Has Crypto Died as an Investment After FTX’s Collapse?

The recently unveiled FTX crypto scandal has sent shivers down the spine of the crypto world with crypto prices reaching an all-time low. In October 2021, Bitcoin witnessed a massive peak of over $65,000 whereas now it struggles to conquer the $20,000 mark.

Thanks to the stunning collapse of FTX, investors are believed to have lost over a trillion dollars since. Not only have crypto prices gone to the ground, but the industry now faces several macroeconomic challenges, market forces, and multiple other scandals.

What was deemed a spectacular winter of 2022 for crypto inventors suddenly turned into a disastrous week since the news of the FTX scandal. Back in November 2021, there was an explosion of non-fungible tokens (NFTS) in the crypto market with crypto investors deeming Ethereum as the world’s most influential developer.

But just a year after peak crypto, crypto now lingers at the bottom with Bitcoin and Ethereum believed to have lost almost three-quarters of their value. Moreover, the entire crypto industry once valued at a whopping $3 trillion now sits at a bare minimum of $900 billion.

Which was widely used as a hedge against inflation has taken a deep plunge leading to investors questioning whether crypto has died as an investment.

Why Have Crypto Prices Plunged?
What Is the FTX Scandal?
How Do FTX’s Troubles Impact the Crypto Market?
Will Crypto Bounce Back?

Why Have Crypto Prices Plunged?

As we mentioned above, a three trillion dollar market now sits in the billions. In 2021, crypto prices witnessed an all-time high. However, just a year later, crypto faced its worst days after having lost over half its market valuation.

The impact of the FTX scandal can be seen throughout the entire crypto market. Since the incident, the company has officially filed for bankruptcy with founder and CEO Sam Bankman-Fried having already resigned from his post.

As per official reports, lack of liquidity and mismanagement of funds were the primary reasons why the FTX scandal happened. Moreover, the rapid withdrawal in large volumes by customers has further dipped the value of FTX's native token, FTT.

But apart from the FTX saga, here are some of the reasons why crypto prices plunged:

Regulations

The money market and regulations have never had a good history and usually don’t get along. The crypto industry regulations are marred by multiple misconceptions and trust issues about the use of digital assets.

But with crypto having no central authority, every country tends to have its unique set of regulations for the crypto sector and a plethora of policies on what makes crypto a legal payment system. However, the lack of clarity on the matter is the reason why many analysts believe that crypto cannot be mainstreamed anytime soon.

Following the FTX scandal, analysts believe that governments may further amp up the regulations to enforce strict enforcement laws to improve regulatory scrutiny.

Scams and Ponzi Schemes

The lack of regulations around the crypto market has made it vulnerable to scams and several Ponzi schemes. These scams and Ponzi schemes, in addition to market volatility, have led to several events that have compromised market liquidity in turn leading to catastrophic situations.

Not only did FTX take down its native token FTT, but it also managed to drag down other popular crypto tokens such as Bitcoin (BTC), Ethereum (ETH), Solana (SOL), and so on. The prices have corrected sharply following multiple liquidations caused by the FTX issue.

What Is the FTX Scandal?

FTX was a digital market-placed launched by founder Sam Bankman-Fried in 2019 to buy and sell digital assets. This launched marketplace soon emerged as an accessible crypto exchange that went on to outsize its origin and found itself becoming a source of mainstream attention.

By the summer of 2022, the company had made several headlines with its name in the NBA arena. In 2022, FTX managed a whopping $32 billion valuation from some of the most brilliant minds in Silicon Valley. However, a conducted audit concluded that FTX’s books didn't tally and were completely out of sorts.

Furthermore, the audit also stated that the company had misused its customer funds with a trading firm for nearly two weeks. This led to a massive fallout shifting the entire business into the hands of the regulators and the cash nowhere to be found.

What was once valued at $32 billion has now sunk to bankruptcy with its liquidity all dried up due to intense customer withdrawals. Instead of the situation, Binance, the rival crypto exchange that was in the frame to buy FTX, ripped up the non-bidding agreement of buying the company.

The FTX crash took several major tokens down with them. Not only did the crypto exchange tank in the crypto market, but the company also faced an apparent hack that drained over $600 million from user wallets on the same day.

Moreover, Bloomberg’s report further states that the company might have limited funds to repay its investors. Founder and CEO Sam Bankman-Fried has officially resigned as the firm filed for Chapter 11 bankruptcy in November 2022.

How Do FTX’s Troubles Impact the Crypto Market?

