The FTX bankruptcy will send bitcoin down to around $11,000, below the current price of $16,387 as of Sunday, according to a survey of crypto fund managers conducted by BDC Consulting and published last week. Only one respondent thinks bitcoin will go over $17.000 in the near term, and three think it will crash to $0 in value. The majority of investors, some 21%, said it would fall to $12,000.
FTX was a centralized cryptocurrency exchange. It sponsored the Miami Heat arena in Florida, counted on Larry David in 2021 TV commercials that aired during NFL games, and was the second-largest donor to the Democrats in the last midterm cycle.
The company filed for bankruptcy protection on November 11 after losing billions in crypto investors’ funds. The well-connected founder, Sam Bankman-Fried, was once heralded as his generation’s JP Morgan by Jim Cramer, star host on CNBC. Forbes had his net worth listed at $17.2 billion as of September 27. Now he finds himself owing investors just as many billions.
Gary Wang, an FTX co-founder and its chief technology officer; FTX engineering director Nishad Singh; and Caroline Ellison, who ran the FTX trading arm, Alameda Research, were all fired after Bankman-Fried resigned in disgrace. John J. Ray, who oversaw the bankruptcy and liquidation of the politically connected energy trader Enron, will oversee the companies’ bankruptcy.
Is My Crypto Safe?
The blow-up of FTX served as a warning to retail investors to make sure they have control of their bitcoin and other cryptocurrency in “cold storage”, such as the Ledger Nano or Trezor, among others.
A cold storage wallet (or hardware device that looks like a UBS drive) is a physical device that stores investors’ cryptocurrency offline. Cold storage wallets are not connected to the internet, protecting cryptocurrency holdings from hacks or exchanges going bust, like FTX.
Many investors like to keep their cryptocurrency holdings on the exchange itself to facilitate trades more easily without having to plug in their wallet.
But that comes with a price. To put it simply, FTX’s crash would be the equivalent of Nasdaq going broke, but investors in Apple
“None of the experienced crypto investors keeps cryptocurrency on the exchanges any longer than the situation requires – usually trading,” says Nikita Zuborev, chief analyst at BestChange.com, a Russia-based internet service that searches out digital currency exchange services that have the best exchange rates. “Today, experienced investors are withdrawing and putting their crypto in cold storage in a non-custodial wallet — and preferably more than one — which guarantees protection from any sanctions against your assets and bankruptcies of exchanges.”
Despite the fiasco, true believers are everywhere in the crypto market.
Post-FTX: Investors ‘HODL’ the Line
The closure of the FTX exchange is not the final death blow for bitcoin, based on BDC survey respondents.
According to the survey, more than half of the crypto fund managers that responded said they still plan to increase their crypto assets in the months ahead. No one said they are selling. Decentralized finance projects was their favorite sector as the FTX saga, still playing out, puts the government spotlight on centralized exchanges.
Some 66% of those surveyed by BDC said they would expand their digital securities portfolio over the next month, with roughly a third saying they will not take any active actions because of FTX.
Other headlines this week have made apparent that investors have opted to hold on to their bitcoins, or “hodl”, as they say in the bitcoin world. No respondents said they would sell in the months ahead because of FTX.
“Everything Looks Bad”
Investors who bought cryptocurrencies this year are throwing money away.
Once a darling of the blockchain gaming investor, Axie Infinity is faste becoming worthless. It is down 93% year-to-date.
New blockchain darling Solana
Investors have been pounded of late. FTX is making matters worse. The bear market is entrenched. There is no turnaround in sentiment on the horizon and “everything looks bad” is the general market consensus for now.
“There’s been a significant decrease in the amount of capital to the altcoin markets already this year, not just because investors see no use for them but because this crash has correlated with the overall mood to bunk run on all central exchanges,” says Alex Andryunin, CEO Gotbit, a market maker for blockchain exchange systems, built in Russia.
“As for Axie Infinity, or a decentralized blockchain like Algorand
“The products of these projects have an obvious benefit for the user, and have found their legs,” he thinks. “The collapse of FTX is an excellent opportunity to invest at very low prices.”
Despite the general panic, the BDC survey suggests investors are optimistic long-term. Survey respondents also blamed the bear market on a recession in much of the West, and a slowdown in China that has turned money managers off from risky crypto investments.
For some long-term investors, the terrible headlines open up buying opportunities that BDC’s respondents said they will take advantage of in the months ahead.
Why “Crypto” is Useless as Defined
Crypto is a “useless term” nowadays, says Robert Sharratt, a former investment banker and private equity investor before creating Swiss-based Fluid Finance, a global, finance app that links to a Web3 wallet for crypto storage.
He tells investors in crypto to never lose sight of the attraction of “user controlled finance” – the heart and soul of bitcoin and blockchains.
“It’s the transparency of blockchain technology that allows a whole financial system to emerge in Web3, disconnected to banks and what they stand for,” says Sharratt.
Web3 is not to be confused with Web2.0, which is often called a more corporate-controlled, closed-loop version of what we have now. Web3 is supposed to be highly decentralized, a means to avoid government clampdowns on money.
“Users’ can never directly control their funds in traditional finance nor can they ever have any insight into what happens to their funds, once they are deposited. FTX was like a wolf in sheep’s clothing: they allowed trading of crypto but were just a black box database with no user control,” says Sharratt.
He recently wrote about the FTX and other crypto blow-ups on is Medium page.
“Bitcoin is user controlled. It was designed to replace things like FTX,” Sharratt says about the deceased crypto giant. “If anything, big centralized failures like FTX should be positive for Bitcoin adoption.”
*The writer is an investor in bitcoin, 1inch and Algorand, all mentioned in this article.