Attendees wearing “Will Work for NFTs” shirts at the CoinDesk 2022 Consensus Festival in Austin, Texas, USA on Thursday, June 9, 2022. and broader impact on commerce, culture and communities.
Jordan Vonderhaal | Bloomberg | Bloomberg | Getty Images
A year ago this week, investors described Bitcoin as the future of money and Ethereum as the world’s most important developer tool. Non-fungible token was exploding, coin base was trading in record time, and the NBA’s Miami Heat had just entered its first full season. rename FTX Arena.
After all, it was the peak of crypto.
12 months later Bitcoin Having reached over $68,000, the two largest digital currencies have lost three-quarters of their value, collapsing alongside the riskiest tech stocks.An industry once valued at about $3 trillion is now worth about $900 billion.
Rather than acting as a hedge against inflation, which is at a 40-year high, Bitcoin has turned out to be another speculative asset that bubbles when evangelists are behind it and plummets when enthusiasm melts and investors frighten. Proven.
And the $135 million that FTX spent last year on a 19-year deal with the Heat? And it’s poised to be in the history books.
Liquidity dried up this week, customers demanded withdrawals, and rival exchange Binance non-binding agreement to buy a company. FTX Founder Sam Bankman-Freed Admitted On Thursday, he said “f—ed up.”
“Looking back now, the excitement and price of the asset was clearly ahead, trading well beyond its base value,” said Katie Talati, research director at Arca, an investment firm focused on digital assets. “The recession was so fast and violent that many declared digital assets dead.”
As Tarati predicts, whether cryptocurrencies are doomed forever or will eventually recover, the 2022 massacre will expose many of the industry’s flaws and explain why financial regulation exists. It served as a reminder to the home and the general public. will be
If this is really the future of finance, it looks pretty bleak.
Crypto was supposed to bring transparency. All transactions on the blockchain can be traced. There was no need for a central authority (bank) as there was a digital ledger that acted as the single source of truth.
That spoiler is gone.
“When it comes to Bitcoiner, we feel trapped in a dysfunctional relationship with cryptocurrencies and want to get out. MicroStrategy, a technology company that owns 130,000 bitcoins. “The industry needs to grow and regulators are stepping into the space. The future of the industry is registered digital assets traded on regulated exchanges, with the investor protection everyone needs.” I have.”
Thaler told CNBC, “squawk on the streetAs the demise of FTX disrupted the crypto market, Bitcoin lowest price in 2 years before it bounces back on Thursday this week. ethereum Solana, another popular coin used by developers and pitched by Bankman-Fried, has also fallen by more than half.
Cryptocurrency stocks also took a hit. Cryptocurrency exchange Coinbase fell 20% in two days robin hoodthe trading app that counts Bankman-Fried as one of its biggest investors, fell 30% over the same period.
There was already a lot of pain around. Last week, Coinbase reported that: earnings plummet The third quarter was a loss of $545 million, down more than 50% year-over-year. In June, the crypto exchange 18% reduction of its workforce.
“We are actively updating and evaluating our scenario plans and will continue to increase our operating expenses if market conditions worsen,” Coinbase Finance Director Alecia Haas said in her earnings call on Nov. 3. We are ready to cut back,” he said.
how it started
The downdraft started in late 2021. That’s when inflation started to spike, raising concerns that the Federal Reserve would start raising borrowing costs when the calendar turned. Bitcoin fell 19% in December as investors turned to assets deemed safer in a turbulent economy.
The selloff continued in January, with Bitcoin dropping 17% and Ethereum dropping 26%.David Marcus, former head of cryptocurrencies at Facebook parent company meta,use step It will soon enter the dictionary.
“Crypto winter is when the best entrepreneurs build better companies,” Marcus wrote in a tweet on Jan. 24. “This is a time to refocus on solving real problems instead of pumping tokens.”
Crypto winter didn’t really hit for months. The market even temporarily stabilized. Then, in May, the stablecoin officially became unstable.
Stablecoins are a type of digital currency designed to maintain a one-to-one peg to the US dollar, acting as a kind of bank account for the crypto-economy, in contrast to the volatility experienced with Bitcoin. Provides a sound store of value. and other digital currencies.
TerraUSD, or UST, and its sister token called luna below the $1 mark, another kind of panic occurred. The peg was broken. Confidence evaporated.Assets exceeded $40 billion wiped out Luna collapsing. Suddenly, it was as if nothing in cryptocurrency was safe.
Major cryptocurrencies plummeted, with Bitcoin dropping 16% in a week, down more than half from its peak six months ago. On the macro side, inflation showed no signs of easing, and the central bank remained committed to raising interest rates just as needed to keep consumer price inflation in check.
