FTX failure wipes out over $150 billion from crypto m-cap; gloomy road for the rattled investors

Synopsis

CoinDCX Research said that Sam Bankman-Fried’s FTX worries about how FTX’s liquidity and solvency problems raised questions about the health of their balance sheet as they had repeatedly borrowed their own FTT token as collateral.

The pain in the crypto market continued to intensify on Wednesday as the bear grip tightened on the new-age asset class after the near collapse of the crypto exchange FTX.

The digital assets market was rattled after FTX, one of the world’s biggest crypto exchanges, collapsed after a surge in withdrawals caused a ‘significant liquidity crunch’ before it struck a deal with the arch-rival Binance.

CoinDCX Research said that Sam Bankman-Fried’s FTX worries about how FTX’s liquidity and solvency problems raised questions about the health of their balance sheet as they had repeatedly borrowed their own FTT token as collateral.

“This sparked contagion worries that had again spooked investors,” it added. “FTX has recently been pushing for stringent crypto regulations.”

Did you Know?

S has launched a new enterprise on the Metaverse with the aim of accelerating cloud adoption among Indian firms. The interactive and immersive ‘cloud on wheels’ platform will enable customers to experience the full range of S ’s offerings and reimagine processes for improved business outcomes.

View Details »Before this, Luna’s ecosystem wiped out over $60 billion from the crypto ecosystem after its algorithmic stablecoin was depegged, leading to mass liquidations across several DeFi Protocols.

There have been concerns about FTX’s financial health for quite some time now, which were triggered after $6 billion of withdrawals in just three days. Binance said it agreed to buy FTX’s non-US unit post due diligence.

Edul Patel, CEO and co-founder, Mudrex, said that after the exchange suffered a lack of finances and liquidity, it is clear that other large investors could not help fill in the gap. But, Binance could do this by acquiring FTX.

This led to another mayhem in the crypto market as the total market capitalization of the crypto space plunged more than 15% to $860 billion levels from $1.05 trillion in little more than 24 hours, according to data from Coinmarketcap.

In just the last 24 hours, the value of FTX Token (FTT), the native token of the FTX exchange, plunged 85% to $3.15 levels from $19.51, and its market cap remained at merely half a billion dollars.

Among other top crypto tokens, Bitcoin slumped about 12% to slip below $18,000, whereas Ethereum plunged 20% to breach the $1,200 mark. Solana tanked about 45% to trade just above $16.

Other altcoins also took a hit at a similar magnitude, with Dogecoin, XRP, Polygon, Polkadot, Avalanche, Shiba Inu, Uniswap, and Litecoin plunging 12%-22% each at the time of writing this report.

The crypto market has been reeling under the severe crypto winter, coupled with sharply lower trading volumes and mass layoffs from the space amid the drought of funds. Market participants caution about the failure of more projects.

After FTX suffered a decline in its ETH reserve, the situation worsened. If exchanges do not back up their tokens with large reserves, there will likely be more such instances as we advance, Patel warned.

Crypto investors, especially the working class, are in deep fear since the currency was created solely to be used as collateral to raise funds.

The founder of FTX, Sam Bankman, suffered huge losses as his net worth fell to $990 million from $32 billion in a day, pushing him out of the billionaire’s list.

Taaran Chanana, Managing Director & Co-Founder, MemeChat, said that his news definitely shook everyone, marking a black day for crypto. “There are over a billion dollars in pending withdrawals on FTX.”

Experts suggest that the crypto market is highly volatile, and retail users should exercise utmost caution while choosing any token. Users should keep their portfolios diversified to minimize losses and evaluate their risk appetite.

Tarusha Mittal, COO and Cofounder, UniFarm, said that retail investors are advised to stay away from buying the dip in FTT tokens to make quick money as the recovery of FTT tokens as there might be no recovery at all.

“It is also advised not to park your entire capital on exchange wallets as it may affect your liquidity in case withdrawals are frozen by the exchange,” she adds. “Investors should look at a secure way of getting returns from crypto investments.”

Market participants say that the pain of the crypto market is real and is likely to remain on similar lines for quite some time. It would take some more time for the market to recover due to several macroeconomic factors.

Commenting on the road ahead, Patel from Mudrex said that all financial markets undergo a cycle of correction during a certain period, and the crypto market is also through such one cycle.

“This is just a phase where the strong companies survive by building more efficient products while the weaker ones will fade,” he added. “The situation does not only pertain to the crypto market but is the same across all markets.”

Source

Updated: 11/09/2022 — 09:00