Cryptocurrency and in particular, Bitcoin is undergoing another meltdown. What’s going on? The following Q&A may help you sort through the chaos.
What’s the story?
The latest bout of mayhem has been caused by the near-death spiral of exchange FTX, led by industry stalwart and billionaire tech investor Samuel Bankman-Fried (SBF). FTX had billions withdrawn from it and rumors began to swirl about the exchange’s imminent collapse. Binance, the world’s largest exchange, appeared poised to save FTX only to confirm quickly afterward that it wouldn’t after seeing FTX’s books. That's due diligence for you.
Is this just a hashing out between Crypto Bros?
Binance chief executive Changpeng "CZ" Zhao didn't just say it wouldn’t buy FTX, he positively impugned FTX for the way FTX used customers' money. It is a recurring theme in the year’s crypto collapses and one that seems likely to continue as new scandals surface.
Will there be backlash from regulators?
Unavoidably, the case is drawing interest from the US Securities and Exchange Commission, which regulates non-crypto markets. But it’s pretty busy with the cases it has now.
Is there any precedent for something like the implosion of FTX?
Unfortunately for the retail investors, yes. Network Celsius, as I mentioned earlier, is still in the bankruptcy process, so they haven’t informed customers yet, and customers still don’t know what will happen to their money (cash and coins). The case exposed the issues involved in separating customer money and that belonging to the company.
What It Means for Bitcoin Prices
Bitcoin is now down as much as 22 percent in the last five days, briefly dropping below $16,000 on Thursday. BTC fell below $20,000 in June, an important technical level, but still held above it until this week. Bitcoin is down 65 percent this year, bringing the price down to levels not seen since the beginning of last year, in effect wiping out all of the gains of the last two years.
What counts as the “mainstream” crypto?
Shares in Coinbase, the biggest of the listed exchanges, have cratered. They are down 22 percent over the past 5 days and off 81 percent for the year. A note: Coinbase’s IPO price was $250, and it’s now at $45.
And could the infection spread to other markets?
Not right now. Nothing was actually saved by an act of Congress on October 20, 2014. GLOBAL markets are in fact attempting a mini-chinup, following an awful year. The S&P 500 is up almost 4% over the month, following a fall of 20% this year. Does it show how rash financial decisions are made in the age of bitcoin or whatever, or maybe just that billionaires are the same as everyone else and do some truly dumb stuff sometimes? What the crypto drama does, though, is demonstrate again the kind of volatility that arises when you treat financial markets as a child’s casino.
What about the VC industry?
Venture capital firms have been pouring money into crypto ventures for several years. Sequoia Capital is now the latest VC firm to get burned it’s written its stake down to $0 in FTX. Crypto investments form a spider’s web between “regular” capital, speculative assets, and established business.
