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Money - November 17, 2022

Is Crypto Dead?: FTX’s Bust Comes in Two Shades

This week, crypto exchange FTX has been frantically trying to obtain funding to make up for a liquidity shortfall of up to $8 billion, but it’s becoming less and less likely that CEO Sam Bankman-Fried will succeed after Binance pulled out of a potential fire-sale agreement.

The price of bitcoin dropped by a staggering 75% in the past year, or by a fourth of its original worth. This is for something that is said to be a superior store of value than precious metals like gold and the US dollar.

More unsuccessful cryptocurrencies exist. Some have been completely wiped out, and many are down 80–90% in a year.

Most cryptocurrency investors are currently waiting on losses. Another major cryptocurrency exchange, FTX, where users go to trade and store their coins, failed last week.

This was allegedly caused by numerous irregularities, including the improper purchase and support of the company’s own cryptocurrency, the FTT token, with consumer money.

Crypto is not regulated

In contrast to other financial institutions like banks and credit unions, cryptocurrency and related business entities are not regulated in the United States.

Many consumers’ checking and savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which guarantees to step in and make clients whole in the event of a bank failure.

FTX was used by institutional and retail investors to buy and sell stocks, ETFs, futures, options, leveraged tokens, and non-fungible tokens in addition to cryptocurrencies (NFTs).

Customers could pay for transactions using FTX’s native cryptocurrency token FTT to receive a discount on trading fees; the more FTT a user had, the greater the discount.

Contrary to FDIC-insured accounts, however, crypto investors using a site like FTX are not protected by such measures.

Regardless of the massive crash, let’s take a look at the bright side of the FTX-caused crypto drop.

Let’s take a look at the two advantages of the FXT’s bust that is worth considering.


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1. The stock market

First, the stock market has not been affected by the cryptocurrency crisis. In contrast to bitcoin’s 19% decline over the previous five trading sessions, the S&P 500 has increased 5.9%.

“We think Bitcoin and ETH remain a too small part of the market to cause broader financial market contagion, with a total crypto market cap size of $890 billion vs $41 trillion for U.S. equities,” Citigroup digital asset analyst Joseph Ayoub said in a note to clients. 

“The FTX shortfall is still relatively small in comparison to other crypto events, such as Luna ($40 billion lost) or market cap losses in public tech names.”

2. A future stable crypto market

In the long run, what happened with FTX should lay the foundation for a more stable cryptocurrency market. Less booms and busts may result from this, which is good news for investors.

This is due to a several factors, including new guardrails being installed by regulators the next year and the washout’s ability to remove foam.

“This should be a wake-up call that what you thought was worth something is actually not worth anything,” said Mizuho analyst Dan Dolev on Yahoo Finance Live.


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