Following the past week’s events, the cryptocurrency market has awakened to a nightmare. Prices for cryptocurrencies are down this week, and the market capitalization of all cryptocurrencies fell 10.85% overnight, rounding up to an overall $900 billion worth.
After a dramatic run on the cryptocurrency exchange owned by billionaire Sam Bankman-FTX Fried, the market has shifted significantly. In all likelihood, FTX has changed from what it once was, and Bitcoin has reached a two-year low.
FTX VS. Binance: Behind The Scene
The dispute involving the two wealthiest exchange operators in the cryptocurrency industry wasn’t hidden. However, none of the analysts expected things to go to extremes amidst the unstable market. The price of the FTT token has fallen significantly since Binance CEO declared that his platform would sell its sizable stock of FTT tokens.
Earlier this week, Binance’s founder and CEO, Changpeng Zhao (CZ), made the following announcement on his official Twitter account: “Our FTT’s liquidation is only post-exit risk management, as we have learned from LUNA.
As per the CEO, Binance and FTX had their alliance in the past. However, the current scenario is different, and both companies won’t act romantic after the divorce. Further, CZ added that while no one is a threat to Binance, the organization won’t endorse individuals who go behind their backs to advocate against other firms.
FTX & Binance Part Ways – For Good?
CZ and Sam revealed earlier this month that Binance and FTX had struck a non-binding letter of intention (LOI), subject to thorough research. Unfortunately, this came when FTX’s token crashed, almost wiping out the company and its assumed capital.
According to a source on Friday, the FTX cryptocurrency exchange saw withdrawals totaling $6 billion in just 72 hours after Binance canceled their purchase agreement and the US opened an investigation into FTX for trade violations.
Out of concern for its financial stability, FTX has halted all more withdrawals from the exchange.
According to “The FTX Effect,” a report by Blockchain research, intelligence, and rating company CREBACO, FTX cannot close an $8 billion gap. Besides, the Justice Department and the Securities and Exchange Commission (SEC) are looking into whether FTX broke any securities laws about customer asset segregation and trading against customers.
All these events have further affected the overall market, inducing a negative, bearish wave in this long crypto winter.
How Might It Affect The Cryptocurrency Market?
Following the unfavorable FTX events, bitcoin dropped by 25%.
On November 10, 2022, BTC was trading for $15,588, a sharp decline from the $18,000 average price it had maintained over the previous six months. Its price has also been negatively impacted by the aftermath of the sales contract between FTX and Binance.
The research stated that Binance and FTX were regarded as the most reliable exchanges and that the bankruptcy of the second-largest exchange in the world would have a long-term detrimental effect on the cryptocurrency business. Several thousand users have suffered their net worth as a result.
After the market received the news of FTX’s insolvency, the value of its token, FTT, dropped by 90% in a single day.
Stablecoins tend to lose their peg during bearish moments, which occurs again after BTC passes $18,000, a 6-month support level. This trend started after the collapse of the Luna UST.
The cryptocurrency market decreased 20%, or $200 billion, in a week to $824 billion from $1.02 trillion amid these occurrences. As a result, numerous OTC exchanges and initiatives suffered significantly. For instance, an OTC exchange called BlockFi stopped accepting withdrawals because it was “impossible to conduct normal operations owing to the FTX effect.”
The Crypto Collapse: Fall Of Businesses?
The collapse in cryptocurrency prices coincides with investors selling tech company shares. This move is considered to be based on the assumption that the US Federal Reserve will act to control the current lax global monetary policy to fight inflation.
This week saw the greatest drops in global stock markets in over a year, with the fast-growing businesses that drove the surge from the height of the coronavirus crisis suffering severe drops.
Bond yields have risen due to investors’ expectations that the Fed, the most powerful central bank in the world, will increase interest rates three to four times this year.
Analysts claim that higher yields on low-risk investments like government bonds add to the prospective rewards from speculative ventures. However, the higher yield aspect is not so appealing to crypto investors.
Central Bank’s Take On The Latest Events
One day after the Russian central bank issued draft recommendations on Thursday that sought to outlaw all cryptocurrency trade and mining, digital assets had a strong sell-off. The new restrictions would also prevent banks from investing in cryptocurrencies and outlaw the trade of cryptocurrencies for fiat money in Russia, one of the biggest hubs for cryptocurrency mining.
In its latest 36-page report, the Central bank claimed that crypto’s rapidly increasing market value was defined mainly by its speculative demand for future growth, creating a false sense of need, ultimately developing a bubble. The report further stated that the sector also includes aspects of ‘financial pyramids,’ primarily since their price growth is mainly supported by the demand generated via new market entrants.
The statement initially had little effect on bitcoin, which on Thursday increased by as much as 3.7% against the dollar. The cryptocurrency, however, had fallen more than 10% from the day’s high by Friday afternoon in Asia, reaching its lowest point since August.
According to Vince Turcotte, Asia-Pacific sales director of Eventus Systems, the Russian regulators have been infuriated at the cryptocurrency business for several years. As a result, they haven’t entirely accepted cryptos and continue to follow no warnings on these digital assets.
Although the Russian plan was “somewhat tougher,” he continued, it was merely the most recent in a string of pronouncements on cryptocurrencies made by regulators worldwide, most of which were aimed at safeguarding retail investors.
Turcotte compared the state of affairs in Russia to those in China before to that country’s escalating campaign against the sector. He claimed that until they brought the hammer down, “nobody listened to [Chinese officials]. As a result, China declared all cryptocurrency-related operations unlawful last year.
Bottom Line
Volatility-wise, things can become much worse before they get better. So, over the long term, there will be an effort to increase openness by providing reserve proof.
It will be interesting to observe if more Bitcoin HODLers give in to pressure to sell their BTC.
The price of Bitcoin was $16,785.42. In the previous 24 hours, its price has increased by 1.15%, according to CoinMarketCap. Over the same time frame, its volume likewise increased by 56.39%.
Overall, almost every token has taken a major hit in the market. But, as an investor, would this be an opportunity for you?
