FTX’s Collapse Leaves Cryptocurrency Market Scarred and Bewildered

"Former FTX CEO, Sam Bankman-Fried, Faces Trial in New York as Global Cryptocurrency Market Struggles to Recover from Turbulent Collapse"

The global cryptocurrency market continues to bear the scars of the tumultuous collapse of FTX and other major players in the industry last year. Crypto prices, volumes, and venture capital investment have all fallen significantly from their peaks in 2021. Sam Bankman-Fried, the former CEO of FTX, is currently on trial in New York, facing seven counts of fraud and conspiracy related to the exchange’s sudden collapse in November 2022. He has pleaded not guilty. FTX was just one of several industry meltdowns that caused bitcoin to plummet to its lowest price since 2020. While bitcoin and other major tokens have experienced some recovery, the sector is still far from the fever pitch of late 2021.

Here are five charts that illustrate how the crypto landscape has changed:

1. Bitcoin Blues:
Bitcoin, the largest cryptocurrency and the primary indicator of market sentiment, has rebounded by approximately 37% since November 1. In 2021, bitcoin reached a record high of $69,000 in November. However, as central banks began raising interest rates in early 2022, riskier assets like cryptocurrencies suffered as investors sought better returns elsewhere. Bitcoin lost over 65% of its value last year, primarily due to the collapse of stablecoin terraUSD, which led to the bankruptcy filing of Singapore hedge fund Three Arrows Capital and caused widespread havoc in the crypto markets. The fall of FTX further pushed bitcoin below $16,000 in November 2022. Bitcoin faced another setback earlier this year when Silvergate Bank, a popular partner for crypto companies in the US, announced its closure. Nevertheless, bitcoin has recovered almost three-quarters of its value this year, driven by interest from major financial firms like BlackRock and optimism that interest rate hikes are coming to an end. As of Monday, it was trading at around $28,089.

“The FTX debacle came at the end of an annus horribilis that had already seen a tech sector collapse, sharply higher interest rates, and self-inflicted industry wounds,” said Ben Laidler, global markets strategist at eToro.

2. Crumbling Market Cap:
The overall value of the cryptocurrency market peaked at $3 trillion in November 2021 but plummeted throughout 2022, reaching a two-year low of $796 billion when FTX imploded. Since then, it has regained some ground and has mostly hovered above $1 trillion this year. “The issues with FTX have undoubtedly hit confidence in the crypto ecosystem at large,” said Usman Ahmad, CEO of Zodia Markets, the crypto exchange of global bank Standard Chartered.

3. Stabilizing Bitcoin?
Bitcoin, known for its volatility, has exhibited some stability this year. However, some market participants argue that the relative calm in crypto markets is not necessarily a positive development. They note that many investors are attracted to crypto precisely because of its volatility, which offers opportunities for quick profits. “We expect low to medium volatility over the near-term,” said Anders Kvamme Jensen, founder of crypto firm AKJ.VC.

4. Crypto Bets Tumble:
Venture capital investments flooded into the crypto industry during its boom year of 2021 and even continued through 2022. However, such investments have significantly slowed down this year after many firms suffered losses during the market meltdown. According to data firm PitchBook, US VC crypto investments totaled $6.12 billion in the first quarter of 2022 but dropped to just $870 million in the same quarter this year. “This slowdown wasn’t primarily due to the failure of FTX but was already underway with the collapse of the terraUSD ecosystem earlier in the year,” said Robert Le, senior crypto analyst at PitchBook. “Venture investors are now proceeding with caution,” he added.

5. Vanishing Volumes:
Since the collapse of FTX, trading volumes in the crypto market have plummeted. This has caused traders who were attracted to the market’s strong liquidity to pause their buying and selling activities or even exit the market altogether. According to London-based researcher CCData, total monthly volumes across spot and derivative markets fell to $1.4 trillion in September 2023, a decrease of over 60% from September 2022. Spot markets were hit the hardest, with volumes down over 70% at $272 billion. Derivative volumes have also fallen by 60% to $1.1 trillion in the 12 months since September 2022. “The exit of some large market makers post-FTX significantly reduced liquidity, which has led to both low trading volumes and low volatility,” said Noelle Acheson, an economist who closely follows crypto.

In conclusion, the crypto landscape has undergone significant changes since the collapse of FTX and other major players in the industry. Bitcoin, the leading cryptocurrency, has experienced both dramatic losses and subsequent recovery. The overall market value has fluctuated but remains above $1 trillion. Venture capital investments in crypto have slowed down, and trading volumes have significantly decreased. These charts provide a snapshot of the current state of the crypto market, which is still recovering from the shocks of the past year.

Martin Reid

Martin Reid

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