The shockwave of FTX’s bankruptcy is being felt throughout the crypto world. The collapse of a crypto company with a big reputation is a big deal. FTX’s bankruptcy has affected crypto users and investors, and exchanges are under fire to provide more accountability and transparency as they try to maintain investor trust.
Before the FTX crash, there were speculations that Bitcoin was close to finding a bottom and that a trend reversal was imminent. However, FTX’s bankruptcy seems to have halted the potential crypto market recovery, and the bear market will likely last longer than expected.
2 Reasons Why FTX’s Bankruptcy Will Extend the Crypto Bear Market
There are two main reasons why FTX’s collapse will extend the crypto bear market for months longer than expected, forcing back the potential revival of the crypto world.
The FTX Collapse Significantly Damages Investor Confidence
There are numerous reports that many large crypto companies held funds in the now-defunct FTX exchange, making them vulnerable to the bankruptcy.
One of many big-money investors that had their funds stuck on the exchange is Genesis Trading. According to Bloomberg, on 11 November 2022, the lending company had $175 million in its FTX account. Crypto.com is also among the investors to be badly hit. However, speaking at a company-organized AMA (Ask Me Anything), Crypto.com CEO Kris Marszalek claimed that the company’s exposure to FTX is below $10 million, dismissing speculation of financial troubles.
A CNBC report suggests Multicoin Capital has lost hundreds of millions to the bankrupt company. In addition, BlockFi, which also had significant exposure to FTX, was heavily affected. Although it is unclear how much money was lost, the company has halted withdrawals and could also file for bankruptcy.
These are just a few of the many institutions affected. Large fund holders are likely considering investments and deals in more stable assets and industries. As a result, many will reduce the amounts allocated to cryptocurrency companies, at least for a while.
Negative Market Sentiment
Retail confidence has encountered a major setback, and withdrawal requests increased significantly after the FTX announcements (across all exchanges). These withdrawals were made out of fear of losing money, as many thought “crypto is crashing.” There is also an increasing lack of trust in crypto exchanges: if an exchange as big as FTX can crash, what else might happen?
The increasing negative market sentiment is also evident in the continued fall in crypto prices. For example, on 21 November 2022, Bitcoin hit a two-year low at $15,480. Furthermore, Solana, which was trading at $38 in early November 2022, dropped to $11 by the end of the month.
The price of many cryptocurrencies has dropped sharply and significantly due to the negative market sentiment. Sadly, no one can accurately predict when the price drops will stop.
Should You Still Invest in Cryptocurrency?
As long as there are no major reforms, many potential crypto users, active traders, and investors will likely remain pessimistic and may prefer to invest in some other assets. Others may favor short-term trading over long-term investment for fear of losing their money.
Those involved in short trades may not have as many issues as those who intend to invest in crypto growth. Since day traders usually get to take a buying or selling position, they can always use such an opportunity to their favor and also get more money with leverage.
Investing in cryptocurrencies or not is still a matter of choice. Some long-term investors may see the price drop as an opportunity to buy at a very low price. For example, despite the price drop, El Salvador President Nayib Bukele announced a plan to continue buying Bitcoin every day starting from 18 November 2022. The price drop could be an opportunity for those planning to invest in crypto at a very low price to get on the train before the price increases.
However, in a situation like this, you need to learn how to survive a crypto bear market and use relevant strategies to help you navigate the market well in this trying time.