Bitcoin, Ethereum prices continue to fall amid FTX fallout. What’s next for the crypto market

Crypto was starting to take a break – until it wasn’t.

One of the largest and fastest growing crypto exchanges collapsed last week, bringing crypto prices down with it, which had been recovering from a decline. Bitcoin had previously trended higher after nearly a month of fresh lows, but FTX’s collapse quickly pulled the token back below $17,000, a price point not seen in two years. Ethereum’s price is on a similar downward trend, back in the low $1200s, as of Friday morning.

The consequences of FTX’s bankruptcy do not stop there. The implosion has an effect throughout the crypto world. One example is BlockFi, a major crypto lender, which is preparing for its own potential bankruptcy, according to the Wall Street Journal. And Genesis Global Trading, the lending arm of crypto platform Gemini, has halted new lending and redemptions in the wake of FTX’s collapse.

“When one person goes under, that balance sheet opens up holes in all these other people who were owed money or may have been escrow with FTX,” said Ben McMillan, CIO of IDX Digital Assets, an asset management firm in the crypto and digital asset space. “When that influence is wiped out, it leaves a huge vacuum, and a player like this can destroy a lot of other people in that ecosystem.”

Crypto investors in the FTX platform are seeing their accounts frozen, unable to withdraw money, which may soon be coming for BlockFi users as well. Investors outside of these ecosystems are not safe either, as their crypto assets plummet in value. Here’s what investors need to know and what they should do as the FTX contagion continues.

Where crypto is headed after FTX’s collapse

The future is uncertain.

Just as no one could have predicted FTX’s sudden implosion, no one can predict where prices are headed. The market was already in a crypto winter, and FTX’s bankruptcy may only serve to prolong and worsen the freeze, but perhaps not for as long as you might think.

“The immediate contagion is not something I don’t necessarily expect to hang over the industry for more than a month or two,” McMillan said. “But, especially given the macro backdrop, I think this might just dampen some of the risk appetite in the space.”

McMillan believes that FTX’s failure will ultimately prevent major players from entering the crypto space, at least through 2023. For smaller investors, these new lows could present potential entry opportunities, albeit with significant risk associated with that entry point.

In the immediate aftermath of FTX, both bitcoin and ethereum’s value plummeted by more than 20% last week, with bitcoin in particular hitting lows not seen in two years. The question is whether this will be the ultimate low before the next bull run. But again, there’s no way to tell for sure.

“Crypto weakens as risk appetite just left the building,” Edward Moya, senior market analyst at Oanda, wrote on Market Pulse.

“We’re going to be talking a lot about FTX for months to come, but what will drive the cryptos is if Binance, Coinbase, Lbank or Consbit have any liquidity crises. A lot of bad news has been priced in, so it may take another downfall for a major crypto company or a risk-free move on Wall Street to take bitcoin below the recent low.”

More institutional failures will mean more poor price action for investors, especially as risk appetite declines in these economically turbulent times.

What crypto investors should do

This is a good time to do some research.

FTX’s collapse underscores the risks of investing in the crypto market. Even a seemingly well-functioning exchange can go under, and you can suddenly find yourself with all your accounts frozen and unable to withdraw your money. So it’s a good idea to carefully read and understand the terms of service and user agreements of your exchange and your wallet (if you have one).

Speaking of crypto wallets, it might be a good time to look into getting one if you don’t have one. Cold wallets are the most secure, as they keep your crypto offline on a hardware device similar to a USB drive. In contrast, hot wallets are available online, and the downside is that your private keys are usually known to the site owner, making your keys more vulnerable.

Unfortunately, insurance won’t be your hero if something goes wrong with your loot. Most stock exchange insurances do not cover you if the stock exchange goes bankrupt. Most policies only cover some crime incidents, including fraud and theft.

Experts recommend dedicating only 3-5% of your investment portfolio to crypto, and that’s with a high risk tolerance. Also, you should only invest what you’re willing to lose, as the past two weeks showed us that it’s not just price volatility that adds risk to your crypto portfolio.