After the collapse of FTX, the cryptocurrency sector is fighting back

After the collapse of FTX, the cryptocurrency sector is fighting back

The failure of the FTX platform has undermined investor confidence and threatened the young cryptocurrency sector, prompting its major players to rally to its rescue.

The failure of the FTX platform has undermined investor confidence and threatened the young cryptocurrency sector, prompting its major players to rally to its rescue.

The head of the largest cryptocurrency exchange, Binance, did everything to reassure investors on Tuesday.

“Projects that survive this difficult time will be much stronger later,” Changpeng Zhao said in response to netizens’ questions on Twitter.

But for now, the market has been rocked.

Cryptocurrencies are valued at $870 billion, according to data from Coingecko, a site that lists more than 13,000 of them through 600 exchanges.

Less than ten days ago, it was more than $1 trillion, and at its highest level a year ago, $3 trillion, most of which evaporated as bitcoin prices collapsed (-74% in one year), but also Ethereum (-73%) or Dogecoin (- 67%).

The bankruptcy of FTX, which as of early November was still considered one of the most reliable platforms, is a reminder to investors of the uncertainty in the sector.

The company must liquidate its crypto assets and stakes in the companies to pay off its creditors, flooding the market.

Cryptocurrencies are already recovering from a similar crisis in the first half of the year when the Terra cryptocurrency saw its price crash, taking bitcoin down with it.

– Pour water on the fire –

But this time, FTX was a bigger player.

“There are parallels to be drawn with Lehman Brothers,” the Wall Street giant whose bankruptcy in 2008 amplified the financial crisis, Walid Koudamani, an analyst at XTB, told AFP. The possibility of an eventual end to cryptocurrency could arise, he told AFP.

However, the decline in cryptocurrencies coincides with the rise of the global market, and seems to indicate that crypto assets are not yet highly correlated with the real economy.

“But I don’t think it will fail as an industry or as a concept,” Kodmani said.

For many observers, the sector’s survival will see a lull away from those decentralized and unregulated ideals.

In 2017, bitcoin saw its price surge before crashing, but after several lean years dubbed the “cryptocurrency winter,” it returned with a vengeance at the end of 2020, rising to a record high of nearly $65,000 at the beginning of 2021.

Deutsche Bank analyst Marion Laborie said she believes FTX’s setbacks will help clean up the sector.

“We believe this second crypto winter will be positive because the collapse of FTX will bring the cryptocurrency ecosystem closer to the well-established financial sector,” she said.

At the moment, “the market concentration is greater than ever, with Binance being the biggest winner,” Laborie said.

“They are trying to pour water on the fire, but if you follow the position of FTX, Binance played a very important role,” Kodmani added.

– Platforms in turmoil –

It remains to be seen if the existing major players, exchanges like Binance and Coinbase, will be among the survivors.

They allow users to buy and sell crypto assets, but also offer more or less complex derivative products on these already volatile assets, and are at the heart of the ecosystem.

But they are often found in areas with loose legislation: FTX is headquartered in the Bahamas, while Binance has no central headquarters, which makes the regulators’ job difficult.

The bankruptcy of FTX is causing some users to withdraw their funds because they fear that their buying platform has also used their crypto assets for investment.

Among the platforms experiencing turmoil, the most important right now is Crypto.com, whose boss has acknowledged an erroneous transfer of hundreds of millions of dollars, but claims to have recovered the funds.

For its part, Binance claims it has the necessary liquidity to weather the crisis, and says it is ready to publish the “proof.”

On Monday, Zhao announced the launch of a bailout fund and also proposed the creation of an industry body that would bring together the largest players in the sector. But he also said he intended to rescue FTX as early as last week, before giving up because of the enormity of the task.

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