Participants wear “Will Work for NFTs” shirts during the CoinDesk Consensus Festival 2022 in Austin, Texas, USA, Thursday, June 9, 2022. The festival showcases all sides of the blockchain, crypto, NFT, and Web 3 ecosystems, and their broad effects on commerce, culture, and community.
Jordan Vonderhaar Bloomberg Getty Images
A year ago this week, investors were describing bitcoin as the future of money and ethereum as the world’s most important developer tool. Non-fungible tokens they explode, Coinbase This trade in the record and the NBA’s Miami Heat just went to the first full season recently change the name FTX Arena.
Turns out, this is peak crypto.
In 12 months since bitcoin top out at over $68,000, the two largest digital currencies have lost three quarters of their value, falling together with the riskiest technology stocks. The industry, once worth around $3 trillion, is now around $900 billion.
Instead of acting as a hedge against inflation, which is near a 40-year high, bitcoin has proven to be another speculative asset that bubbles up when the evangelists are behind it and collapses when enthusiasm melts and investors fear.
And the $135 million that FTX spent last year for a 19-year deal with the Heat? The crypto exchange with naming rights is ready to enter the history books along with another brand that once had its logo on a sports facility: Enron.
In the blink of an eye this week, FTX plummeted from a $32 billion valuation to bankruptcy as liquidity dried up, customers demanded withdrawals and rival exchange Binance ripped nonbinding agreement to buy the company. FTX founder Sam Bankman-Fried acknowledge someone “f—ed up.”
“Looking back now, the excitement and asset prices are clearly ahead and trading away from fundamental values,” said Katie Talati, director of research at Arca, an investment firm focused on digital assets. “Because the downturn was so quick and violent, many are saying that digital assets are dead.”
Whether crypto will crash forever or make a comeback, as Talati hopes, the bloodshed of 2022 shows the many flaws in the industry and serves as a reminder to investors and the public why financial regulation exists. Bankruptcy has come fast and furious since the middle of the year, leaving clients with crypto accounts unable to access funds, and in some cases scrapping to get money in dollars.
If this is indeed the future of finance, it looks a little bleak.
Crypto is supposed to bring transparency. Transactions on the blockchain are all traceable. We don’t need a centralized institution – a bank – because we have a digital ledger to be the single source of truth.
The narrative is lost.
“Speaking for bitcoiners, we feel like we are trapped in a dysfunctional relationship with crypto and we want to get out,” said Michael Saylor, executive chairman of MicroStrategy, a tech company that owns 130,000 bitcoins. “The industry needs to grow and the regulators are coming to this place. The future of the industry is digital assets listed on a regulated exchange, where everyone has the necessary investor protection.”
Saylor said on CNBC “Squawk on the Street” as the demise of FTX which roiled the crypto market. Bitcoin fell into a less than two years this week, before bouncing back there. Ethereum also tanked, and solana, another popular coin used by the maker and called Bankman-Fried, fell by more than half.
Equities related to crypto also suffered. Crypto exchange Coinbase tumbled 20% over two days, while Robinhooda trading application that counts Bankman-Fried as one of its biggest investors, down 30% over the same period.
There has been a lot of pain to move around. Last week, Coinbase reported a revenue plunge more than 50% in the third quarter of the previous year, and lost $ 545 million. In June, crypto exchanges 18% off from their workforce.
“We are actively updating and evaluating scenario plans and are prepared to reduce operating expenses further if the market situation worsens,” Alesia Haas, Coinbase’s chief financial officer, said on Nov. 3.
The decline begins at the end of 2021. That’s when inflation rates begin to rise and raise concerns that the Federal Reserve will begin raising borrowing costs when the calendar turns. Bitcoin fell 19% in December, as investors rotated into assets considered safer in a turbulent economy.
“It’s in the crypto era that the best entrepreneurs build better companies,” Marcus wrote in a January 24 tweet. “It’s time again to focus on solving real problems vs. pumping tokens.”
Crypto season doesn’t happen for months. The market even stabilized for a while. Then, in May, stablecoins became officially unstable.
A stablecoin is a type of digital currency designed to maintain a 1-to-1 peg with the US dollar, acting as a bank account for the crypto economy and offering a good store, as opposed to the volatility experienced in bitcoin. and other digital currencies.
While TerraUSD, or UST, and its sister token called luna dove below the $1 mark, there was a panic of sorts. The peg is broken. Confidence evaporates. More than $40 billion in wealth there removed out in the fallen moon. Suddenly it seems that nothing in crypto is safe.
The leading cryptocurrency has cratered, with bitcoin down 16% for the week, halving its peak six months earlier. On the macro front, inflation shows no sign of easing, and the central bank remains committed to raising rates as needed to curb rising consumer prices.
