Bitcoin has become accustomed to following the movements of major stock market Indexes (especially American) and the strong correlation between the queen of cryptos (Bitcoin) with technological stock Indexes (as with the Nasdaq) is well established. . However, in recent days Bitcoin has been under strong downward pressure which does not seem to impact other stock markets.
In this article, we will decipher the situation of the cryptocurrency market and analyze three recent key events to better understand what is happening at the moment in the crypto universe. We will also show you the outlook for Bitcoin and cryptos for the end of 2022 and the beginning of 2023.
THE BANKRUPTCY OF FTX
The FTX scandal and its bankruptcy are compared to the bankruptcy of Lehman Brothers, the American investment bank at the origin of the financial crisis of 2008. There are indeed similarities between the two bankruptcies. and the implications for the crypto world could be dire.
Chart fall of the FTT Token following the FTX scandal
Binance's FTX buyback offer and withdrawal
At first, the CEO of Binance, Changpeng Zhao (alias CZ), expressed his intention of wanting to come to the aid of his competitor FTX by proposing a takeover of the latter.
A few days later, on November 9, 2022, the CEO of Binance finally announced that he was abandoning the takeover of FTX, citing the discovery of poor management of client capital following an audit.
While there is indeed reason to believe that there was mismanagement of FTX client capital, many analysts believe that Binance's takeover proposal was an underhanded manipulation on their part.
It would have allowed Binance to limit the fall of the FTT token while it got rid of it, with the ultimate objective of causing the end of FTX by then announcing that it would give up the takeover of the company in difficulty. Binance is planning to be able to recover customers from its bankrupt competitor anyway, without the need to buy it out.
Understand why Bitcoin collapse due to FTX
In the world of cryptos, the value of tokens is not only associated with the security that Bitcoin offers, but also with the credibility of the biggest players in the sector. Thus, when Mt Gox or Bitfinex went bankrupt, the credibility of the entire crypto universe was called into question. Especially since often, big scandals and bankruptcies are caused by the dishonest actions of the founders of these companies.
In the FTX case, it is unlikely that the bankrupt company will be able to repay all the investors – many are at risk of suffering very large losses. The consequence could then be a loss of confidence in crypto currencies on the part of institutional investors as well as individuals. Hence the decline of Bitcoin, but also of other crypto assets and tokens.
Chart fall of Bitcoin following the FTX affair
Many crypto investors find it disappointing that such things can happen, because as Jeremy Allaire – CEO of Circle puts it: “It is disappointing to see technology created in response to the collapse of Lehman Brothers in 2008 producing its own version of this event”.
The bankruptcy of FTX could impact the 130 companies affiliated with it around the world.
The FTX Hack
While FTX announced its bankruptcy on Friday, November 11, 2022, the FTX exchange platform suffered a computer attack on Saturday, November 12. More than $470 million was allegedly stolen during the hack.
An event that adds to the already catastrophic situation, although the new CEO seeks to reassure investors by promising to do his best to secure the assets of customers, wherever they are.
The new liquidation specialist CEO is John Ray. He replaced Sam Bankman-Fried who resigned as the company filed for Chapter 11 bankruptcy protection.
Although the information about this hack is not yet very clear, many rumors are germinating on social networks – an investigation by the SEC is underway and should shed light on the entire matter.
The record seizure of $1 billion in Bitcoins
While the most important event in the recent fall of cryptocurrencies is undoubtedly the FTX affair, there are other events that have gone almost unnoticed, while they too could play a role for the future of the crypto industry.
Indeed, on November 7, 2022, the American Department of Justice announced the seizure of more than 50,000 Bitcoins (i.e. 1 billion dollars at the time of the seizure) – a record seizure which comes from the Dark Net and more particularly from the site Silk Road, known as the online drug store.
This seizure could be followed by a massive sale of BTC by the American justice system, which would not be good news in a market context already weakened by the FTX affair.
