Coindesk article says it all.
“Withdrawals from the FTX crypto exchange were so rapid and vicious that the overall balance of digital assets on the venue has tumbled 87% over the past five days, data shows.”
87% taken off an exchange. For perspective, within 72 hours last week, former FTX users removed $6 billion from its exchange.
Moreover, Sam Bankman-Fried (commonly referred to as SBF in the crypto community) saw his wealth collapse (no, that is not an exaggeration), losing a whopping $16 billion net worth within days.
At its peak, SBF was valued at roughly $26 billion.
If this drop is not a world record, I do not know what is.
All jokes aside, the issue is that people, companies, and other stakeholders have been burned owing to his greed and incompetence.
Crypto will live on
Time and time again, whenever massive controversies, scams, abrupt collapses or otherwise occur in this space (e.g., Mt Gox, BitConnect, Luna, Celsius and many others), the crypto market continues to bounce back.
However, recent events, particularly with Luna and FTX, have shaken the market and spooked many investors.
With approximately $2 trillion wiped off the overall (circulating) crypto market cap over the past 12 months, many doubt whether crypto assets can recover and return to (or even exceed) the highs achieved last year.
I remain optimistic and believe the market will eventually bounce back and continue growing.
Nothing has fundamentally changed with Bitcoin, let alone many other digital assets.
The network remains secure and chugging along, particularly when you consider its increasing hash rate, which, in turn, influences its overall security.
This hash rate has continued increasing, notwithstanding BTC being down by about 75% from its all-time high 12 months ago.
Besides the foundation crypto, Ethereum is still functioning well post-Merge (although concerns regarding the stake-pool concentration should be addressed and resolved.
Cardano and BNB are working towards greater decentralisation for their respective chains, and many developers of other blockchains are making continuous improvements to their respective ecosystems.
The two biggest collapses this year (to date), Luna and FTX, do not jeopardise the long-term potential of various cryptos and their corresponding blockchains to revolutionise multiple facets of our society beyond finance.
I would recommend this article for more details about this article for further information relating to Luna (and its stablecoin Terra).
The silver lining behind FTX’s collapse
There are two benefits to come out of this scandal.
Firstly, better regulations of centralised exchanges, let alone various entities in the crypto space. The benefit here is improved protections for retail investors (as per institutional investors, I have little sympathy for them; they should know what they’re doing before they invest in a given asset).
These additional safeguards will eventually give your average person more confidence when investing in crypto assets, whether directly or indirectly.
Yes, I know; what about self-custodial (a.k.a., non-custodial) wallets, mainly hardware ones?
Of course, these remain the best way to control your digital assets fully and are still my preferred choice. However, for various reasons, many individuals still prefer to rely on third parties to manage their crypto.
I am all for giving people reputable options to interact with crypto. The key word here is ‘reputable’.
With time, lawmakers will stipulate what requirements exchanges or similar entities need to follow to operate with a country, particularly in major economies legitimately.
I am aware that more effective regulations go against the wishes of many people, longing for a system with zero to minimal government intervention, as represented by a truly decentralised crypto such as Bitcoin.
Unfortunately, the reality is that some regulations will need to be implemented if crypto becomes even more prominent.
The second silver lining behind this market collapse is that lower prices across the board lower the barrier of entry for most ordinary people.
With prices down by over 75% for the vast majority of cryptos (big and small), $100, $500 or any relatively tiny amount could go a lot further than investing the exact figure 12–15 months ago, during the 2021 bull run.
Besides digital assets, there are potential market opportunities for publicly-listed companies involved in the crypto space, such as MicroStrategy, Coinbase, and Riot Blockchain.
Please remember, this is not financial advice; I am just listing some options linked with cryptocurrency.
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I expect crypto to bounce back in future and find little incentive to cash out when the market is down in the doldrums.
I prefer to ride this one out simply because I stuck by the rule of not investing more than I can afford to lose. People who have mocked me for taking a conservative approach to this volatile asset class now have to swallow their pride and admit that this approach has its merits.
Suppose there are digital assets with a solid track record and extensive development teams making progress on their corresponding blockchains. In that case, significant price drops could be a good buying opportunity.
However, dollar-cost averaging tends to remain a functional and safer bet for more risk-averse investors.
If you’re in it for the long game and have some patience, I see little need to go all in.
Remember, behind success stories published online, many failures are not reported.
Invest wisely and stay focused; easier said than done, I know.
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None of this is financial, and I am not a financial advisor.
This piece contains news and opinions from either myself or the sources. Please do adequate research before investing in any crypto assets, NFTs and any product affiliated with this space.
Thanks for your support.