Last Updated on 3 weeks by Ameer Hamza
The FTX Crash shook the entire crypto world and could be the biggest thing to happen in 2022 yet. A frequent question on your mind will be what the effects of FTX crash will be for you and every other crypto user. Let us start from the very beginning.
No doubt, the belief that physical cash may disappear or be substituted by digital currency is a question of when and where. The digital currency known as cryptocurrency has been deemed to be the ultimate substitute. Cryptocurrency operates on a blockchain and uses encryption to safeguard transactions. It emerged in 2009, with its most popular digital currency being bitcoin. However, digital currencies such as Ethereum, XRP, BNB also stood out.
With digital currencies came crypto exchanges like Binance, Coinbase, and FTX. At the start of 2022, FTX exchange had a valuation of $32 billion. The exchange was founded by a 28-year-old called Bankman-Fried, who also ran Alameda Research, a quant-trading firm. In November 2022, the crypto-giant called FTX exchange became bankrupt. What really happened?
What led to the FTX crash?
FTX declared bankruptcy on November 11, 2022. The journey to the downfall of FTX exchange started on November 6, 2022, when Binance declared that it would sell $529 million worth of FTT tokens. FTT tokens were FTX’s native tokens. A day after, FTX experienced a liquidity crisis, and despite Bankman-Fried’s claim that the assets were stable, FTT tokens dropped 80% that week.
This gets more interesting. Binance offered to buy a part of FTX and then changed its mind. The exchange claimed it was due to further information on mishandled funds and entangled finances. By November 10, FTX exchange had its accounts frozen by Bahamas securities, and the California government started an investigation. On November 11, Bankman-Fried announced his step-down as CEO while the firm filed for bankruptcy on the grounds that its liabilities were same range as its assets.
What are the effects of FTX crash on the crypto industry?
• Layoffs in the Cryptocurrency industry have begun due to the effects of FTX crash. In fact, various crypto firms that kept their capital have been affected, including Nestcoin. To cut costs, these firms have cut salaries, laid off staff, and are in jeopardy.
• The cryptocurrency market is recognized for operating freely due to the lack of suitable regulatory frameworks. However, the FTX crash has revealed the sector’s fragility spurring the demand for more stringent regulations in the future.
• The crash is likely to drive slower adoption of cryptocurrencies. Being a significant digital currency, it could cause investor fear and force users to liquidate their assets.
• Potential loss of funds by companies with investments in the cryptocurrency market. Businesses like genesis and Galois capital were affected by the FTX crash since their funds were trapped in their FTX trading accounts. The likelihood of retrieving these funds is slim as users cannot be guaranteed payouts.
The FTX crash will undoubtedly have a wide range of repercussions for the cryptocurrency market since it will undermine the sector’s legitimacy. Additionally, given that the industry often experiences a crypto winter, the likelihood of a spillover to other cryptocurrencies is significant.