Should You Be Worried About The FTX Bankruptcy And Crypto Crashing
Earlier this month, when FTX declared bankruptcy, it seemed like the crypto winter that has been ongoing for the last few months got colder. FTX, the second largest crypto exchange platform after Binance, filed for bankruptcy protection in the U.S. Events after this saga has caused a ripple effect in the crypto industry.
Following the crash of FTX, many of its users (about 1 million) cannot withdraw their funds. In addition, its long-time rival in the crypto industry, Binance, promised to acquire it. However, just one day after signing a non-binding deal to buy FTX, Binance backed out of the agreement. According to Binance, “the issues are beyond our ability or control to help.”
A Little Background To FTX Bankruptcy
Investors started withdrawing funds after a revelation that Aladema, the sister company to FTX, had more FTX tokens on its balance sheet. FTX did not have enough funds for investors to withdraw. Thus it faced a shortfall of about $8 billion. This event made the company file for bankruptcy, and its CEO, Sam Bankman-Fried, resigned.
How the FTX Bankruptcy and crypto crashing might affect you
In addition to the current crypto downturn, these happenings have caused a shock wave across the entire industry. As an investor, here are a few things that might occur from the FTX bankruptcy and current crypto crash.
1. Risky trading:
When situations like this occur in any industry, we see investors trying to sell off their assets. The increase in trading activities allows fraud in all shades to happen.
2. Increased volatility:
The crypto market is highly volatile. Now that FTX declared bankruptcy, many investors are pulling out their funds, causing crypto to be unstable.
3. Less value:
In the last six months, the crypto market has lost over $2 trillion. With the FTX bankruptcy, the prices of major cryptocurrencies like Bitcoin, Solana, and Ethereum plummeted even more.
4. Bankrupt companies:
After the FTX saga, exchange platforms like Gemini prevent customers from withdrawing funds. The fear that more start-ups could declare bankruptcy is imminent.
5. More unemployment:
A quick example is Nestcoin, a Nigerian crypto start-up that tied up its stablecoin investment in the FTX exchange. Although the company promises that its customers are not affected, employees are being laid off.
The FTX rise in value and subsequent crash leading to bankruptcy will worry any conscious investor. No one knows how long this current crypto crash will go on. In addition, FTX, despite being one of the most valued companies just two months back, no one seems interested in acquiring it, at least for now.
Therefore, an adequate understanding and analysis of the crypto market is of utmost importance as a crypto investor. Lastly, the market is still as volatile as ever, which might increase with the current situation. As much as you might want to hop on to the next big thing in crypto, a careful approach and due diligence are crucial.