The Crypto Winter is about to become a Crypto Ice Age | by Stephen Moore | November 2022

As another big player collapses, trust is eroding

Image: poorly edited by the author

The crypto market has just witnessed “one of the greatest wealth destructions in history.”

I will not claim to fully understand the intricacies of the saga involving the FTX exchange, Alameda Research, and the recently dethroned Crypto Golden Boy Sam Bankman-Fried. It is not for lack of trying; It’s just hard to make sense of things that don’t make sense. But the essential details are as follows:

  • A Coindesk report revealed that Sam Bankman-Fried trading firm Alameda Research was heavily invested in FTX exchange FTT token.
  • Days later, the Binance CEO announced that he would be selling his remaining FTT token holdings. In other words, he was scared by the fact that a large part of Alameda’s assets were tokens from his sister company. Marginal note: What are the bets that Binance is the next domino to fall?
  • The FTT token price plunged after the news and, as always, clients rushed to withdraw their holdings, leaving large financial holes to fill.
  • Binance suggested that it would come to the rescue of FTX until it looked under the covers and freaked out. With no one coming to plug the holes, almost overnight, the exchange became insolvent and has since filed for bankruptcy. Sam Bankman-Fried has resigned.
  • The exchange was later hacked: totally nothing to see here – to the tune of more than $450 million.

It leaves behind a shipwreck. Billions of dollars go up in smoke: both seasoned and retail investors face huge losses. Sam Bankman-Fried (who uses SBF, which tells him everything he needs to know about the man and the brother culture of the crypto world) saw his estimated $15 billion fortune implode 94% in a only day It could even fall further, as the token has every chance of completely crashing.

FTT price: Coinmarketcap

As an isolated incident, this car accident could be written off as an expensive bump in the road to realizing the “destiny” of cryptocurrencies. But it is far from isolated; now we can add the FTX collapse to a growing list that includes other failed companies like Terra/Luna, Three Arrows Capital, Celsius and Voyager.

With every collapse thousands of millions He is lost. Companies are lost. People lose everything. Domino effects work through the interconnected chain, toppling everything like dominoes.

As a vocal crypto critic white molly wrote in The Guardian, “Aftershocks from the FTX collapse will be prolonged and devastating. Like a tsunami after an earthquake, the failure of a major player in the cryptocurrency industry reverberates abroad, hitting other investors with exposure to FTX and Alameda. Any subsequent failures cause their own tsunamis, and so on.

But it’s not just about monetary damages.

Each crash eats up the only thing the cryptocurrency needs if it is ever going to be truly mass adopted.

And that is trust.

Crypto is built on the notion that you can own and control your currency instead of entrusting your money to banks or other financial institutions.

Crypto is built on trust that it remains decentralized and unaffected by the same external factors as our standard currencies. (Except, well, much of it runs through centralized exchanges and seems to suffer just as much as fiat currency when shit hits the fan. I digress.)

Crypto is built on trust that these exchanges adequately back your money and have the capital to allow you to withdraw.

Crypto is built on trust in the people who build the future apps for crypto.

Crypto relies on trust in the protocols it works with.

For widespread public adoption, there must be complete and unshakeable confidence that the whole thing is not just some big scam designed to enrich a few and harm the rest.

However, every time one of these big players fails, confidence is further eroded. More doubts arise. More people are struggling to see past their current failings, and no amount of “you’re missing, bro” calls from those holding their suitcases is helping to convince newcomers to join the movement.

The cryptocurrency industry might fight the notion of regulation, but if this is what the landscape looks like without it, a semi-ponzi scheme filled with selfish individuals making reckless decisions with other people’s money, what choice does the cryptocurrency industry have? industry?

In an irony that will not be lost on anyone, the SBF was advising regulators and lawmakers just weeks ago on possible policy. Their collapsing exchange is now an example of why, without some form of consumer protection and regulation, or at least some security measures, there will never be enough trust in the crypto market for it to deliver on its promises.

What happens if trust erodes further? More people try to withdraw their funds, and it will become very clear if the other exchanges should have trusted.

As Ed Zitron wrote in his latest newsletter, “If a major exchange dies in the next 2 weeks, this industry may be about to implode. If too many people want to cash out, one of the exchanges won’t and people will start trying to liquidate their assets on other exchanges, which won’t either. It will be gloomy.

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