In June, the bottom fell out.
Celsius loan platform withdraw completely rest due to “extreme market conditions.” Binance too total withdrawalwhile crypto lender BlockFi 20% off workforce after more than quintupling since the end of 2020.
The famous crypto hedge fund Three Arrows Capital, or 3AC, failure to pay debts more than $670 million, and FTX sign a deal giving you the option to buy BlockFi at a fraction of the company’s final private value.
Bitcoin had its worst month on record in June, losing roughly 38% of its value. Ether fell by more than 40%.
Then came bankruptcy.
Singapore-based 3AC filed for bankruptcy protection in July, just months after going public $10 billion in assets. The company’s risky strategy involves borrowing money from all over the industry and then converting and investing that capital in other, often nascent, crypto projects.
After 3AC collapsed, the crypto broker Voyager Digital is not far behind. It is due to the massive standard 3AC in debt from Voyager.
“We are very confident in the future of the industry but the prolonged volatility in the crypto market, and the default of Three Arrows Capital, required us to take this decisive action,” Voyager CEO Stephen Ehrlich said at the time.
Next Friday Celsius, which filed for Chapter 11 protection in mid-July. The company has paid customers up to 17% interest to store crypto on the platform. It will lend these assets to partners willing to pay very high rates. The structure collapsed as liquidity dried up.
Meanwhile, Bankman-Fried is setting itself up as the savior of the industry. The 30-year-old who lives in the Bahamas is ready to take on the carnage and consolidate the industry, admitting FTX is in a better position than its peers because it spends cash, stays cheap and avoids debt. With his net worth on paper rising to $17 billion, he is on his own buy 7.6% of the shares on Robinhood.
SBF, as it is known, is referred to by some as “JPMorgan crypto.” He told Kate Rooney on CNBC in September that the company had about $1 billion to spend on a bailout if the right opportunity arose to keep key players.
“It will not be good for anyone long term if we have real pain, if we have real blowouts, and it is not fair for customers and it will not be good for regulation. It will not be good for anything,” Bankman – said Fried. “From a long-term perspective, it’s important for the ecosystem, it’s important for customers and it’s important for people to be able to operate in the ecosystem without fear that someone they don’t know will explode. .”
It was as if Bankman-Fried was projecting her own fate.
FTX’s rapid descent began last weekend after Binance CEO Changpeng Zhao tweeted that his company was selling the last of its FTT tokens, FTX’s native currency. That follows the article CoinDeskindicates that Alameda Research, a Bankman-Fried hedge fund, holds a larger amount of FTT on its balance sheet.
Not only did Zhao’s public statement cause FTT prices to drop, but it also caused FTX customers to leave. Bankman-Fried said in a tweet that FTX clients on Sunday demanded about $5 billion from withdrawals, which he called “the largest by a huge margin.” Having no reserves to cover the virtual bank, FTX asked Zhao for help.
Binance announced a nonbinding agreement to acquire FTX on Tuesday, in a deal that would have been a disaster for FTX that equity investors hoped would be wiped out. But Binance reverse course days later, he said that FTX “is a problem that is beyond our control or ability to help.”
Bankman-Fried has begun scrambling for billions of dollars in an effort to stay out of bankruptcy. He said he also works to maintain liquidity so his clients can get their money.
Venture capital firm Sequoia Capital, which first backed FTX in 2021 at a valuation of $18 billion, said that give a sign its $ 213.5 million investment in FTX “down to 0.” Multicoin Capital, a crypto investment company, told its limited partners on Tuesday that it can take about a quarter of the assets from FTX, the remaining fund represents 15.6% of the fund’s assets, and there is no guarantee that it will all be. returned.
In addition, Multicoin said it took a hit because its largest position was there solana, which fell in value because it was “generally considered to be in the SBF’s sphere of influence.” The company said it is sticking to its thesis and looking for assets that can “beat market beta in market cycles.”
“We are not short-term or momentum traders, and we do not operate in the short term,” Multicoin said. “Although this situation is painful, we will remain focused on our strategy.”
It won’t be easy.
Ryan Gilbert, founder of fintech venture firm Capital Launchpad, said the crypto world is facing a crisis of confidence after the FTX implosion. While it has been a tumultuous year for crypto, Gilbert said Bankman-Friedman is a trusted leader who is comfortable representing the industry on Capitol Hill.
In a market without central banks, insurance companies or institutional protection, trust is paramount.
“That’s the question, can it be trusted in this whole industry at this stage of the game?” Gilbert said in an interview on Friday. “To a large extent the concept of trust is as bankrupt as some of these companies.”
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