“Not your keys, not your cryptocurrencies.” While some investors learned their lesson before the FTX crash, others trusted cryptocurrency exchanges blindly.
Granted, self-custodied crypto wallets are much less vulnerable to hacks than exchanges. Alex Kruger has a very different perspective, but absolutely compelling.
Legal uncertainty in the cryptocurrency market is a double-edged sword, which means investors should pay attention. The first half of November has taught us that there is no perfect option, but we certainly cannot blindly trust trades as we did before November 8th.
The fall of FTX will undoubtedly have dire consequences on the market. More than 5 million people worldwide risk never recovering the funds they entrusted to cryptocurrency exchange Sam Bankman-Fried.
The collapse of FTX sent shockwaves throughout the cryptocurrency market and it seems that some investors still don’t understand the scale of the matter.
Cryptocurrency exchanges are losing credibility
According to Santiment’s latest survey, more than half of respondents currently hold a third or less of their assets publicly traded:
It can be clearly observed that investors no longer trust cryptocurrency exchanges as before, which is completely understandable.
The sudden collapse of FTX was a painful event for millions of investors. This mistrust, which may seem excessive, is therefore entirely legitimate. The closest incident to FTX’s bankruptcy came in 2014, when Mt. Gox was officially liquidated.
In fact, this address has been emptying FTX’s coffers since November 11th. According to the latest information, the address belongs to Sam Bankman-Fried, who claims to have hacked his platform at the request of the Bahamian authorities.
The cryptocurrency market goes into panic mode
FTT price is down more than 98% from its all-time high. It all started when Changpeng Zhao decided to sell a large amount of FTT tokens held by Binance. Due to its irresponsible management, FTX ended up with an unpayable debt, which quickly caused a liquidity crisis on the exchange.
The crash of FTX caused a FUD effect (fear, doubt and uncertainty) which shook the entire cryptocurrency market. As a result, discussions related to Bitcoin have once again been relegated to the background.
In the above graph, we can observe that the social dominance of FTT (in yellow far right) it has risen since the second week of November (even before the official carpet on November 8), just as rumors about the cryptocurrency exchange’s liquidity crisis began to circulate.
When it comes to tokens linked to exchanges, prices tend to destabilize.
However, as our readers know, sometimes FUD can be a good thing for future market moves. When most investors anticipate further declines and fear spikes, bearish sentiment is often followed by an unpredictable rise in price.
On the other hand, the graph below shows that whales are increasing their purchasing power.
Analyzing the graph, we observe two things:
- Binance USD (BUSD) and USD Coin (USDC) whales holding between $100,000 and $10 million quickly amassed a large amount of stablecoins. For their part, the whales of Tether (USDT) seem more hesitant, but still continue to accumulate assets.
- Conversely, Bitcoin whale and shark addresses holding between $1.7 million and $170 million continue to decline at an unprecedented rate, hitting a four-year low.
While the whales don’t seem very optimistic about Bitcoin’s price performance, they are increasing their “purchasing power” as they accumulate stablecoins. This means that whales may be waiting for the right time to re-enter the market.
Can we expect a return to normality?
Given recent events, some specialists believe that institutional and retail investors will no longer trust cryptocurrency exchanges. However, the trading volume of the top 10 cryptocurrencies by market capitalization is starting to stabilize after exploding in the days following the FTX bankruptcy.
This means that despite the loss of credibility of some exchanges, the majority of investors continue to use them.
Also, recent events have caused the correlation between stocks and the cryptocurrency market to drop sharply.
The S&P 500 recently returned to January levels, while Bitcoin hit a 2-year low, falling below $17,000 for the first time since November 2020.
Realized losses also increased significantly due to the price crash caused by the FTX bankruptcy. Even so, the possibility of a cryptocurrency market rebound should not be discounted.
The last time the cryptocurrency market suffered this many weekly losses was in mid-June. And after hitting a low on June 17, the price of Bitcoin has increased by more than 28% in the following four weeks.
Similarly, the number of BTC purchased at a rate above current market prices is also on the rise. If the trend continues into the coming week, this ratio could reach an all-time high.
The last all-time high was recorded in September 2019. At the time, the price of Bitcoin fell by more than 26% in the space of two weeks.
Regardless of your opinion on recent events, it stands to reason that the FTX bankruptcy was one of the worst-case scenarios imaginable for cryptocurrency investors. When investors worry about the safety of their assets, the market tends to stagnate.
The growing interest in self-custodied crypto wallets is a good thing, because ultimately we are primarily responsible for the safety of our funds. That said, exchanges are necessary for the growth of the market capitalization of the cryptocurrency market.
Going forward, cryptocurrency exchanges will look to be more transparent about their reserves and liquidity. Something that will undoubtedly have a positive impact on the industry.
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