FTX collapse: Crypto analyst reveals what’s next for crypto

Bitcoin flows out of exchanges marketwide as the crypto crisis deepens following the collapse of FTX, so what can we expect next from crypto?

Dan Ashmore, crypto analyst at CoinJournal commented:

“The FTX insolvency is devastating for the entire cryptocurrency industry. Firstly, the shortfall of funds, reportedly north of $8 billion, is obviously crushing for customers who had been using FTX as their exchange of choice.

But beyond the money, this is also a substantial blow to the reputation of crypto. It is just the latest stunning collapse, following the events of the Terra debacle, which saw a $60 billion ecosystem go up in flames and drag several other projects with it – Celsius, Three Arrows Capital and Voyager Digital, to name a few.

For institutions and traditional finance players, this will give a huge pause for thought regarding capital flows into the crypto space. It is tough to overstate how much of a blow to crypto Sam Bankman-Fried’s swift fall from grace is.

While the scale of the financial losses is jaw-dropping, perhaps even bigger is the hit to crypto’s reputation as a reputable asset class. Undoubtedly, it is a space right now that requires more stringent regulation and a cleansing out of the behaviour of figures such as Sam Bankman-Fried, which only serves to bring the entire industry into disrepute.

Bankruptcy proceedings are long, drawn out and will likely only end with customers getting pennies on the dollar, in any case. The reality of an $8 billion hole in the balance sheet at FTX is not going away anytime soon.

These events could not be a better reminder of the dangers inherent in the cryptocurrency space. There are no bailouts in the crypto space. These are not banks, covered by insurance, reserve requirements or other strict regulations.

The reality is that it is almost impossible to know what exchanges are doing with customers’ deposits. Until it becomes too late that is – we will likely know very soon what exactly happened to all the funds caught up in the tangled web of Alameda and FTX.

There is only one way that someone can serve their crypto assets with 100% safety, and that is cold storage. Pulling assets offline means there is zero counterparty risk, with holders not having to trust any other individual, party or intermediary. It’s sort of akin to stuffing gold bars under your mattress, in a way.

The flows of Bitcoin this past week show quite how much the market has been spooked. People are finding out the hard way that cold storage is the only safe way to be. In fact, exchanges have just experienced one of the largest weekly outflows in Bitcoin history, with nearly 73,000 bitcoins departing exchanges. Looking at Ethereum, the pattern is similar.

In conclusion, this crisis has had an obvious effect on the market’s sentiments. It is notable that as it was going down, CZ, Binance’s CEO, was tweeting out that anybody interested in safety simply must turn to cold storage.

It appears that the market is listening. That and, well, selling. Both reactions are understandable, as crypto reverberates from yet another crippling blow stemming from a centralised player employing poor risk management, naivety and reckless leverage – with customers again holding the bag.”