on the crypto
Yesterday, November 15, 2022, the giant Coinbase released a report. The goal of the study was to cover "recent FTX events" and explain how they represent "a setback for the industry." According to the study, the FTX case could lead to a “prolonged crypto winter”.
The impact of the FTX case on the cryptocurrency market
The misadventures of the FTX platform started making headlines in early November. About ten days were enough to see the third largest cryptocurrency platform in the world collapse.
Although the FTX exchange officially declared bankruptcy on Nov. 11, the story doesn't end there. Many FTX institutional investors have had their funds frozen investment on the platform and the market in general has suffered.
"Although the situation has contributed to overall market instability, [FTX]'s bankruptcy proceedings may limit the likelihood of contagion as US courts seek a secure outcome."
The cryptocurrency market is in a crisis of confidence
The cryptocurrency market will now feel the shock wave caused by the collapse of FTX. Institutional investors who had bet on the FTT token have already suffered large losses due to the collapse of its price. The price of the FTT token has dropped from $25 on Nov. 4 to below $2 at the time of writing.
Other investors have had their assets frozen on the FTX platform, which could cause liquidity problems in the medium to long term.
But FTX's bankruptcy has an even wider impact. Indeed, this event has dented the confidence of investors and large buyers who are now moving away from cryptocurrencies. Coinbase's report highlights one indicator to support this point: the stablecoin dominance rate.
In fact, stablecoin dominance just hit a record 18% of the total cryptocurrency market cap. It is worth noting that this total market cap dropped sharply with the FTX affair, losing nearly 20% between late October and mid-November.
Why is stablecoin dominance significant? Because it highlights that market players are “avoiding” pure cryptocurrencies in favor of less volatile digital assets, in this case dollar-backed stablecoins.
The cryptocurrency winter could continue until the end of 2023
Not so long ago, it seemed like the cryptocurrency winter would soon be over. Indeed, the inflation data was weaker than expected and financial markets have regained color. The cryptocurrency market may also have followed this trend. But you could not count on the crisis of FTX.
Now the forecasts have to be revised and we will have to grit our teeth for a while longer. According to Coinbase, the crypto winter could continue into late 2023. The conclusion of the report is stark:
“The unfortunate events involving FTX have undoubtedly damaged investor confidence in the digital asset class. Rehabilitation will take time and, most likely, this could extend the crypto winter for several more months, perhaps until the end of 2023, in our opinion.”
