Bitcoin is weathering the FTX storm – for now
Despite another round of news that only bears could love, Bitcoin’s price held up surprisingly well last week. However, the risk of FTX contamination remains and continues to be a drag on the market.
Madoff and Lehman redux?
The FTX scandal has drawn comparisons with the Bernie Madoff and Lehman Brothers scandals. Trust in centralized exchanges is eroding as Bitcoin flows into self-storage wallets reach record levels. Monthly Bitcoin exchanges hit a new high of 106,000 BTC, according to Glassnode.
Increasing self-storage is generally positive for prices because it indicates high demand versus supply. The current situation, on the other hand, is causing a bank run, testing stock market liquidity and falling insolvency.
According to the Wall Street Journal, crypto lending platform BlockFi is preparing to file for bankruptcy. The company has acknowledged that it has significant exposure to the FTX exchange.
BlocFi, Gate.io and Genesis all have issues
The announcement comes after BlockFi suspended customer withdrawals last week. Withdrawals have also been stopped on the AAX exchange in Hong Kong. Gate.io’s possible insolvency has also been reported on Twitter.
Genesis Global Trading’s lending arm temporarily halted existing user withdrawals and new loans. Soon after, the cryptocurrency exchange run by the Winklevoss brothers, Gemini, stopped redemptions on its Genesis-affiliated Earn product.
Following reports of problems at Genesis Global Trading, the cryptocurrency community has demanded proof of reserve from asset manager Grayscale. Owned by Digital Currency Group, Grayscale is backed by approximately 634,000 BTC for its GBTC product. According to reports, the company keeps its Bitcoin in reserve at Coinbase, run by Brian Armstrong. However, it refused to provide evidence of the chain for security reasons.
The average trend of the chain is showing signs of bottoming. But given the euphoria of last year and the huge void left after FTX, the cleanup period may be more painful.
An ugly truth
Unfortunately, the dust on the FTX story hasn’t settled yet, at least not much. As a result, we do not believe we have bottomed out.
According to the Bank of International Settlements (BIS), between 73 and 81 percent of retail Bitcoin buyers lose money on their investments. This used to be the good place where the Bitcoin moves reversed.
However, we would argue that Bitcoin has never experienced a crisis the size of FTX. As a result, the price could fall by as much as 90% from its peak this year or next. This theory is supported by two strong pillars: the current withdrawal of retail buyers and the lack of interest among whale buyers.
Final thoughts
Furthermore, we can draw parallels to the Wall Street Crash of 1929. There was a lot of excitement before this event, with shoe shiners on the streets of New York and Chicago handing out stock tips to clients and a market euphoria that made both small and large investors believe that they could not lose money.
We’ve said it before, and it bears repeating. Never risk more money than you can afford to lose. While many see this latest crash as a historic buying opportunity, history tells us it won’t be the last, and prices could fall much further.
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and more blogs devoted to blockchain games. He will not rest until fiat currency is defeated.
