The entire cryptocurrency infrastructure is dependent on community trust and investment. When the largest exchange files for bankruptcy, it doesn’t instill faith in the blockchain-based coins because investors stand to lose their assets. This is what happened with FTX, which filed for bankruptcy on November 11th, 2022. In just a few days, FTX founder and CEO Sam Bankman-Fried became worth zero – an enormous depreciation from his previous $16 billion net worth.
Why did FTX crash?
Within 10 days in November 2022, FTX fell on a sword of its own making and became a shell of its former self. On 2nd November, CoinDesk revealed that Alameda Research, also owned by Bankman-Fried, had a $5 billion share in FTT (FTX’s native token). Additionally, Alameda’s entire investment was in FTT when it should have been in alternative crypto or fiat currency. This encouraged investors and the wider crypto industry to question Bankman-Fried’s solvency and leverage.
Initially, to manage risks, Binance Smart Chain began selling all shares of FTT, of which they held a whopping $529 million. Then, Binance announced a bailout, which would essentially save its closest rival. However, Binance pulled out due to findings of customer fund mismanagement, which prompted investigations from the California Department of Financial Protection and Innovation and the Bahamas Securities Regulator.
Amid investigations, Bankman-Fried gave up his position as CEO and filed for bankruptcy. Currently, all investors are urged not to deposit anything with FTX and all withdrawals are blocked. Instead, we advise depositing your crypto with a thriving exchange like OKX.com Crypto Converter, which can be used to transfer funds into other crypto or fiat currencies.
A full scale Crypto collapse
Cryptocurrencies are only just beginning to be accepted by giant brands and integrated into traditional banks. However, will this all be for nothing if investors are put off by the FTX crash, especially on the back of a year’s worth of value depreciation and the collapse of Terra (LUNA)? To avoid an investor-led crash, it would take global-scale acceptance of cryptocurrency – will this speed up the adoption process?
Goodbye irrational traders
There’s no denying that FTX’s crash is bleak for the crypto world, but it’s not all doom and gloom. The realisation that cryptocurrencies may not be the savior of the world will see a decline in uneducated investors – also called irrational traders. Without this type of trader, the cryptocurrency market value can be determined by true worth.
Paving the way for Altcoins
Bitcoin is an entity left to its own devices, and without a business plan, which is why its value is determined solely by the investors. Whereas, Cardano, Ether 2.0, and Solana are designed to facilitate blockchain projects, meaning they should be considered utility coins as opposed to traditional crypto. By having a world value, these coins transcend the cryptocurrency definition, which will likely lead to an increase in investor interest.
The FTX crash sent ripples through the crypto industry, but trust in blockchain technology is still standing strong. Therefore, it’s likely that the coming years will see an increase in investments for Dapps, Defi, and other projects.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.