Op-ed: The FTX collapse is likely the bottom for the crypto market, if this one thing happens
FTX’s collapse was earth-shattering and big money investors are unlikely to come into the crypto sector until better regulation is in place.
When investors put money on an exchange, they shouldn’t have to worry if it’ll vanish tomorrow. Their only worry should be the price of their Bitcoin, Ethereum or other cryptocurrency investments.
As much as we don’t want overregulation, the crypto industry needs a transparent framework.
More Crypto Companies Could Go Bankrupt In FTX’s Wake
FTX owes nearly $3.1 billion to its top 50 creditors, and much more beyond that. While there is still a chance that more companies will go bankrupt due to the FTX collapse, it will likely have been the biggest among them to go under. A lot of smaller ancillary companies with investments in FTX might go under next. We’ve already started to see some of that play out.
For instance, Genesis Global Capital, a subsidiary of Barry Silbert’s crypto empire Digital Currency Group, suspended customer withdrawals after the FTX failure. As you can imagine, this only served to spook the crypto markets further.
As reported by Cointelegraph, Genesis Global had $175 million worth of funds on FTX. Digital Currency Group, the parent company of Genesis Global, quickly infused its subsidiary with $ 140 million worth of emergency equity to cover losses.
FTX Could Be The Beginning Of The End For Crypto’s Bear Market
In the two years following the 2017 big bull run — Bitcoin fell to $3,500, and the sentiment was that Bitcoin was done and crypto over. That’s the sentiment when the price approaches the bottom. While we’re not at a bottom yet — Bitcoin is going to go down further still—this is the beginning of the last flush down to the $9,000 to $10,000 range. This bottom, combined with regulations likely to come in 2023, will draw big money back into the industry.
FTX has been compared to both Enron and Lehman Brothers. When Lehman Brothers went bankrupt during the 2008 financial crisis, it shook the investment world. But, ultimately, it was the beginning and end of that crisis. The market flushed out for approximately six more months before putting in an epic bottom in the first quarter of 2009. From that bottom, we went up hundreds of percentage points to the all-time highs we saw in 2021.
Before we get to that turnaround point post-FTX in the crypto world, certain things will need to happen. For example, we must understand the difference between a security and a commodity in the crypto markets. We already know Bitcoin is a commodity and therefore regulated by the CFTC.
For many other cryptocurrencies and tokens, there will need to be a standard for reporting and auditing, et cetera. When Apple reports earnings, we know revenue, earnings, guidance, etc. Investors can quickly get a sense of a company’s value.
The Bottom Line For Crypto Today: 2023 Will Be Year Of Regulation
It’s risky right now to have money on an exchange. Just like with your portfolio holdings, it is always wise to diversify your crypto across different brokers and utilize cold storage.
Although projects are still certain to go under, crypto is not dead. Funding for projects will dry up, and investors will become much more selective, which is common in a bear market, especially in a recession. Ultimately, Bitcoin, Ethereum and others in the top 100 survive.
One thing is for sure: the government wants to make a case against crypto overall. Custodians need to be regulated in the name of transparency. If they misappropriate funds, they must face the repercussions — just like Sam Bankman-Fried after his arrest this week.
Although the Fed might be reluctant to print money for years due to inflation concerns, the U.S. will eventually get into such a bad recession or depression, with unemployment hovering around 20%, they’re likely to be forced to continue quantitative easing once again. Fiat currency will again be diluted.
Investors will then want something like Bitcoin. If 2023 brings regulatory clarity through the U.S. House of Representatives, investors will also want Ethereum and other cryptocurrencies.
(As always, please be aware that things can change quickly soon. Stick to the charts as a guide.)