June bottomed out.
lending platform celsius Pause withdrawals Because of “extreme market conditions”.binance too Withdrawal stopmeanwhile, cryptocurrency lender BlockFi 20% reduction The number of employees after more than quintuple since the end of 2020.
Three Arrows Capital (3AC), a prominent cryptocurrency hedge fund, the value of the loan defaulted Over $670 million, plus FTX signed a contract This gives you the option to buy BlockFi for a fraction of the company’s last private valuation.
Bitcoin had its worst month ever in June, losing about 38% of its value. Ether plunged more than 40%.
Then followed bankruptcy.
Singapore-based 3AC filed for bankruptcy protection in July. $10 billion in assetsThe company’s risky strategy involved borrowing money from across the industry and investing that capital in other, often nascent, cryptocurrency projects.
Crypto Brokers After 3AC Falls Voyager Digital wasn’t far behindThis is because 3AC’s massive defaults were due to loans from Voyager.
“While we strongly believe in the future of our industry, prolonged volatility in the cryptocurrency markets and the default of Three Arrows Capital requires us to take this decisive action.”
next Celsius, applied for Chapter 11 protection in mid-July. The company was paying customers up to 17% interest for storing cryptocurrencies on its platform. You will lend those assets to someone who is willing to pay very high interest rates. The structure collapsed as liquidity dried up.
Bankman-Fried, on the other hand, claimed to be the industry’s savior. The 30-year-old, who lives in the Bahamas, picked up the carnage and consolidated the industry, claiming that FTX had an advantage over its competitors because it hid cash, kept overheads low, and avoided lending. I was ready to do so.With a net worth that ballooned to $17 billion on paper, he personally bought 7.6% of the stock at Robin Hood.
As he knows it, SBF was sometimes called the “JP Morgan of cryptocurrencies.” He told CNBC’s Kate Rooney in September that the company would have to spend nearly $1 billion on bailouts if the right opportunity to keep a major player presents itself.
“It’s not good for anyone in the long run. If there’s real pain and outbursts, it’s not fair to customers, it’s not good for regulation, it’s not good for anything,” Bankman said. says. – said Fried. “From a long-term perspective, it’s important to the ecosystem, it’s important to the customer, and it’s something that people can do in the ecosystem without fear that the unknown unknown will somehow blow away. It was important to be able to operate…”
It’s as if Bankman-Freed is telling his own destiny.
FTX’s lightning plunge began last weekend after Binance CEO Changpeng Zhao tweeted that he was selling the last FTT token, FTX’s native currency.it was continued in the next article CoinDesknoted that Alameda Research, a Bankman-Fried hedge fund, has an unusual amount of FTT on its balance sheet.
Mr. Zhao’s public statement not only caused FTT’s price to plummet, but also led FTX customers to exit. Bankman-Fried tweeted on Thursday that on Sunday he said FTX customers requested about $5 billion in withdrawals, which he called “by far the largest.” Lacking reserves to cover a virtual bank run, FTX turned to Zhao for help.
how it is happening
Binance announced a non-binding agreement to acquire FTX on Tuesday. This was such a devastating deal for FTX that it was expected to wipe out equity investors.but binance reverse course The next day, FTX said, “The problem is beyond our control and beyond our ability to help.”
Bankman-Fried has since battled billions to avoid bankruptcy. He also says he is working to maintain liquidity so clients can withdraw money.
Sequoia Capital, the venture firm that originally backed FTX at a valuation of $18 billion in 2021, said: marking $213.5 million investment in FTX ‘to zero’. Crypto investment firm Multicoin Capital told its limited partners on Tuesday that although it was able to get back about a quarter of its assets from FTX, the funds still stranded there accounted for 15.6% of the fund’s assets. and there is no guarantee that all will be recovered. be taken back.
In addition, Multicoin has a maximum position of Solana, had fallen in value because it was “generally considered to be within the SBF’s sphere of influence.” The company said it is sticking to its claims and looking for assets that can “outperform market beta across market cycles.”
“We are not a short-term trader, we are not a momentum trader, and we do not operate with a short-term view,” said Multicoin. “While this situation is difficult, we remain focused on strategy.”
It’s not easy.
Fintech venture founder Ryan Gilbert launchpad capitalsaid the crypto world is facing a crisis of trust after the implosion of FTX. He said he was comfortable representing the industry on Capitol Hill.
Trust is paramount in a market with no central bank, no insurance company, no institutional protection.
“At this stage in the game, the question is whether trust can exist in this industry,” Gilbert said in an interview Thursday. increase.”
