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FTX: Crypto carnage creates confidence crisis

Where do we even begin to recap the crypto carnage since our last weekly crypto article?

Perhaps best to pick up from where we left off with the final line in last Tuesday’s report:

And as long as the crypto world struggles to allay industry-specific concerns, including the true financial standing of its major players, then crypto prices should have a tough time moving past the ongoing crypto winter.

When the above sentence line was published, little did the world (nor yours truly) know or could even imagine at this time last week that the days ahead would prove much darker and bitterly colder.

 

In case you missed it, the once-US$32 billion crypto exchange FTX is now bankrupt.

Sam Bankman-Fried a.k.a. SBF’s wealth has also been completely decimated, from $16 billion to zero within mere days, while also having provoked the ire of many around the world.

Dozens of agencies and regulators, from the SEC and the CFTC in the US, to police in the Bahamas, are now scrutinising FTX’s collapse.

Hedge funds, government-owned funds, and certainly retail investors are now left in a lurch, with their money still trapped in the now-bankrupt exchange.

Such losses are perhaps best encapsulated in this chart, which shows that FTX’s token, FTT, is now almost worthless.

FTT now almost worthless

 

And such turmoil has not spared even the world’s largest crypto, with Bitcoin falling by a further 10% since last Tuesday’s article, and being dragged way below its 50-day SMA.

Bitcoin dragged way below its 50-day SMA.

 

FTX’s stunning freefall is already being mentioned in the same breath as other legendary financial scandals: Lehman Brothers, Bernie Madoff, and Enron.

And the contagion from FTX’s collapse, or “cascading negative effects” as Binance’s CZ puts it, aren’t likely over yet.

 

Existential crisis?

Clearly there’s been plenty of soul searching happening within the crypto world in recent days, and likely for a while more.

If crypto luminaries such as SBF and FTX, names that had previously inspired confidence and optimism in the industry’s tremendous potential, could fail so spectacularly, then who is safe?

 

But out of the depths of despair, there may yet be hope.

If this entire saga ultimately results in more safeguards (more regulations?) for crypto investors, it would be seen as a major step forward in the industry’s maturity. Such evolution may then facilitate institutional adoption and the mainstreaming of cryptocurrencies, which would only increase the market’s heft and influence.

FTX’s crash and burn story may be the hard reset needed for the crypto industry to realize its fundamental offerings (e.g. blockchain technologies, decentralized finance, etc.), and stay away from the speculative fluff that have become attached along the way.

 

Crypto winter, for longer

Clearly trust in crypto has been lost in these darkest days. And perhaps one day, crypto’s reputation can be ultimately restored.

However, until that day comes, there might be more pain and anguish along the way, with crypto prices set to continue trudging along the frozen tundra awaiting sunnier days, maybe.

 

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