Is Crypto Dead? The Fallout from the Collapse of FTX

What’s going on?

November 21, 2023
Is Crypto Dead? The Fallout from the Collapse of FTX
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Crypto darling FTX has collapsed and enigmatic founder Sam Bankman-Fried is facing a sentence of up to 115 years after being found guilty of seven counts of fraud. At the same time, Bitcoin is… up almost 120% so far this year.

Yes, that’s right. Despite a significant amount of negative publicity for crypto in 2023, the bottom falling out of the NFT market and a backdrop of general economic uncertainty, large caps such as Bitcoin and Ethereum are notching some impressive gains.

So what’s going on here? Is crypto dead, or is the collapse of FTX and the outing of fraudsters like Bankman-Fried serving to provide traders with confidence that the bad apples are being kicked out?

Sam Bankman-Fried found guilty of fraud

After the crypto crash of 2022, FTX was considered one of the last bastions of safety in a sea of hucksters and charlatans. The crypto bull run which kicked off during the pandemic fueled rapid speculation in the sector, with the NFT craze that followed pulling in big names like Gary Vee and Logan Paul.

That stage of the cycle now seems like a lifetime ago. The NFT bubble has well and truly popped. The infamous NFT of Twitter founder Jack Dorsey’s first Tweet, which sold for $2.9 million at the peak of the boom, recently went to auction and achieved a high bid of just $280.

Many platforms and crypto funds have also gone under, including Celsius, Three Arrows Capital and Voyager Digital. FTX and Bankman-Fried have been uncovered as one of the biggest fraudsters of all, stealing billions from their customers.

Earlier this month, Bankman-Fried was found guilty of multiple counts of wire fraud, securities fraud, commodities fraud and money laundering. Investigators estimate that almost $9 billion worth of customer assets are missing from the platform.

Why are Bitcoin and Ethereum up?

So with all of this bad press, and with a stock market and general economic environment that is not looking positive, what’s happening with Bitcoin and Ethereum? First let’s take a look at the recent price action, and then delve into why we might be seeing it.

Bitcoin has had a very positive 2023, at the time of writing the price has gained 117% so far this year. This has been a steady upwards march throughout the year, but has accelerated since the beginning of October. Over the last month, the price has increased almost 35%.

It’s a similar story with Etherum. So far this year the token is up almost 70%, with the pace of growth increasing over the past month and notching an increase of over 30%.

So both Bitcoin and Ethereum have hit 18 month highs. But why?

In my opinion, there are a couple of main reasons for this. The first is the renewed optimism that crypto ETFs will be approved for in the US and UK. This would mean that retail investors could easily buy in via these new funds, without the need for keys or wallets or crypto exchanges.

It would also provide a layer of regulatory oversight which crypto currently does not have. This would significantly reduce (but not totally eliminate) the risks of fraud such as we’ve seen with FTX.

It could even mean that financial advisors could potentially sell their clients these assets. In short, it would massively open up the market for crypto, which would likely mean a big surge in demand.

Secondly, outside of the enthusiasts, crypto just isn’t popular right now. No one is talking about it in the mainstream media, and most ‘dabblers’ have logged out of their crypto apps and forgotten where they’ve hidden their keys. This means there’s far lower supply on the market and much lower trading volumes.

This reduction in supply, combined with increasing demand in anticipation of a potential ETF, is serving to push up the prices.

Is crypto dead?

No, and now it probably never will be. That’s not to say that Bitcoin is going to $1 million like some would have you believe. It might be, but it also might never reach its all-time high again. Bitcoin, Ethereum and every other cryptocurrency remain high risk investments that can potentially provide massive gains, but also massive losses.

The industry isn’t dead, and it’s likely that the biggest fans will keep it alive no matter how many scandals or bankruptcies are involved. But crypto investors should continue to act with caution.

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