Crypto is on a Cliff.
The entire crypto market is on the edge of a cliff. Some might say it’s already begun its descent over it.
With yet another reveal that one man has taken advantage of a supposedly decentralized market, one thing is for sure: crypto is headed into uncharted territory.
THE FTX FIASCO
On Sunday Nov 6, the CEO of Binance, Changpeng Zhao (aka “CZ”), announces his company is selling their stake of FTT (FTX token), worth roughly $2.1b USD.
“Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books,” — CZ
Despite the owner of FTX, Sam Bankman-Fried (aka “SBF”), claiming that its “assets are fine,” people panic. A bank run ensues, preventing withdrawals.
Despite his tweets that FTX does not have liquidity issues, word on Wall Street gets out that he is trying to raise $8b (yes, billion!) in order to keep FTX solvent.
On November 7, SBF accuses CZ of sowing seeds of doubt on Twitter in regard to FTX’s finances and claims that his exchange has an excess of $1 billion on the balance sheet. Confusingly, he also suggests Binance and FTX “work together for the ecosystem.”
On November 8, SBF announces Binance, through a (non-binding) letter of intent, will acquire FTX International. He deletes his ‘assets are fine’ tweet thread and the FTX website goes offline.
As of November 9, the acquisition of FTX is dead, with CZ claiming that SBF and FTX mishandled customer funds.
As of yesterday, November 11, FTX, one of the three largest global crypto exchanges, is filing for bankruptcy. This includes FTX U.S., a regulated entity, which was thought to be shielded from the bloodbath.
THE CRYPTO BLOODBATH
Wednesday marked a new low for Bitcoin, which fell to $15,600, a level it hasn’t seen in years. BTC sits at $16,800 and ETH hovers around $1260 at the time of writing.
Sequoia Capital marked its $214 million stake in FTX down to zero, claiming it as a total loss. BlockFi (which holds some of my BTC and ETH) froze withdrawals due to their FTX connection, and the Bahamas Securities Commission froze and liquidated all FTX assets.
Yet U.S. Equities, which BTC and crypto are highly correlated with, are way up. In fact, they’ve had the biggest one day gain since 2020. But crypto looks very bearish.
For the stock market, the big rally in under way. So, why isn’t crypto following? Even before the FTX scandal, Crypto has been range bound for months.
Risk-on assets are still a hard no. Value stocks are rising, while the growth sector made of risky tech stocks (and now, crypto) are sinking.
With the current economic forecast, the shattering FTX debacle, and a shrinking market cap (crypto is only worth $800B now), it’s nearly a certainty that BTC will retrace to at least $12,000.
CRYPTO REGULATION
Crypto regulation has been both a beacon of light and an albatross for crypto enthusiasts. But it is coming, like it or not.
Most investors actually want regulation, thinking it will further legitimize crypto and weaken its volatile swings. Maximalists think crypto must be so decentralized that any regulation flies in the very spirit that makes cryptocurrency attractive.
Sam Bankman-Fried was the poster boy for cooperation, working with officials in DC. With SBF, it was becoming a bi-partisan issue, but with his deception revealed, is this now a political opportunity for The Democrats to come down on hard on the ‘wild west’ that is crypto trading?
So are we near the bottom of the market? Or is this the cliff that crypto will never recover from?
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