Image from Investing.com yellow highlights and comments are mine

Market Still Reeling From Collapse of FTX

Yesterday I noted Crypto Crash Is Led by a Whopping 88 Percent Plunge in FTX

Here is the chart I posted yesterday. Today's chart will follow.

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FTX chart courtesy of CoinDesk. Price points added by Mish.

Valuation Plunge

The 44 percent rally was due to the announcement of a deal with Binance. It was all over in a matter of about 4 hours, rally to bottom.

FTX was valued at $32 billion in a funding round in January. At $5.52 it's market cap is now $732 million.

The WSJ commented "FTX is the brainchild of Sam Bankman-Fried, the millennial billionaire hailed as a savior of the crypto industry this summer."

FTX 2022-11-09

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FTX chart courtesy of CoinDesk

CoinDesk Comments 

Bitcoin (BTC) dropped to a new 23-month low, as CoinDesk reports cryptocurrency exchange giant Binance is highly unlikely to go through with its proposed acquisition of struggling rival FTX after less than a day of reviewing the company, according to a person familiar with the matter. "The Hash" team discusses the latest developments and what it could mean for seven-time Super Bowl champion Tom Brady, who quickly became a prominent FTX backer.

The FTX Token price is $4.00, a change of -76.78% over the past 24 hours as of 11:19 a.m. The recent price action in FTX Token left the tokens market capitalization at $1,316,621,461.63. So far this year, FTX Token has a change of -90.12%. FTX Token is classified as a Currency under CoinDesks Digital Asset Classification Standard (DACS).

The above snips courtesy of CoinDesk About FTX Token.

Celebrity football champion Tom Brady helped propel FTX. That holding is now wiped out. 

Q: What did Brady understand about FTX?
A: Nothing

FTX hit an all-time high of $85 on Sept. 9, 2021 but may soon be worthless. It is the biggest plunge ever in market cap.

That leaves Sam Bankman-Fried's net worth at about $1 billion, down from $15.6 billion heading into Tuesday. The 94% loss is the biggest one-day collapse ever among billionaires tracked by Bloomberg.

Amazing.

The fallout over FTX spilled over for a second day into everything but stablecoins. 

Bitcoin Bottom Not In 

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Bitcoin chart courtesy of CoinDesk, comment by Mish

Massive Withdrawals 

Coindesk reports Crypto Markets Tumble as FTX Reportedly Hit With $6B in Withdrawals

Fears over FTX's solvency led to massive withdrawals from the cryptocurrency exchange, an offer from rival Binance to purchase the company, and ripple effects throughout the crypto markets. 

Bitcoin Returns

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Bitcoin returns courtesy of CoinDesk

Ethereum, the second largest crypto by market cap also took huge hits in the FTX fallout.

Ethereum 

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Ethereum chart courtesy of CoinDesk

Unlike Bitcoin, Ethereum did not make a new 52-week low in the FTX fallout.

However, it was still hammered very hard. It's down 22 percent in the last 24 hours.

Ethereum Returns

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Ethereum returns courtesy of CoinDesk

Ethereum vs Bitcoin

Bitcoin operates on a "proof of work" basis. Ethereum made a switch from "proof of work" to "proof of stake" basis.

If you are interested in the difference please see Proof of Work vs. Proof of Stake: Why the Difference Matters for Ethereum Investors

Proof of work requires computers to solve cryptographic puzzles, putting in “work” to be rewarded the ability to verify, or validate, transactions on the blockchain. It’s called cryptocurrency mining, and it’s similar to a competition. 

With proof of stake, a validator is chosen randomly, based in part on how many coins they have locked up in the blockchain network, also known as staking. The coins act as collateral and when a participant, or node, is chosen to validate a transaction, they receive a reward. 

Proof of stake requires multiple validators to agree that a transaction is accurate, and once enough nodes verify the transaction, it goes through. 

“Proof of stake is much more energy efficient,” Blumberg says. “There’s not enough energy in the whole world to power a decentralized finance ecosystem on the scale that ethereum and other blockchains want.” 

It is Bitcoin's proof or work structure that makes Bitcoin extremely expensive to mine. 

Energy consumption is much higher with proof of work than with proof of stake. The bitcoin network alone, for example, uses as much power as an entire country like Malaysia or Sweden, according to data from the Cambridge Center for Alternative Finance. 

Which Model Will Succeed?

It is unclear which, if either, of these models will succeed and if so at what price. 

Ethereum is certainly more energy efficient but that does not imply any price performance. There's no reason price cannot fall to $200 or whatever. 

Bitcoin's goal is to replace fiat currencies. Bitcoin has failed in that mission and will never succeed in my estimation.

It is has been wildly successful as a speculative plaything despite a 73 percent decline over the past year. 

In the past year, Bitcoin has mostly traded in sync with the biggest technology flops.

ARKK Weekly Chart

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ARKK chart courtesy of StockCharts.Com

There was no fundamental basis for Kathy Wood's ARKK funds and there still isn't. 

Where to From Here?

Where to from here is anyone's guess. But recall the million-dollar Bitcoin predictions based on hash rate projections. Those predictions now seem laughable.

Up until a year ago, Bitcoin's entire life was in a declining interest rate, massive central bank liquidity push environment.

That environment has changed.

Both the Bitcoin speculative high and ARKK speculative high came in a Fed QE liquidity surge. That tide is going out. 

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