Some investors had dared to relax and believe that the worst might be over after six months of relative stability in the cryptocurrency market. Despite recession warnings and ongoing economic turmoil, Bitcoin (BTC) has been hovering around $19,000 to $20,000 since around June.
Cryptocurrency, on the other hand, always has the potential to pleasantly surprise us. As the market processed the news that Binance, the leading cryptocurrency exchange, would acquire rival FTX due to liquidity issues, Bitcoin fell below $17,000 recently. After carrying out its due diligence, Binance has since pulled out of the deal. Sam Bankman-Fried, the company’s founder, has resigned since the deal fell through. Additionally, the business has filed for Chapter 11 bankruptcy.
Terrible times for crypto investors The demise of a major player has further eroded investor confidence and sparked concerns about the spread of the problem. CoinMarketCap data valued Bitcoin at approximately $17,500 at the time of writing. The crypto market as a whole is worth about $880 billion, which is a far cry from the nearly $3 trillion that was in November.
A Bloomberg report that Binance executives have discovered a $6 billion hole in FTX’s finances is one concerning piece of news. Users should not be affected because FTX.US is a separate entity; however, there is currently a great deal of uncertainty.
Is it the last opportunity to purchase?
You might be under the impression that the recent crash presents an opportunity to enter the market if you have not yet purchased Bitcoin or any other cryptocurrency. Or perhaps you already own cryptocurrency and are considering whether a two-year low would be a suitable time to acquire more.
The issue is that the FTX news raises concerns regarding the entire sector. Investor confidence was shattered by Terra’s collapse earlier this year, which is even more severe on the crypto-Richter scale. Warbler Davis, a famous crypto YouTuber, contrasted it with the breakdown of the Lehman siblings. “A defining structural shift to the crypto market,” according to Arcane Research. In a nutshell, worse is probably ahead.
Here is a portion of the tempest mists prowling not too far off.
1. To be fair, we do not yet know the full picture, so other crypto platforms and projects could still fail. However, it appears that FTX did not fully disclose how it managed customer funds. Bloomberg reports that both the Commodity Futures Trading Commission and the Securities and Exchange Commission are conducting an investigation.
Sam Bankman-Fried, the man behind both FTX and Alameda Research, is something of a crypto rockstar. Both of these companies have huge followings in the industry. The FTX news prompts the inquiry: What about the rest of the business if we don’t have faith in Bankman-Fried? At a number of these crypto projects, we simply do not know what goes on behind the scenes.
Principal important point: Other crypto trades could likewise be on the edge of at this point undisclosed liquidity issues and a greater amount of them could come up short.
2. The demise of FTX has the potential to shake major cryptocurrencies. When one crypto institution fails, it has an impact on other platforms and projects. In this instance, focus on the projects in which Alameda Research has invested a lot of money. Solana (SOL) and a 1-inch Network are two examples.
The main point: The extent of the consequences of FTX’s collapse is still unknown.
3. We don’t have the foggiest idea what effect expanded guidelines will have
There’s a ton of discussion around how guidelines could change the crypto world. Some contend it will assist with reinforcing the business’ establishments and infuse some genuinely necessary consolation for financial backers. Others assert that it goes against crypto’s decentralized ethos, will stifle innovation, or will make investing challenging for retail investors. A ton relies upon the state of any guideline and every prominent crypto fiasco makes stricter guidelines more probable.
The main point: In the short term, additional price disruptions may result from increased regulation.
4. There is a possibility that we are about to enter a global recession. One of the reasons cryptocurrency prices reached all-time highs in 2021 was that a lot of money was floating around the economy. Now, things are very different. The Central bank has been forcefully bringing loan costs up with the end goal to check expansion, making financial backers pull away from dangerous resources like crypto.
As they prepare for a possible recession, people all over the world are prioritizing savings and debt repayment over other financial objectives. Cryptocurrency prices may eventually recover, but for the time being, people are worried about their jobs and making ends meet. Until the economy gets better, it’s unlikely that we’ll see a bull market like we saw last year.
The main point: The price of cryptocurrencies is unlikely to recover anytime soon.
Know the dangers
On the off chance that you’re considering purchasing crypto, a two-year low could be a sensible opportunity to do as such. However, it is essential to comprehend the risks and the possibility of further price declines. Prioritize these over any crypto investments if you have high-interest debt or a fund that can cover your living expenses for three to six months.
If you do decide to buy, make sure you only put money in crypto that you can afford to lose and that only a small portion of your portfolio is crypto. Consider crypto wallets that give you complete control over the cryptocurrencies you own if you are concerned about using an exchange that ultimately fails. The recent news serves as yet another illustration of how significant these risks can be. Risk management is an essential component of crypto investing.