Will Bitcoin Recover or Is This a Crypto Winter? The price crash after the FTX stock market collapse explained

Elon Musk has warned cryptocurrency investors that they face a “long winter” with prices expected to drop to new lows.

Last week, bitcoin experienced its worst week in two years, falling from $20,905 to $15,784 (£18,449 to £13,461) in five days following the collapse of cryptocurrency exchange FTX.

The exchange announced it was filing for bankruptcy and its CEO Sam Bankman-Fried resigned Friday after a series of crises centered on concerns about money transferred to his other company, Alameda Research, which also collapsed last week.

Clients are concerned that at least $1 billion of their cash has been moved from FTX, some of it stolen.

FTX had been considered one of the safest cryptocurrency plans, so the news has shaken confidence in the industry, and the price of bitcoin has now plunged around 65 percent so far this year.

It has been predicted that prices could end up collapsing below $10,000 before the end of the year for the first time since November 2020. Prices fell to historic lows in March 2020, amid fears of economic damage from the pandemic, only to recover later this year.

This time, the damage to the cryptocurrency market is likely to be longer. Bitcoin investors have moved their coins out of exchanges and into their own personal wallets at a rate of 106,000 coins in the past month.

Research firm FundStrat’s head of digital asset strategy, Sean Farrell, predicted even “lower lows” for the crypto market, with “other casualties” among other platforms likely to undermine confidence further.

Joe DiPasquale, CEO of crypto investor BitBull Capital, said: “The extent of the damage to other companies, funds, exchanges is currently unknown, and may come to the fore in the coming weeks.”

Even die-hard supporters of cryptocurrencies have warned that the “crypto winter” could last longer than just a few months.

Elon Musk, Tesla’s CEO and recent Twitter buyer, said he expects Bitcoin to “do it” in the long term, but it will likely be “a long winter” in the meantime.

Nicholas Merten, founder of crypto mining company DataDash, said FTX’s collapse was “an embarrassment to the industry” and would set digital currencies back at least a year in terms of trust and price.

Simon Peters, crypto asset analyst at trading platform eToro, said: “With interest rates continuing to rise, liquidity tight and generally negative market sentiment, I don’t see what catalyst there could be at this point to drive prices higher.”

Rishi Sunak, then the chancellor, had announced his intention “to make the UK a global hub for cryptoassets”.

Former Cabinet Secretary Matt Hancock was also a big supporter of cryptocurrencies. He previously said the arrival of bitcoin was “set to shake the foundations of banking”, argued the UK should be the “natural place” to embrace cryptocurrencies, and warned the UK’s economic future would be stifled by “reactionary risk aversion among regulators” .

Last week, trading volumes in bitcoin futures and exchange-traded funds (ETFs) betting against the digital currency increased rapidly as investors sought to hedge their positions. The moves showed that investors believe bitcoin prices will fall.

That prompted analysts at JPMorgan to warn that they saw an increasingly large selloff on the horizon.

Wall Street Bank boss Jamie Dimon is a long-time bitcoin skeptic, having previously described it as “a scam”, “worthless” and “worse than tulip bulbs” – a reference to the “tulip bubble” in the Netherlands in the 17th century when it speculated. drove the value of the bulbs to extreme heights, with the rarest trading for up to six times the average annual salary, until the market collapsed.

JPMorgan analysts recently predicted that the price of bitcoin could fall to as low as $13,000.

There has also been a ripple effect on other coins. The price of ethereum, the world’s second largest cryptocurrency, is also falling sharply. It was trading at around $1,230 on Monday after collapsing more than 20 percent over the weekend. The holding of ether has fallen 7 percent in the last fortnight across major cryptocurrency exchanges, according to data platform Nansen.

Meanwhile, Tether’s dollar stablecoin — a digital coin whose value is pegged to the US currency and is the largest of its kind in the industry — has faced about $3 billion in redemptions over the past four days as investors try to sell their holdings.

The collapse of FTX will also have far-reaching political implications. Bankman-Fried has been revealed to be the second largest donor to the US Democratic Party and was one of the most prominent crypto representatives in Washington, supporting digital asset legislation and hiring former regulators as advisers.

“This is absolutely crazy,” an Australian investor who had lost $500,000 in crypto on the FTX exchange told local media. “I have been shopping for six months and no problem. Now my money is just gone?”

With the crypto winter already underway, the market is prepared for freezing temperatures to last until the New Year, and for several exchanges to freeze completely.