FTX bankruptcy extends ‘crypto winter’

Volatility and instability are the main words used to describe the situation. cryptocurrency market, unorganized and completely decentralized. However, there are other terms that are starting to form part of the “slang” produced around the tiny microcosm of cryptocurrencies: “crypto winter.” The word came to be used to describe the state of digital currencies between late 2017 and early 2018, when Bitcoin lost 80% of its value after recording historical maximums. The bankruptcy of digital currency exchange platform FTX and the resignation of millionaire CEO Sam Bankman-Fried in his thirties brought back uncertainty. The most popular cryptocurrency is returning to the lows of two years ago, and other currencies are also experiencing significant drops. Investors’ biggest fear right now is that winter will last forever, like CS Lewis’ Haunted Narnia.

Bitcoin price has lost about 60% of its value in 2022 and more than 70% since the historical maximum of $69,000 per unit recorded in November 2021. The cryptocurrency market has generally been hit by more than one crisis this year. In addition to the problems of the ‘crypto’ universe, we should not lose sight of the fact that the rise in interest rates and the slowdown in the economy also create a crisis. deter investors from taking high risks. This situation affects this sector a lot as it is experiencing high volatility due to the fact that it is an unregulated market by nature. Restrictions on cryptocurrency mining (a way to mine cryptocurrencies over the network, which consumes large amounts of energy) and the conflict between the two major exchange platforms Binance and FTX have further weakened this market.

The finishing touch to this grim scenario came this week with the bankruptcy of FTX. There is an 8,000 million gap in the platform’s accounts that no one cares about. To make the situation worse, FTX customers denounced they lost at least $1,000 million in savings this SaturdayAccording to information published by the Reuters agency. The evaporation of that money would be the result of the practices of the company’s former CEO, Sam Bankman-Fried. Everything indicates that this businessman is using some of the investments made by platform users for Alameda Research, the investment arm of the group. This move initially triggered a collapse in liquidity and later bankruptcy.

FTX crisis, second largest cryptocurrency trading market by week, appendices The scandal involving the collapse of the Terra/Luna digital currency or the discrediting of the Three Arrows Capital fund. These bankruptcies had a contagious effect for other players in the market. Other digital currencies have been swept by the storm. Ethereum, Dogecoin or Cardano Nearly 20% depreciation has accumulated in the last week.

Many are institutional investors and banks who have started investing in cryptocurrencies in the face of the promise of high returns from a self-regulated, algorithmically driven and decentralized market. Each new scandal casts doubt on the possibility of monetizing these investments. And if there’s one thing money doesn’t like, it’s uncertainty.

cascade effect

The biggest problem with bankruptcies is the cascading effect they often cause. FTX’s investment vehicle, Alameda Research, and the group’s approximately 130 subsidiaries will still leverage bankruptcy legislation to try to generate a return on remaining assets. However, the funds of nearly a million users remain in the air..

Many other firms in the ‘crypto’ sector have been exposed to FTX and its collapse could have a cascading effect. BlockFi, rescued on credit by FTX, already confident that he froze withdrawals in the face of his creditor’s crisis.

And waterfall can reach big names in finance, for example soft bank, Black Rock, redwood Y Temasekcame to pay $1,720 million in FTX. In the case of Softbank, the Japanese conglomerate that took VisionFund under its wing, this Friday the company reported losses of close to $7,200 million in the third quarter, although it did not imply the bankruptcy of FTX, but the company’s chief financial officer pointed out that investments in crypto accounted for only 1.3% of the total. .

Sequioa Capital, a venture capital firm that manages up to $85 billion, also has exposure to FTX. Bankman-Fried would have invested nearly $200 million in two Sequioa funds.according to the newspaper Financial Times. The fund manager of this group even praised the “impressive intelligence” of the founder of FTX in a company article.

In addition to venture capital funds, Mention may be made of Ontario’s (Canada) teachers’ pension fundparticipated in one of FTX’s funding rounds last October 2021.

The twilight of FTX, established in 2019, It also meant that the boy fell out of favor with his father.. Bankman-Fried came to amass a fortune of $16,000 million at just age 30 and became a major donor to the Democratic Party in the United States.

Given the swamp created by bankruptcy this week FTX, Bankman-Fried withdrew from intimacy and said openly in front of a group of investors: “I screwed up and I should have done better.” After the platform’s bankruptcy, this businessman assured that the company would continue to work to order the crash landing. Time will tell if spring can come again crypto world or if the market is heading towards the ice age.

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