The bankruptcy of the cryptocurrency exchange FTX affects the future of the entire crypto market, but despite this, committed investors do not lose their trust in virtual currencies.
- Cryptocurrency exchange FTX collapsed last week due to possible fraud.
- The decline in the crypto market, which continued at the beginning of the year, deepened even more.
- The vice president of the Finnish Cryptocurrency Association, Martin Wichmann, has all his investments in crypto, and he is not going to change that.
One of the world’s largest cryptocurrency platforms went bankrupt at the end of last week. FTX’s downward spiral began when investors’ confidence in it and the stability of its sister companies faltered. In a matter of days, an empire worth over $30 billion collapsed and so did its founder Sam Bankman-Fried resigned as CEO.
Vice-chairman of the Finnish Kryptovaluutayhdistys Konsensus ry Martin Wichmann is surprised and disappointed at the same time.
– After all, it’s a big blow that an operator the size of FTX, which has saved other companies, goes down in flames like this.
Information shock about cryptocurrency
There are several cryptocurrencies, but the most famous of them is bitcoin. Other than bitcoin are called altcoins, the most famous of which is probably ether.
You can invest in cryptocurrencies like stocks and exchange them for fiat currency.
Fiat money is a currency put into circulation by the government, with which we do business in normal everyday life. For example, euros and dollars are fiat currencies.
The value of cryptocurrency, like the value of fiat currency, is based on the confidence that the currency will be a valid means of payment in the future as well.
Stablecoins are cryptocurrencies whose price is tied to, for example, fiat currency, another cryptocurrency or a precious metal. An example of these is tether, which is tied to the value of the US dollar.
NFTs, on the other hand, are unique units that cannot be divided into smaller units like other currencies. They are entities, such as pictures, whose ownership changes during the sale.
Cryptocurrencies are traded on specialized trading platforms, i.e. cryptocurrency exchanges. FTX is such a platform.
A gap in the balance sheet
Rumors about the uncertainty of FTX’s financial situation caused investors to withdraw their investments from the company, and the company did not have enough money to meet the withdrawal requests. A gap of billions in the balance sheet led to the collapse of the entire company.
Among other things, FTX had included its own FTT tokens in its balance sheet, i.e. a kind of tokens, the value of which came crashing down when the company’s value collapsed.
– There was no sense in that matter. I don’t understand which accounting firm has signed such financial statements, Wichmann wonders.
Fraud of the highest order
Apparently founder Bankman-Fried, in addition to relying on the value of his own FTT tokens, had used ten billion in customer funds to support his second cryptocurrency company.
– It is a fraud of the worst kind, which will surely go down in the books of economic history. This kind of fraud is not very often encountered, Wichmann says without hiding his irritation at the actions of the CEO of FTX.
– He kept the stage and claimed to be altruistic, dressed like any buffoon, and didn’t even tie his shoelaces when he went to the congress. And at the same time lived in the Bahamas in his 35 million apartment and played with billions of euros.
The BBC’s crypto reporter notes, that in addition to running billion-dollar businesses, Bankman-Fried was also hooked on ordinary computer games. Namely, he constantly played League of Legends during phone calls and video interviews to take his mind off the corporate world. As a person, he has been considered quite eccentric.
The crypto market is fluctuating
The collapse of FTX caused a drop in the value of several cryptocurrencies. Bitcoin was at its lowest on Thursday of last week, right at the time of FTX’s downward spiral. At that time, the price of bitcoin fell lower than ever before: to 15,710 dollars. Ether also fell by 30 percent on the same day.
In general, cryptocurrencies have had challenges this year. A year ago, the value of bitcoin peaked at $63,000, and it was estimated that the currency could rise to $100,000. However, the value of both bitcoin and ether has fallen by more than 70 percent since a year ago.
During the past week, the value of both currencies has already been on a small rise, although they are still in the pit caused by FTX.
Cloths on
In principle, the risk of bankruptcy could also materialize on other crypto-platforms if they start lending customer funds all over the place and can no longer meet customer withdrawal requirements. For example, cryptocurrency platforms Voyager Digital and Celsius went bankrupt earlier this year because of it.
Martin Wichmann believes that the crypto market will rise again, even though the curve has been in a downward direction for almost the whole year, and the FTX case weakens confidence in the industry. Reader’s photo
– This case of FTX will certainly cause a setback for the industry, and dirty laundry will be aired for a long time. The regulation will become even stricter, which means that the curtains will probably be pulled, Wichmann estimates.
– Many imagine that crypto exchanges are not regulated at all, but in Finland, for example, it is very precise. Regulated crypto exchanges are required to hold one-to-one collateral against customer funds.
– It is important to remember that FTX was an unregulated crypto exchange located in the tax haven of the Bahamas.
Wichmann is not excited about the possible increase in regulation, especially if the decision makers are not familiar with the crypto market. On the other hand, he also thinks that, for example, the regulation of stablecoins is a perfectly good idea, so that it would be clear that there are enough funds in the background.
– With that, we could eliminate the risk that, once again, the wealth of ordinary people in wind suits does not go with the company.
Hype freezes
– I can safely say that cryptos are not going anywhere, says Wichmann.
NFTs have been really popular, even if a few years ago you wouldn’t have believed that there would be millions of dollars in the business of selling pixel owl pictures, for example. Wichmann estimates that their popularity will decrease momentarily, but not disappear.
– Of course, the shocking hype will die down, but certain trends and segments will remain, which on the other hand gives an opportunity to those who really want to develop the industry.
All investments in crypto
Wichmann had not invested through FTX, although he had opened an account there as well. He hasn’t even had bitcoins for several years. He trusts ether and other altcoins. He has no securities or shares. Despite the downturn, he is holding on to his investments and waiting for the market to pick up.
– There is no doubt that they will improve. Even more, I wonder if I have to wait five years or more before I get to tell all my relatives that “I told you so”.
In 2017-2018, when cryptocurrency plunged into the deep end, Wickmann’s investments came down quickly.
– I watched when millions melted into ashes in the wind, but they rose from there. Once you have burned your keys completely, your risk tolerance has also increased.
Martin Wichmann sits on the board of the Finnish crypto exchange Northcrypto.