News
What’s happening in the world of cryptocurrencies? – Forbes Australia Consultant
The catastrophic collapse of cryptocurrency titans FTX and Alameda Research has rocked the cryptocurrency world over the past couple of weeks. The rumor that the couple had blurred the line between users’ deposits and their investments soon turned into a cascade of events shock waves in the sector. 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 cryptocurrency history.
But what really caused the FTX crash, 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 ferocious downtrend for Bitcoin and cryptocurrency markets ever since. Despite reaching a tantalizing $69,000 almost exactly a year ago, Bitcoin is down nearly 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 has lost nearly $2.2 billion in value over the past year.
2022 has proven to be a challenging year for investors globally, due to both Russia’s invasion of Ukraine and massive fiscal stimulus by governments during the Covid-19 lockdown, which caused high inflation for countries around the world. To bring the inflation rate back to acceptable levels, central banks have decided to do so raised interest ratesnegatively impacting investment markets, such as stocks and cryptocurrencies.
Since the beginning of the year, the value of cryptocurrencies in general has been on a downward trend, exposing the vulnerabilities of some players in the industry. THE Earth Moon The May collapse caused significant consequences for the entire cryptocurrency industry, wiping out nearly $60 billion from cryptocurrency markets in just a few days. Numerous companies have been directly affected; notably, Celsius, Voyager, and 3 Arrows Capital filed for bankruptcy following the accident.
By October, cryptocurrency markets had finally begun to shake off the dust from the Earth’s collapse, and space appeared to be moving in a positive direction. However, on November 2, 2022, CoinDesk ended the brief moment of calm by revealing that giants FTX and Alameda Research appeared to have put themselves in a risky position. A cascade of events soon followed, creating mass hysteria in the cryptocurrency world and causing the market to collapse price of Bitcoin as panicked investors sold their assets to save whatever money they had left.
A little background: FTX implosion explained
Sam Bankman-Fried, more commonly known as SBF, is a cryptocurrency tycoon known for founding the trading giant FTX and the quantitative trading firm, Alameda Research. CoinDesk revealed that while Alameda Research and FTX were supposedly separate companies, the balance sheets of these companies were intertwined. Alameda Research’s holdings were dominated by the FTX token, denoted by the symbol FTT.
Several days after this information surfaced, a rival exchange and FTX investor, Binance, announced that it would sell all remaining FTT holdings, to the tune of $580 million. Naturally, the price of the FTT token plummeted following the news. This price drop caused immediate panic among FTX users and a “bank run” on the stock exchange ensued. After just $4.5 billion in cryptocurrencies were removed from the FTX platform, withdrawals stopped being processed Without attention.
This situation has left $10 billion in user funds trapped on the exchange, potentially affecting millions of users. Fearing the worst, some interested cryptocurrency investors began selling any remaining assets to exit the market, causing a rapid decline in Bitcoin and cryptocurrencies across the board. Rival exchange Binance intervened briefly, offering to take over FTX and fulfill its liabilities; however, after less than a day of due diligence, they announced that the issues were out of their scope “ability to help”.
Subsequently, Chinese cryptocurrency tycoon and TRON founder Justin Sun offered to support any FTX deposit of TRON-based tokens. Seeing a way out, users immediately rushed to buy the Sun-backed tokens and withdraw, causing the price on the platform to rise 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 taking this loss was better than leaving assets on the exchange.
FTX has since declared bankruptcy, both in Australia and overseas, and has suffered a alleged cyberattack worth nearly $1 billion in user funds, and is now being investigated by the Government of the Bahamas for criminal misconduct. Really a real disaster.
Impacts of the FTX meltdown
The collapse of SBF’s empire has widespread consequences for the cryptocurrency industry. FTX and Alameda Research were seen as industry powerhouses and had investments or liabilities with many companies in the industry. Other companies affected by FTX’s collapse have already started to step forward, suspending user withdrawals from the platform in the meantime determine the extent of the damage.
Aside from the direct impact of FTX’s dealings with other companies, a certain degree of mass hysteria and panic also occurred. Some cryptocurrency investors have almost lost faith in centralized platforms and exchanges and are frantically withdrawing every penny they can from their accounts. Massive outflows from trade show the extent of this loss of trust, with more than $3.7 billion worth of Bitcoin removed from exchanges, along with billions of dollars in other currencies.
Some users may have been so shaken by the disaster that they decided to sell their assets and abandon the world of cryptocurrencies entirely. The collapse in prices of many crypto assets suggests that this could be a real possibility and could be one of the reasons why Bitcoin is collapsing. However, despite the negative impacts of the past week, there are some positives.
A key aspect will be the need for better regulation for centralized cryptocurrency exchanges to ensure the proper management of user funds. SBF was making the case to regulators which proposed a light touch, benefiting FTX and severely affecting rivals and decentralized financial applications.
Another key realization for cryptocurrency investors is that centralized platforms are not necessarily the safest places to store cryptocurrencies: those who have chosen to keep their crypto assets in their wallets have not been affected by last week’s events and still have access to their own cryptocurrencies. Some may be so scarred by FTX’s collapse that they will opt for this storage method in the future. In any case, 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.