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What is happening in the world of cryptocurrencies? – Forbes Australia Advisor


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The catastrophic collapse of crypto titans FTX and Alameda Research has rocked the cryptocurrency world for the past two weeks. The rumor that the pair had blurred the lines between user deposits and their investments soon turned into a cascade of events that shocked the industry. Bitcoin and other cryptocurrencies have entered a downward spiral after the implosion, earning November 2022 a place in the history books as one of the worst months in cryptocurrency history.

But what actually caused FTX to crash, what has been the impact, and why is Bitcoin falling?

The last quarter of 2021 turned out to be the start of what has become a wild downtrend for Bitcoin and the crypto markets ever since. Despite reaching a staggering $69,000 USD almost exactly one year ago, Bitcoin is almost 75% below its all-time high. The entire cryptocurrency market peaked with a total value of $3 trillion around the same time in November last year, but has lost almost $2.2 billion in value over the past year.

2022 has proven to be a challenging year for investors globally, both with Russia’s invasion of Ukraine and massive fiscal stimulus by governments during the Covid-19 lockdowns, leading to high inflation in countries of all the world. In order to reduce the inflation rate to acceptable levels, central banks have raised interest rates, which has a negative impact on investment markets such as stocks and cryptocurrencies.

Since the start of the year, cryptocurrencies in general have been on a downward trend in value, exposing vulnerabilities for some players in the industry. The Terra Luna crash in May caused significant consequences for the entire crypto space, wiping out nearly $60 billion from the crypto markets in a matter of days. Many companies were directly affected; notably, Celsius, Voyager, and 3 Arrows Capital filed for bankruptcy following the incident.

By October, crypto markets had finally begun to shake off the dust from the Terra collapse, and the space seemed to be moving in a positive direction. However, on November 2, 2022, CoinDesk ended the brief quiet moment by revealing that giants FTX and Alameda Research seemed to have put themselves in a risky position. A cascade of events soon followed, creating mass hysteria in the cryptocurrency world and plunging the price of Bitcoin as investors panicked and sold their assets to redeem their remaining money.

A bit of history: FTX implosion explained

Sam Bankman-Fried, better known as SBF, is a cryptocurrency tycoon known for founding exchange giant FTX and quant trading firm, Alameda Research. CoinDesk revealed that while Alameda Research and FTX were purportedly separate companies, the balance sheets of these companies had become intertwined. Alameda Research’s holdings were dominated by the FTX token, indicated by the ticker symbol FTT.

Several days after this information surfaced, a rival exchange and FTX investor, Binance, announced that it would sell all of FTT’s remaining holdings, for $580 million. Naturally, the price of the FTT token plummeted on the news. This price drop caused immediate panic among FTX users and a “run on the bank” ensued on the exchange. After only $4.5 billion worth of crypto assets were removed from the FTX platform, withdrawals stopped processing without prior notice.

This situation left $10 billion in user funds trapped in the exchange, which could affect millions of users. Fearing the worst, some affected crypto investors began selling their remaining assets to get out of the market, causing a rapid decline for Bitcoin and cryptocurrencies across the board. Rival exchange Binance briefly intervened, offering to buy FTX and meet its obligations; however, after less than a day of due diligence, they announced that the issues were beyond their control. “ability to help”.

Following this, Chinese crypto magnate and TRON founder Justin Sun offered to back any FTX deposit of TRON-based tokens. Seeing a way out, users instantly flocked to buy the Sun-backed tokens and withdraw them, driving the price on the platform almost 50 times higher than the original. Of course, when folding, this meant taking an immediate loss of up to 99%. Many FTX users decided that accepting this loss was better than leaving assets on the exchange.

FTX has since filed for bankruptcy, both in Australia and abroad, suffered an alleged hack of almost $1 billion in user funds and is now under investigation by the Bahamian government for criminal conduct. All ruin in fact.

Impacts of the FTX Collapse

The collapse of the SBF empire has widespread consequences for the crypto industry. FTX and Alameda Research were seen as industry powerhouses and had investments or liabilities with many companies in the space. Other companies affected by the FTX crash have already begun to come forward, pausing user withdrawals from the platform while they determine the extent of the damage.

In addition to the direct impact of FTX’s dealings with other companies, there has also been a degree of hysteria and mass panic. Some cryptocurrency investors have all but lost faith in centralized platforms and exchanges, and are frantically withdrawing every penny they can from their accounts. The massive exits from exchanges show the extent of this loss of confidence, with more than $3.7 billion worth of Bitcoin removed from exchanges, along with billions of dollars worth of other currencies.

Some users may have been so shocked by the disaster that they may decide to sell their assets and leave the crypto space altogether. The price decline in many crypto assets suggests that this could be a definite possibility and could be one of the reasons why Bitcoin is falling. However, despite the negative impacts of the past week, there are some positive takeaways.

A key takeaway will be the need to improve regulation of centralized crypto exchanges to ensure proper management of user funds. SBF was making the case to regulators who proposed a light touch, benefiting FTX and hitting rivals and decentralized finance applications more severely.

Another critical understanding for crypto investors is that centralized platforms are not necessarily the safest places to store crypto – those who chose to keep their crypto assets in their wallets were unaffected by the events of the past week and still have access to their cryptocurrencies. . Some may be so scarred by the FTX collapse that they will opt for this storage method in the future. In any case, keep an eye on this space.

This article does not endorse any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of a cryptocurrency as an investment class.

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