The year 2022 will probably go down in history as the year that saw unprecedented collapses in the cryptocurrency world. The current and previous events could only be compared to the bursting of the dot-com bubble, the collapse of Lehman Brothers and the Great Financial Crisis. The only difference is that all this happened within a few months in the cryptocurrency market.
After the collapse of the Terra ecosystem, the nail in the coffin of which may have been Anchor-based deposits bearing interest at 20% per year, the market now faces the collapse of one of the largest cryptocurrency exchanges in the world - FTX. Here, in turn, the collapse mechanism was said to be related to the exchange's native token, or FTT, which was created by the exchange and then used as collateral for transactions made by FTX's subsidiary, Alameda Research. A decline in the value of FTT threatened Alameda insolvency. This in fact happened with the owner of Binance, which announced its intention to sell FTT tokens worth more than half a billion dollars. Users of the FTX exchange were expected to throw themselves into withdrawals, as Reuters reported talk of $6 billion in 72 hours. Thus, a typical "run on the bank" appeared, which no financial institution would have been able to survive, and in addition, FTT was losing value, and Alameda, which, no longer had adequate collateral, could be forced to liquidate other tokens, which could lead to a collapse in the broad cryptocurrency market.
Source: Conotoxia MT5, BTCUSD, Daily
Crypto always works
It is worth mentioning that the cryptocurrency market has no price limits or circuit breakers, no levels at which assets are suspended, no capital controls or the introduction of withdrawal limits, as in the case of ATMs. Here everything happens instantly on the free market. The dynamics of events can be powerful. The owner of Binance was also able to take advantage of this to acquire FTX. He basically took down one of the major exchanges in two days, but only because the exchange was doing little transparent business with Alameda, which could be brutally verified. Binance, first after announcing its intention to sell FTT, triggered an avalanche and the collapse of FTX, only to end up issuing a letter of intent, which may indicate a desire to acquire the US exchange. The amount, however, was not disclosed.
Source: Conotoxia MT5, BNBUSD, Daily
Volatility in the cryptocurrency market is back
We recently mentioned that volatility in the cryptocurrency market fell to its lowest level in two years. It was lower than the volatility for the traditional currency market, stock market or bond market. Now it seems to be rising, at first glance by a negative event in the crypto world, but in the long term, this market may clear itself of inefficient players, which could be positive for it as a result.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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