FTX bankruptcy and effects on crypto trading around the world
FTX is one of the largest international platforms for crypto trading – at least it was until recently. After a scandal related to loans provided to Alameda research, FTX filed for bankruptcy early November 2022, which had far rippling effects throughout the cryptocurrency landscape.
Read on to get a quick overview of the events.
From the cream of the crop to the bottom of the barrel
FTX was set up in 2019 in Hong Kong, and moved to the Bahamas in 2021. Through the FTX platform, clients small and big could easily exchange cryptocurrencies and various traditional currencies. FTX soon became one of the largest crypto trading platforms with clients from all over the world, even though it did not allow U.S. residents due to the strict regulation in the U.S.
The saga of the FTX collapse started early November 2022, when it was revealed that Alameda Research, a hedge fund run by the CEO of FTX, Sam Bankman-Fried, held an unusually large amount of FTT tokens, which is FTX’s own cryptocurrency. This gave rise to suspicions that FTX was using customer funds as a collateral for loans for Alameda. A few days later, CEO of Binance, the biggest rival of FTX announced that they were selling their FTT assets. This started a giant withdrawal surge at FTX, finally leading to its collapse.
FTX filed for bankruptcy on 11 November 2022, which was followed by a series of investigations and lawsuits. According to the bankruptcy filing, the company that was once valued ad USD 32 billion had now USD 8 billion of liabilities it could not pay to more than 1 million creditors.
The crypto winter is here to stay
The value of the entire crypto market peaked at USD 3 trillion in November 2021, but then it collapsed due to a mix of various crypto-specific and macroeconomic events, and has been hovering somewhere around 1 trillion since July. The bankruptcy of FTX affected both other crypto trading platforms and currencies, due to which further billions have been lost, and the current market value is currently just under USD 900 billion.
The crypto trading platforms most affected include:
- Genesis Global Capital, which suspended redemptions and new loans since 16 November
- Gemini announced delays in withdrawals from its Earn product
- BlockFi filed for bankruptcy too on 28 November
Right before the bankruptcy of FTX, the wider sector fell almost 5% in just 24 hours.
- Bitcoin plummeted from USD 20,000 to 16,500, its lowest value since 2020; it is still only slightly above USD 17,000.
- Solana has lost half of its value in a single drop.
- Even Tether, the USD 70 billion stablecoin “fell of its peg” for a short time, trading at USD 0.98, although it is already back at USD 1.00.
Traditional investment options remain safe worldwide
Contagion from crypto trading into traditional financial markets is still unlikely. While the crypto landscape remain quite volatile, traditional investments like bonds are becoming more attractive, so cryptocurrencies are less of a systemic threat. In Hungary, government bonds are among the safest and most lucrative forms of investment, even with the recent cap on interest rates.
At the same time, the taxation of cryptocurrencies remains quite favorable in Hungary, where only exchange to traditional currencies is taxed at 15%, which equals the personal income tax. The European regulation of crypto trading is quite lax currently, but that that may also change in the future to protect investors.
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