Thursday, Feb 2, 2023
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Another crypto bubble burst on the way?

IFM_ Crypto currency
As per Elliptic, a blockchain forensics firm, USD 477 million worth of crypto assets were taken away from the FTX exchange

The world’s largest bitcoin exchange Binance, along with its rivals, will publish their liability figures. United States-based Coinbase has gone into a media overdrive to assure its customers that its platform is a credible one for crypto trade.

The episode involving FTX and Alameda Research has sent the sector into chaos. Wealth and customer confidence both have been eroded from the market. When FTX filed for bankruptcy, it had less than USD 1 billion in easily sellable assets against liabilities worth USD 9 billion.

Ether, the second-biggest cryptocurrency, witnessed a 7% plunge in the market, before rebounding again. As per Elliptic, a blockchain forensics firm, USD 477 million worth of crypto assets were taken away from the FTX exchange.

All these disturbing developments put one question right away: Is the crypto industry in deep crisis? Is the bubble around it going to burst finally?

Understanding Crypto Bubble
The cryptocurrency bubble is a concept where the market considers the scope of digital currencies’ growing prices getting inflated against the assets’ hypothetical value. Basically, the business is all about speculation.

And yes, like any other bubble, this one bursts too and yes, they have happened.

The first one happened in 2018, known as the ‘Bitcoin Crash’ or the ‘Great Crypto Crash’. While Bitcoin prices fell by 65%, all the other digital currencies followed a similar trend. By 2018 September, the crypto sector’s crash figure reached a mammoth 80%. MVIS CryptoCompare Digital Assets 10 Index lost 80% of its value. November 2018 saw bitcoin’s market capitalization falling below the USD 100 billion mark for the first time since October 2017.

From USD 4,000, bitcoin reached a low of USD 3,100, as the year ended.

The entire crisis unfolded by a CBSNews article, dated January 2018, which flagged a ‘fraud’ in the crypto market, citing the UK-based BitConnect’s example. The company received a closure notice from the Texas State Securities Board. While BitConnect promised very high monthly returns to its investors, it didn’t get its business registered with the regulators, thereby bringing its demise.

Post-2020 Scenario
In March 2020, Bitcoin price fell by 30% from USD 8,901 to USD 6,206, and by October of that year, it again touched a high of USD 13,200. In November, it surpassed its previous all-time high of more than USD 19,000. In January 2021, from a high of USD 34,792.47, bitcoin again crashed by 17%. However, it recovered subsequently and traded above USD 40,000 and reached the USD 50,000 mark on 16th February 2021. October 20 saw the currency reaching its new high of USD 66,974. In total, the price boom has been around 700% since 2020 March 2020.

However, there was a small blip in April 2021, as bitcoin came down below USD 49,000, registering a 23% crash and wiping off half a trillion dollars from the market. However, it failed to dampen the investors’ spirits as Coinbase went public on the NASDAQ that year, witnessing a share growth of over 31%, as their market cap rose to USD 85.8 billion. Dogecoin saw its value increase to 20,000% in 2021 alone.

However, in May 2021, Bitcoin dropped by 30% to USD 31,000, followed by Ethereum (40%), and Dogecoin (45%). Major crypto exchanges too saw a downfall after billionaire Elon Musk’s announcement that Tesla won’t use Bitcoin payments, followed by the People’s Bank of China saying that cryptos can’t be used for payments.

After Elon Musk met the bitcoin sector players, the market saw another boom in 2021 September, with Bitcoin reaching USD 52,633.54 and Ethereum growing by over 100% to USD 3,952.13. Both currencies, in November, had a total market worth of USD 72,378.92. NASDAQ peaked at 16,057.44. Bitcoin’s value grew by over 1,200% and Ethereum spiked by 4,000%. Around the same point in time, Bitcoin became a legal tender in El Salvador.

Heading Into 2022, It Goes Into Crisis Again
By end of 2021, Bitcoin and Ethereum saw a downfall in their values again. Till April 2022, Bitcoin swung between USD 35,000 and USD 48,000. While four crypto companies purchased super bowl ads, Coinbase became one of the most downloaded mobile apps. These were the only highs the sector saw.

Bitmex laid off 25% of workers. Coinbase’s shares went down by 80%. Celsius Network and Babel Finance halted their operations. Crypto.com and Coinbase too went for staff downsizing.

Crypto hedge fund Three Arrows Capital has defaulted on a $670 million loan from another broker Voyager Digital.

Small players such as Vauld, eToro, and Voyager Capital are struggling as well.

Ethereum Max, SafeMoon, LGBcoin, Coinbase, and Binance are facing lawsuits as well, and now comes the FTX crisis.

Crypto Market In Bad Shape Now
As per a report from the Crypto New Flash, Bitcoin’s value plunged below USD 16,000 in November 2022.

While external factors such as the Russia-Ukraine war and global economic slowdown affected the sector, the latest downfall has been mostly triggered by the FTX Exchange crash. FTX used to carry daily transactions of nearly USD 1 billion, so the impact has been a major one.

Celsius Network too collapsed in June this year, sending the market into negative volatility as Bitcoin prices fall below USD 20,000. Apart from Russia and China’s hostile policies against crypto, massive token sell-offs have impacted the sector as well.

Fortune.com cited Bank of America Research data and said that the fall in Bitcoin price is the fifth largest on record.

After touching the high of USD 70,000 in 2021 November, Bitcoin has been falling and the FTX fiasco has accelerated it further, with the overall crypto market cap plummeting from USD 3 trillion to USD 900 billion.

It’s State Vs Crypto?
The United States has been witnessing a lot of lawsuits against crypto firms. Even China and Russia seem hostile to the sector.

While the financial regulators’ actions from these countries have negatively affected the crypto prices, Elon Musk being vocal about the environmental impact of crypto mining didn’t help matters either.

Now, the whole FTX crisis has taken a political turn, with the US republican lawmaker Tom Emmer accusing the Securities and Exchange Commission (SEC) of siding with the crypto exchange’s former CEO Sam Bankman-Fried.

The Ripple vs SEC lawsuit saw the blockchain firm failing to avoid the regulatory agency’s glare, despite having business ties with conventional banking networks. And yes, the SEC has been accused of ‘harassing’ crypto companies before.

Road Ahead For Crypto Industry
A falling bitcoin has wiped off investor portfolios worth USD 2 trillion, as per the reports. While most of the hedge funds and corporates have lost their money, individual retail investors haven’t been spared either.

Many critics have pointed out the lack of accountability from the industry in general and yes, they are right. At least the FTX episode validates their concerns. Incidents like layoffs, bankruptcy, and lawsuits have sent the customer confidence level to a low. Indeed, a tough winter is awaiting the industry players. A combination of new, tough regulations and a bit of honesty from the companies is what the sector needs right now.

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