How did the FTX bankruptcy change everything in the crypto market?

“Not your keys, not your cryptos”. While some investors learned their lesson before the FTX crash, others blindly trusted crypto exchanges.

Admittedly, self-hosted crypto wallets are much less vulnerable to hacks than exchanges. Alex Kruger has a very different but totally compelling perspective.

Legal uncertainty in the crypto market is a double-edged sword, meaning investors should exercise caution. The first half of November taught us that there is no such thing as a perfect option, but exchanges certainly cannot be blindly trusted as we did before November 8.

The fall of FTX will undoubtedly have disastrous consequences on the market. More than 5 million people worldwide are at risk of never recovering the funds they entrusted to the Sam Bankman-Fried crypto exchange.

The fall of FTX has sent shockwaves throughout the crypto market, and it seems that some investors still don’t understand the magnitude of the issue.

Crypto exchanges are losing credibility

According to Santiment’s latest survey, more than half of participants currently hold a third or less of their assets on exchanges:

It can be clearly observed that investors no longer trust crypto exchanges as before, which is completely understandable.

The sudden fall of FTX was a painful event for millions of investors. Therefore, this distrust, which may seem excessive, is completely legitimate. The most similar incident to the FTX bankruptcy dates back to 2014, when Mali Gox was officially liquidated.

In effect, this address has been draining FTX coffers since November 11th. According to the latest informationthe address is believed to belong to Sam Bankman-Fried, who says he hacked his platform at the request of Bahamian authorities.

FTX hack
Source: Sanitation

The crypto market goes into panic mode

FTT’s price has fallen more than 98% from its all-time high. It all started when Changpeng Zhao decided to sell a large amount of FTT tokens held by Binance. Due to its irresponsible management, FTX ended up with an impossible debt to service, which immediately caused a liquidity crisis in the stock market.

Falling FTX caused a FUD effect (fear, doubt and uncertainty) that rocked the entire crypto market. Result: discussions related to Bitcoin moved back into the background.

ftx exchange
Source: Sanitation

IN graph above, we can note that the social dominance of FTT (in yellow on the right) increased since the second week of November (even before the official rug was pulled on November 8), just as rumors of the crypto exchange’s liquidity crisis began to circulate.

When discussions focus on arguments related to exchanges, prices tend to destabilize.

the search for bitcoins
Source: Sanitation

However, as our readers know, sometimes FUD can be a good thing for future market movements. When most investors anticipate further declines and peak fear, the bearish sentiment is often followed by an unpredictable rise in price.

On the other hand, graph below shows that whales are increasing their purchasing power.

crypto whale
Source: Sanitation

Analyzing graphwe see two things:

  • Binance USD Whales (BUSD) and USD currency (USDC) holding between $100,000 and $10 million quickly accumulated a large amount of stablecoins. In turn, Tether’s whales (USTDA) seem more hesitant, but still continue to accumulate the asset.
  • In contrast, addresses of Bitcoin sharks and whales holding between $1.7 million and $170 million continue to fall at an unprecedented rate, hitting a four-year low.

Although the whales do not seem very optimistic about the Bitcoin price course, they are increasing their “purchasing power” with the accumulation of stable currency. This means that whales can wait for the right moment to re-enter the market.

Can we expect a return to normality?

Given recent events, some experts believe that institutional and retail investors will no longer trust crypto exchanges. However, the trading volume of the top 10 cryptocurrencies by market capitalization is starting to decline after exploding in the days following the FTX bankruptcy.

crypto market volume
Source: Sanitation

This means that despite the loss of credibility of some exchanges, most investors continue to use them.

Moreover, recent events have led to a sharp decline in the correlation between action and the crypto market.

crypto market correlation
Source: Sanitation

The S&P 500 recently recovered to January levels, while Bitcoin hit a 2-year low, falling below $17,000 for the first time since November 2020.

Realized losses also increased significantly due to the fall in prices caused by the FTX bankruptcy. However, the possibility of a crypto market comeback should not be discounted.

Source: Sanitation

The last time the crypto market suffered this many weekly losses was in mid-June. And after hitting a low on June 17, the price of Bitcoin gained over 28% over the next four weeks.

Likewise, the number of BTC bought at a higher rate than current market prices is also increasing. If the trend continues over the next week, this ratio could reach an all-time high.

The price of Bitcoin
Source: Sanitation

The last all-time high was recorded in September 2019. At that time, the price of Bitcoin fell over 26% in the span of two weeks.

Regardless of your opinion on recent events, it is clear that the FTX bankruptcy was one of the worst scenarios imaginable for crypto investors. When investors worry about the safety of their assets, the market tends to stagnate.

The growing interest in self-care crypto wallets is a good thing, because ultimately we are primarily responsible for the security of our funds. That said, exchanges are necessary for growing the market capitalization of the crypto market.

Going forward, crypto exchanges will try to be more transparent about their reserves and cash. Something that will undoubtedly have a positive impact on the sector.


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