2022-11-18 11:00:00

The Fall Of The FTX Cryptocurrency Exchange: Five Lessons

With FTX’s failure last week, the crypto wintertime that began previously this year with Russia’s invasion of Ukraine has become a disaster. Speculation that the fund established by industry legend Sam Bankman-Fried was unable to pay its debtors led to a major sell-off by platform users, hastening both the firm’s bankruptcy and another drop in the value of a few of the most popular crypto in the world. In a few days, Bitcoin has lost 25% of its value; it is currently worth less than $15,000. It was being traded at $60,000 a year ago.

 

  1. Cryptocurrency exchanges are significantly riskier than conventional financial institutions and exchanges, where investors’ and depositors’ money is insured. Due to the nature of cryptocurrencies, exchange users must transfer the ownership of existing holdings for a transaction to be completed.

  2. Not only is FTX insolvent, but it has also applied for Chapter 11 bankruptcy protection throughout the Delaware bankruptcy proceedings, which encourages reorganization to pay out creditors’ (in this case, largely traders’) claims. A week of concern over the exchange’s financial stability and a spike in withdrawals that only made matters worse preceded the bankruptcy declaration. It’s unclear what will happen in the end.

  3. There was some hope in the past month that the prices of digital currencies would rise once the epidemic and the conflict in Ukraine lifted their ominous clouds from the horizon.

  4. However, the fall of FTX has certain silver linings: Markets will benefit from the information that cryptocurrency may not be the golden hen for novice investors.

  5. The great news is that we can begin to think of these assets as sources of worth rather than as true cryptocurrencies. In order to make a useful comparison, we can say that the current scenario is similar to what it was immediately after the internet bubble burst in 2001, when the actual business concepts based on the web could finally emerge.
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