How Crypto Firms Are Fighting to Save the Sector After the FTX Collapse
The failure of the FTX platform has undermined investor confidence and threatened the fledgling cryptocurrency sector, forcing its major players to come together to save it.
The manager of the largest cryptocurrency platform, Binance, did everything to reassure investors on Tuesday.
“Projects that survive this difficult period will become stronger in the long run,” Changpeng Zhao said in response to questions from netizens on Twitter.
But for now, the market is being shaken.
Cryptocurrencies are worth $870 billion (roughly Rs. 7,000 crore), according to data from Coingecko, a site that lists more than 13,000 of them on 600 exchanges.
Less than ten days ago it was more than 1 billion (approx. Rs. 81,033,50 crore), and at the highest level last year, $ 3 trillion (approx. Rs. 2,43,10,050 crore), most of which evaporated as Bitcoin prices are crashing. (- 74 percent over one year), but also Ethereum (73 percent) or Dogecoin (67 percent).
The bankruptcy of FTX, which even in early November was still considered one of the most reliable platforms, is a reminder to investors of the uncertainty of the sector.
The company must liquidate its cryptoassets and its stakes in companies to pay its creditors, flooding the market.
Cryptocurrencies are already recovering from a similar crisis in the first half of the year when the cryptocurrency Terra saw its price drop, dragging bitcoin down with it.
Pour water on the fire
But this time, FTX was an even bigger player.
“There are parallels to be drawn with Lehman Brothers”, the Wall Street giant whose bankruptcy in 2008 fueled the financial crisis, said Walid Koudmani, an analyst at XTB, who told AFP that cryptocurrencies may be completely gone.
However, the fall of cryptocurrencies comes in a growing global market, and it seems to show that cryptoassets are not yet closely related to the real economy.
“But I don’t think it will fail as an industry, or as a concept,” Koudmani said.
For many observers, the survival of the sector will see a period of calm away from those initial ideas of distribution and withdrawal.
In 2017, bitcoin saw its price rise before falling, but after several years without power, called “crypto winter”, it returned with a vengeance at the end of 2020, rising to a record high of around $65,000 (roughly Rs. 52,67,400) in early 2021.
Marion Laboure, an analyst at Deutsche Bank, said he believes the FTX pullback will help clean up the sector.
“We believe that this second ‘crypto winter’ will have a positive net because the collapse of FTX will put the crypto ecosystem closer to the established financial sector,” he said.
At the moment “market concentration is greater than ever, Binance being the big winner”, Labore said.
“They’re trying to pour water on the fire, but if you follow the FTX situation, Binance has played an important role,” Koudmani said.
It remains to be seen whether the current main players, exchange platforms like Binance and Coinbase, will be among the survivors.
It allows users to buy and sell cryptoassets, but also offer more sophisticated derivatives on these already highly volatile assets, and at the heart of the ecosystem.
But they are often based in jurisdictions with lax regulation: FTX is headquartered in the Bahamas, while Binance has no central headquarters, making the job of regulators difficult.
The bankruptcy of FTX causes some users to withdraw their funds because they are afraid that their trading platform will use their cryptoassets to invest.
Among the troubled platforms, the most important now is Crypto.com, whose manager has admitted to the wrongful transfer of several hundred million dollars, but says he has returned the funds.
Binance, on the other hand, says that it has the necessary liquidity to face the problem, and says that it is ready to publish “evidence”.
Zhao announced on Monday the launch of the rescue fund and also proposed the creation of an industry association to bring together the major players in the industry. But he also said he would bail out FTX early last week, before calling it quits due to the size of the job.