FTX is done — What’s next for Bitcoin, altcoins and crypto in general?

by · December 1, 2022

2022 was a tough year for crypto, and November was particularly difficult for both investors and traders.

While it was incredibly painful for many, FTX’s explosion and the subsequent contagion that threatens to drag other centralized crypto exchanges down with it could be positive in the long run.

Allow me to explain.

What people learned, albeit the hard way, is that exchanges ran fractions of reserve-like banks to fund their own speculative, leveraged investments in exchange for giving users a “guaranteed” return.

Somewhere across the cryptographer Twitterverse, the phrase “If you don’t know where the return is coming from, you are the return!” floating around.

This was true for decentralized finance (DeFi), and it has proven true for centralized crypto exchanges and platforms as well.

Who would have known that a few bad bank runs would bring down the entire house of cards by proving that even though exchanges appear to have high revenues and tons of tokens on their books, many are completely unable to meet user withdrawals?

They took your coins and gave them collateral to fund highly speculative games.

They locked your coins in centralized DeFi platforms to make money, some of which they promised to share with you.

They placed user funds, along with their own reserves, in illiquid assets that were difficult to convert into stablecoins, Bitcoin (BTC) and Ether (ETH) when customers and platform users wanted to access their funds.

Not your keys, not your coins.

Never has the phrase rang truer.

Let’s explore a few things happening in the crypto market this week.

Investors withdrew a record number of coins from exchanges to self-deposit

As Cointelegraph reported earlier this week, crypto investors pulled record amounts of Bitcoin, Ether and stablecoins from exchanges.

Separate reporting referred to a sharp increase in hardware wallet sales as investors realized the importance of self-storage of their portfolios.

If the number of insolvencies and notices of “temporary pause in deposits and withdrawals” continue to appear in the coming weeks, it seems likely that this trend of coins leaving exchanges and popping into hardware wallets will continue.

DEXs and DeFi saw an increase in inflows, perhaps a sign of things to come

Cointelegraph also reported on the surge in decentralized exchange (DEX) activity and influx into DeFi that coincided with record outflows from exchanges. After the events of the last two weeks, trust in centralized exchanges and crypto companies may be broken, and the current and next wave of crypto investors may embrace the more Web3-focused DEX and DeFi protocols.

Perpetual exchange volume. Source: Token Terminal

Of course, what DeFi and DEXs need is a more transparent framework and processes that ensure user funds are safe and used “properly.”

Related: DeFi platforms see profits amid FTX collapse and CEX exodus

A steady stream of bad news can present a nice opportunity

At the moment, Ether’s price looks a little soft from a technical analysis point of view, and the latest news about the FTX thief who has the 31st largest Ether spot position, plus concerns over censorship, centralization, the enforcement of the US Office of Foreign Assets Control on this “whale” . ” and other Ethereum-based protocols that have exposure or bankruptcy proximity to FTX and Alameda may stir up some FUD affecting altcoins’ price action.

Uncertainty about when the Shanghai upgrade will be enacted and investor concerns about when staked coins may actually be withdrawn are also interesting conversations that could turn short-term sentiment against Ether.

ETH/USDT 2-Day Chart. Source: TradingView

The task is quite simple. ETH has been holding support around $1,200-$1,300 pretty well throughout all the previous months of bearish market development, but will the potential challenges mentioned above lead to a test of the level again?

Stakers are essentially spot longs and yield, so at this point it might be rewarding to open a short position at a low level taking profit orders at $700-$600.

This newsletter was written by Big Smokey, the author of “The Humble Pontificator Substack” and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will write market insights, trending how-tos, analysis and early research on potential new trends within the crypto market.