It all started on November 2, when a report was leaked showing that hedge fund Alameda Research, founded by Sam Bankman-Fried (owner of FTX), held a significant amount of FTT, the native token of the FTX exchange. Alameda and FTX were supposed to be separate businesses, but the report showed there were many links.
The seriousness of the matter was that Alameda used the FTT tokens as collateral, to take loans. In other words, money from FTX clients was used to finance Alameda. And when Alameda collapsed, there wasn’t enough money to give back to people when they made withdrawals.
Following that leak, Binance, one of the most renowned exchanges in the world, announced that it would sell all of its FTT reserves. This generated a run on the FTT token, recording a 95% drop in a short time.
FTX clients wanted to get out of the exchange at all costs and the owner stopped the withdrawals, announcing that an agreement had been reached to be acquired by Binance. However, the next day Binance rejected the proposal. Another crypto playpen.
How was it resolved? FTX needed to find billions of dollars to satisfy customer withdrawal demands or find a way to reassure them that the money was safe. Difficult task. Did they make it? No. So? On Friday, November 11, FTX filed for bankruptcy. In a statement, he assured that the bankruptcy declaration was the appropriate measure to manage the company’s assets and protect the interests of shareholders.
Several episodes have already occurred in the crypto ecosystem, which generated a lot of mistrust. Also, that an exchange as important and stable as FTX has fallen is a bad sign. There is still a long way to go in terms of regulation.
The panic was such that the entire crypto market suffered a phenomenal destruction of wealth. Taking into account the Market Cap of all cryptocurrencies, it exceeded USD 1,000,000M. to USD 750,000M.
In other words, in a week USD 250,000M “vanished”. Shocking, isn’t it? Where did that money go? To nowhere. It is plain and simple destruction of capital. It’s lost, it’s gone. Bitcoin touched minimum values (USD 16,000), not seen in the last 24 months.
Analyzing the Market Cap of the entire crypto ecosystem in the last year, the story is even more dramatic. The numbers speak for themselves. The drop in total capitalization is 74% in just 12 months.
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The fall of cryptos cannot be detached from the global macroeconomic situation. Inflation in the US was record high, forcing the Federal Reserve to sharply raise interest rates.
This negatively affected the prices of bonds and shares, especially technology ones. Cryptocurrencies, beyond their benefits, are still financial assets, and they also fell along with the entire market.
What can happen now? Mistrust and uncertainty is total. What happened this week speaks to the debugging not being done yet. Also, cryptocurrencies cannot be isolated from general stock and bond market sentiment.
For this reason, it is necessary to monitor what happens with inflation and the position that the Federal Reserve takes in terms of interest rates. This year is going to be one of the worst in history. And everything suggests that the conflicts will not be resolved quickly.
The current situation is very challenging: record inflation, rising interest rates and stocks suffering huge losses. That’s why I prepared a report with 3 ideas to take advantage of the context. I really recommend it. Download it here: https://informes.cartafinanciera.com/
Source: Ambito
