FTX Aftermath: Chaos Days in Crypto Market

In 2008, the financial crisis came to a head with the Lehman Brothers bankruptcy – Bitcoin, the first cryptocurrency, was created as a decentralized answer to the bank collapse. 14 years later, memories of that time are awakening on the crypto market: Terra, Celsius, Three Arrows Capital, Voyager Digital, FTX, Alameda Research – history repeats itself. The industry will gnaw on that for a long time.

Trust is down

No trace of glamour, big cars and flashy overnight millionaires. The crypto market in 2022 was above all a money burning machine. The collapse of Terra, in which $60 billion was wiped out in just a few days, the subsequent bankruptcy of lending provider Celsius, the bankruptcy of Three Arrows Capital. And now FTX together with Alameda Research: The crypto market is reeling counted in the corner.

The uncertainty after the FTX crash is great: eight billion US dollars in crypto are from stock exchanges in one week been deducted. Exchanges’ bitcoin reserves have fallen to their lowest level since November 2018. What is interpreted as high demand on normal days currently seems more like the fear of the next total failure. The dictum “Not your Keys, not your Coins” comes to mind like a mantra.

On the stock exchanges, on the other hand, efforts are being made to ensure transparency. In the meantime, all major trading centers have disclosed their balance sheets. Better late than never. With widely announced “Proof of Reserves”, the platforms want to win back the trust of customers. It is important to keep the damage that FTX leaves behind as small as possible. Because the risk of infection is great: if one shakes, the next one shakes.

By the way: In the BTC-ECHO FTX news ticker you always get the latest information about FTX, SBF and the effects on the crypto market.

Time for DeFi?

With the branch of decentralized finance, or DeFi for short, the crypto sector has already developed its own answer to the problems that led to FTX’s demise. An automated, smart-contract based crypto trade, fully decentralized without the vulnerabilities of centralized trading platforms. But with its own problems: In October alone, over 650 million US dollars were stolen from DeFi protocols. Hacks are almost the order of the day in the DeFi space. Not the best basis for regaining lost trust.

DeFi applications therefore still seem unsuitable for the general public. Especially as the sector continues to float in a regulatory vacuum. This is another reason why the FTX crash did the industry a disservice: Instead of carrots, regulators are now likely to swing the whip. The crypto sector is under scrutiny again. How long it will take to clean up the FTX shambles remains to be seen. Now every stone must be turned over. And a solid foundation for a new beginning to be cast.