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Crypto Market Musings

The impact of the FTX scandal continues to shake the crypto world. The exchange filed for bankruptcy last Friday after its rival Binance stepped back from saving it. And news of FTX’s corruption and bad investments just seems to keep coming. As of this writing, bitcoin is trading below $17,000 and ethereum is trading below $1,200. For the past week, bitcoin, ethereum and other coins have suffered following the FTX liquidation crisis. The fall of one of the largest crypto exchanges means crypto investors’ confidence — especially new crypto investors’ confidence — is low.

The market has been very volatile in the past few days. Although bitcoin and ETH are still trading lower than they were just a month ago, bitcoin experienced a slight recovery this week when it hit $17,000 after trading below $16,000. Sentiment might have temporarily improved because Binance released a crypto emergency fund to help other projects facing liquidity crises.

Nevertheless, the future of crypto is uncertain. Prices have suffered and seem to keep heading down. But it seems that multiple tokens’ loss is another token’s gain. While the crypto market suffered, Trust Wallet Token (TWT) has surged by more than 90% in the past week. TWT is a crypto hot wallet app that gives users control over their coins. But that’s not to say it’s a good investment, since its price only rallied the past week after the FTX collapse. So this may just be a short-term surge.

Last week, I attended Equity Crowdfunding Week. One of the events focused on the future of blockchain and crypto. Despite the crypto winter (or what some have started calling “the ice age”) and FTX news, all panelists were bullish on crypto. For them, this year is the year of builders and creators. Interestingly, they viewed the collapse of one of the biggest crypto exchanges as weeding out bad players, scammers and unnecessary technology. 

So while the FTX collapse is not good, it’s helping to get all the junk out. To a lot of crypto believers — including me — FTX is a black spot in crypto history that crypto is going to recover from sooner or later. Some have been comparing the FTX crash to the Lehman Brothers collapse of the 2008 financial crisis. And while we’re not likely to see the ripples extend into the mainstream financial markets, there is a good lesson in the comparison. The stock markets have recovered and grown since the 2008 crash, which means those who invested during the crash have reaped the rewards. Crypto investors could be facing a similar opportunity right now. 

The FTX collapse has a lot of implications for the crypto market. The fear of contagion is spreading. On Wednesday, Gemini saw a $485 million outflow. This was mainly due to the exchange pausing withdrawals from its yield-generating Earn program, which is powered by Genesis Global Trading. So it is no surprise that almost all crypto fear and greed indexes are showing “extreme fear.” 

With the current panic selling from exchanges and reduced investor confidence, I worry that crypto might become less accessible in the future. As much as I believe crypto should stay decentralized in all ways, centralized exchanges have made crypto investing easy and fast for the average user. The FTX collapse may scare investors away from exchanges, which could in turn hurt or shut down smaller exchanges — like BlockFi — and leave investors with even fewer options for crypto trading or investing. 

I think the market will recover over time. Similar to the dot-com bubble, there will be lots of players and enthusiasts dabbling and exploring different projects. And that means we’ll continue to see projects and ideas that look promising but ultimately fail. For investors, as Vin Narayanan always says, if you believe in crypto long term, then dollar cost averaging is your best friend. Crypto could regain its stability in the future. But for now, I think crypto traders can take advantage of this volatility.

And Finally…

“Not your keys, not your coins” has been the motto circulating around lately after the FTX scandal. Many people lost wealth they will never recover. However, I think this hammers home the reality that the whole purpose of crypto is decentralization. Having crypto in a centralized entity seems rather paradoxical. I’m sure that Vitalik Buterin is having an “I told you so” moment right now. 

The bitcoin supply on exchanges has fallen sharply in the past week amid calls and reminders to transfer crypto to hardware wallets and keep complete ownership of it.

However, it is important to keep in mind that hard wallets are also not 100% safe. Users can get phishing attempts through email, Twitter or Discord. So always be cautious and always remember it’s better to be safe than sorry.

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