The first major impact of the FTX scandal is already visible with the entire crypto industry’s massive drop in valuation. Additionally, it has had a profound impact in various ways on the crypto market. Here is how FTX troubles have impacted the crypto market in its entirety:

• Bitcoin’s value has dropped considerably with the latest amounting to $16,000 as of November 9. Also, bitcoins worth $3.2  billion were taken off numerous crypto exchanges between the 8th and of 15th of November 2022.
• Furthermore, Ethereum too has dropped below $1,100.
• A report from Coindesk indicated that Alameda held a huge chunk of Solana which had dropped below $13 on November 9, 2022, respectively.
• In addition, Solana’s networking applications have also felt the heat following a loss of $700 million in assets.

Every major token such as bitcoin, Ethereum, and other Defi tokens too has fallen by a much greater percentage than the rest. According to Coinmarketcap.com, the crypto market cap further fell to $831 billion as dated on 17th November.

Bitcoin recorded its lowest intraday trading volume followed by a massive drop in price and valuation. In addition, Ethereum too was volatile and completely directionless with no price moves. However, it did manage to keep up a steady trading value.

Will Crypto Bounce Back?

If crypto has taught us one thing is that the entire crypto market works in cycles. This means there are going to be a few lows before the market finally rebounds. From what we’ve seen so far, the crypto market pattern is definitive enough to tell us that it will bounce back and register new highs.

However, amid the recent FTX scenario, the future of cryptocurrency seems bleak as analysts believe that the FTX scandal has pushed back the cryptocurrency by at least 5 years. The trillion-dollar industry now sits in the billions and it will be interesting how it will make up for lost time and valuation.

If history is evidence, then it's evident enough to state that this isn’t the only time the crypto market has reached a new low. Back in 2011, when barely anyone knew about digital currencies, Bitcoin crashed from $32 to $2 between July 2011 and January 2012 and it wasn’t until 2013 that prices slowly started rallying up.

This bearish trend was once again visible between 2014 to 2016 when Bitcoin plunged from $1,135 in December 2013 to $175 in January 2015. This was back when Mt Gox, one of the biggest crypto exchange platforms was hacked where hackers stole nearly 850,000 worth of Bitcoin.

The consequences were severe as BTC dipped to nearly 85% in value and it wasn’t until August 2015 before the market started rallying up once again. Following the 2014-2016 debacle, the 2018 bearish trend saw BTC drop from $19,640 in December 2017 to $3,185 in December 2018.

Unlike the previous bearish trend, there was more than just one reason that contributed to Bitcoin's downfall, which sank nearly 84% in 2018. The recent FTX scandal marks yet another bearish trend of 2022. Bitcoin tumbled nearly 8 times in September 2022 before finally picking up the pace in October 2022.

However, just when people thought the crypto market was stabilized, it was met with the FTX scandal. In addition to the FTX implosion, inflation, and rising interest rates have already led to a level of economic uncertainty in the country. All this is slowly driving investors to sell their risky crypto assets throughout the year.

But as we said, the crypto market is cyclic and there will be few bearish trends before we witness a trend reversal into a bullish trend.

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Conclusion

The 2022 bloodbath has raised significant eyebrows on whether crypto is forever doomed. While pundits believe that it’ll eventually bounce back, financial experts worldwide expect crypto to never recover. Nevertheless, it could take a while before you can see the gains on the existing cryptos in the market.

Having said all that, crypto remains a vital part of the modern-day market. Despite this year’s major tank, there are several crypto projects in the pipeline that will encourage you to invest. You don’t have to keep your arms folded until these projects go public as you can invest in them anytime.

Although there are multiple tokens available on crypto exchanges, cryptocurrency as a whole remains a highly volatile market and a relatively risky investment. As an investor, one should always be looking to expand their portfolio. However, high-risk investments such as crypto should always make up only a small part of your portfolio. To tackle this high risk, diversifying your range of crypto tokens is perhaps the best solution.

FAQs

Why did the FTX scandal happen?

As per official reports, lack of liquidity and mismanagement of funds were the primary reasons why the FTX scandal happened.

Is crypto still a good investment?

Cryptocurrency is still a high-risk investment and should be approached with caution. Investors should consider their overall portfolio and only allocate a small portion to crypto investments.

Will crypto bounce back?

If crypto has taught us one thing, it's that the entire crypto market works in cycles. From what we’ve seen so far, the crypto market pattern is definitive enough to tell us that it will bounce back and register new highs.