Crypto’s Downfall
According to Wikipedia, cryptocurrency, or crypto, is a cast of digital currency that behaves as a medium of exchange through a computer network that is not dependent on any central authority. One of the earliest examples of crypto is Bitcoin (BTC) with its origins dating back to a white paper published in 2008 and remains the best-known type of crypto.
Bitcoin forfeited more than 39.8% of its value last November and is exchanging below $25,000 for the first time since March. It is heading for the worst month ever, dating back to 2010. Ethereum (ETH) fell nearly 25% on the week, while Solana (SOL) has an anticipated drop and plunge in price as low as -4.78% by June 22, 2023. To make a clear perspective on the prime explanation behind the collapse of crypto in 2022 was the crash of the largest global cryptocurrency exchange, FTX Crypto’s reputation of being incredibly volatile experienced a tumultuous time in 2022. FTX’s bankruptcy and its issue with Binance have only made things suffer a colossal reduction in liquidity and sell-off in the crypto market. Moreover, apart from just the crisis related to the sudden fallout, the spiking interest rates and the recent hawkish tone of the U.S. Federal Reserve’s tighter monetary policy have only put more fuel to the fire.
What is foreseen to be the future of finances took quite an abruptly shady turn last year, delinquent to the collapse of the enormous crypto hedge fund, FTX. The crypto market is still seizing the road to recuperating from the catastrophe, but still quite far from the high ball price it reached in the early years of 2021. So, everyone has been questioning what 2023 will look like. Will it be a year of slow expansion, or will the cryptocurrency market be able to touch new thrills and recover all the casualties faced in 2022? Well, let’s dive into it!
What Happened to FTX?
The wreck of FTX is not an ordinary story of an investor who had a stroke of bad luck in making judgments nor due to crypto’s known high volatility. FTX might appear to be a continuous series of deception and selfishness of the owner. Over the past years, on the surface, FTX came across as thriving sustainably. It made several high-profile acquisitions and bailed out other declining crypto companies. However, the truth is far from it. FTX was drenching in debt and had an estimated $1 billion in customer funds reportedly missing.
Bankman-Fried, the Chief Executive of FTX, has been the subject of countless magazines and profiles. He was the cover of Fortune’s September issue. The media illustrated this guy as a nerd, down to earth, with his messy hair, and driving his Toyota Corolla to work every day. Investors were enamoured that he wasn’t the typical showboat and madcap entrepreneur. He played games during meetings. Like any new-generation founder, his eccentricities were seized as proof of his distinct genius.
The prior November was a constant fright of terrible news navigating through crypto investors and Sam Bankman-Fried as FTX filed for bankruptcy. Its rival and now the world’s biggest crypto exchange, Binance, tried to save FTX by putting a deal on the table to attain the company. The 30-year-old wonder face and applauded boy who was once evaluated to have a net worth of $16 billion is now in the middle of an epic burnout that left his empire and reputation in the dooms. Bankman-fried was also arrested back in December in the Bahamas for fraud, securities fraud, and money laundering, among other stuff; he has since been extradited to the U.S. and discharged from jail on a $250 million bond.
Coming off as a billionaire himself, he established a foundation named FT Foundation with an estimated donation of over $190 million. This certainly shows the benevolence of Bankman-Fried and portrays that he knows how to use up his money, or is it? He told Yahoo Finance earlier last year, “It’s hard to spend more than millions a year effectively on yourself, even if you wanted to.” But Bankman-Fried seems to have figured it out. Where did tons of his money go? How he monopolised had articulated a data-and evidence-based strategy for how to give away his wealth is, in part, what makes his downfall so stunning. Who was he all along?
Bankman-Fried’s story may be the most jaw-dropping event in the crypto market. As soon as the news swept, waves of customers quickly revoked their funds from FTX; then, the company filed for bankruptcy. There was a report from The Wall Street Journal that Bankman-Fried reportedly took about $10 billion in customers’ funds for his trading firm, Alameda Research. Now, Bankman-Fried is worth close to nothing.
What Does the Future of Crypto Look Like?
To simplify, it has been a brutal year for the crypto market. Still, it has been time to recollect how the fate of digital money has come and what the future holds for it. Due to its many irregularities and lack of policy, many transitions must be made for crypto to reach the value and heights it once accomplished. The rich will take advantage of it and vacate people’s dreams and beliefs to go down in flames. Banks emerge relatively safe, fortunately.
Combined, the banks hold about $9 billion in crypto. Regulators have alerted them for years to be careful about investing in the asset class, and it appears that banks took notice. A startling number of retail investors own crypto and face some losses. But that exposure, while widespread, looks reasonably shallow. About 10% of households in both the U.S. and Europe own some cryptocurrency. In the U.S., the average holding is worth $1,000. Most European investors own less than $5,000. The authentic bag holders are venture capital firms, which have wagered heavily on the crypto industry. Of the roughly
10,000 companies tied to the crypto business, only a few hundred are publicly traded. Most of the rest have been bankrolled by venture capitalists, who now face sizable (and in some cases near-total) losses.
For one, the cataclysm will look sure to stir regulators into action. Crypto still needs to be more regulated, meaning investors need the identical protections they would have placed their funds with a licensed bank or broker. That may be about to change. Governments in the U.S., European Union, and the U.K. are taking steps to clean up the market. The EU’s Markets in Crypto-Assets is the most comprehensive regulatory framework. It aims to lower the risks for consumers buying crypto, making trades liable if they lose investors’ assets. But Markets in Crypto Assets (MICA) will start in 12 months.
Whether crypto prevails or becomes a financial curiosity like the tulip bulb will not ultimately depend on regulation and law. The more scandals ensue, the more the enterprise and its aspirations become contaminated. The lure of innovation signifies nothing if investors and users fear their money will vanish into thin air. For crypto to rise again, it must find a proper use that leaves the dodginess behind. The lack of regulation is a major issue with this new way of banking and has made it increasingly uncertain. To foresee a future for crypto, governments need to execute major new policies to make it safe and sustainable for the future. On and all, this market is still new and full of mysteries, skyrocketed on one end, and the next thing you know, it’s crashing. Therefore, new investors especially are advised to have a diverse portfolio and not depend too much on crypto.
[Written by: Haris Ikhwan. Edited by: Teoh Jin]