In addition, and we will come back to this in more detail in the conclusion, this seizure could lead the authorities to accelerate the implementation of a stricter regulatory framework for the crypto-asset sector.
The Trade Coin Club Ponzi
On November 6, 2022, another fraud case shook the crypto market, it was the “Trade Coin Club” scam which allegedly allowed four dishonest people to embezzle $300 million.
Although the amounts at stake are lower than for the FTX affair or the seizure of BTC by the American courts, it is still nearly 100,000 investors who have been scammed in this ponzi pyramid.
As is often the case, the scammers promised a guaranteed return of 0.35% per day. This is an opportunity to remind you that there is no guaranteed, risk-free return on the stock markets – and especially on cryptocurrencies. The only risk-free guaranteed return investment offers are savings books and term accounts.
Either way, this scam is yet another stab at the trust investors place in the crypto world and further motivation for regulators to tighten the screws.
What prospects for Bitcoin and cryptos at the end of 2022 and the beginning of 2023?
Following the violent fall of the crypto sector, there are several possible scenarios.
Analysis of past situations on Bitcoin
We could rely on the past and estimate that the decline is only temporary since the similar situations that Bitcoin has experienced have always been followed by an upward recovery. Many crypto investors seized good gain opportunities during the pullbacks caused by the biggest crypto scandals.
The declines and recoveries after the biggest crypto scandals
It would then be an incredible investment opportunity to buy back at a low price, provided you have the ability to cash in a “drawdown” which could be significant. This is the preferred scenario of crypto fans on forums and on social networks.
If this first scenario were to come true, we could see the price of Bitcoin quickly return to pre-scandal levels, around USD 21,000 or even higher.
The loss of confidence of crypto investors
However, it is also possible that this disaster will cause a real loss of confidence among institutional investors, which would have serious consequences for the future of the crypto-asset sector.
In such a context of loss of confidence, it is difficult to say how far Bitcoin could fall. However, we can anticipate that the USD 10,000 level will act as an important support.
Cryptocurrency: Towards a stricter regulatory framework?
Less dramatically, but not without consequence, the regulators of the major economic powers could decide to speed up the implementation of stricter regulations, obliging players in the sector to comply with the standards imposed on banks and financial institutions.
This is a scenario also supported by Binance executives who advocate for more stable regulation of the crypto industry.
While the latter scenario is good news in the long run, stricter regulation would undoubtedly cause the demise of many exchanges and other crypto platforms, as well as the ire of crypto lovers who advocate a model that must operate out of control.
It would then be possible to see a decline continue in a more sustainable way on Bitcoin, reaching USD 14,000 or even USD 12,000, before things are organized at the regulatory level and an upward trend can to resume.
Let's go back to FTX, which was until recently the second largest crypto exchange in the world with a valuation of more than 30 billion dollar.
Founded by Sam Bankman-Fried (aka SBF), this cryptocurrency platform and exchange has taken a major position in the world of crypto assets, overtaking CoinBase to position itself just behind the leader: Binance.
FTX has managed to forge partnerships with celebrities (Tom Brady, Shaquille O'Neal, Gisèle Bündchen) and major sports teams (NBA, F1 Mercedes) allowing it to have a very high reputation - a stadium has even was renamed the "FTX Arena".
Although headquartered in the Bahamas, FTX was perceived by crypto investors as a trusted intermediary. Like Binance with its BNB token, FTX also had its token (the FTT) and it was from this token that the problems started.
Following an investigation by the CoinDesk site which revealed that the Alameda Research fund, also belonging to Sam Bankman-Fried, held a very (too) large quantity of FTT tokens, suspicions of price manipulation and conflict of interest are born.
After Binance announced the sale of its FTT tokens, due to information revealed by CoinDesk, the value of the FTT token fell sharply, jeopardizing the financial future of the FTX business and causing the ruin of its then multi founder. -billionaire.
Alameda (hedge fund) has also taken close to $1 billion from the funds of FTX clients, violating agreements with its clients and violating regulations.