FTX Collapse Brings Crypto Winter Pain

FTX Collapse Is About To Initiate New Crypto Winter Pain

The cryptocurrency market is already enduring a prolonged slump. Amidst this, the FTX collapse brought new troubles for the crypto market. Following the crash, the valuations in the asset class and other assets have been heavily hampered. Founded by Sam Bankman-Fried, a prominent personality in the crypto world, FTX filed for bankruptcy protection in the US last week. This was just after it failed to meet a whopping request for withdrawals.

Will FTX Collapse Pave The Way For Next Crypto Winter?

In a report published this week, analysts of DBS Group Holdings, Southeast Asia’s largest bank, Taimur Baig, and Chang Wei Liang had their statements. They mentioned that developments related to FTX had pushed significant crypto prices to their new lows owing to the FTX crash for the year including its FTT tokens. This includes the two largest cryptocurrencies in the crypto market – Bitcoin (BTC) and Ethereum (ETH). Both of them have been down by around 65% so far this year.

FTX Token (FTT) 7D Graph (Source: CoinMarketCap)

The analysts have warned in the report – 

“Corrections may not be over. “Prominent exchange failures, liquidity issues, fraud, regulatory scrutiny and the rising cost of capital have combined to create a crisis of confidence among many investors.”

The observers have dubbed this crypto market crisis following the FTX crash as “crypto winter”. The crisis has brought down the capitalization of digital coins from their peak. Last November, the market cap of digital currencies was around $3 trillion. This year, it dropped significantly to less than $1 trillion in July. As the year is approaching towards hitting end with the FTX collapse incident, the prospects for recovery are almost fading.

FTX crypto exchange has grown as a rival of one of the most popular names in the cryptocurrency exchanges headed by Changpeng “CZ” Zhao, Binance. The digital currency trading platform was backed by big-name institutional investors from Singapore’s Temasek to Japan’s SoftBank. Even prominent celebrities including American football star Tom Brady backed the firm. But the aftermath of the FTX exchange collapse has extended to the venture capital as well as the institutional investors alongside the Asian backers.

On Thursday, 17th November 2022, Temasek announced – 

“We will write down our entire US$275 million investment in FTX, irrespective of the outcome of FTX’s bankruptcy protection filing”.

The company further mentioned – 

“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced.”

Owing to the FTX collapse, investors have kept themselves away from risky and volatile assets such as cryptocurrencies this year. This is because inflation has spiked while the central banks compete to tighten the monetary policy in response. The FTX crash has contributed little to reviving the confidence in cryptocurrencies and those assisting in their trade.

According to the lead developer at the crypto project Seasonal Tokens – 

“The entire crypto market is likely to remain depressed for the rest of the year as investors wait to see which companies were impacted by the FTX collapse. There’s likely to be a cascade of bankruptcies over the coming weeks as companies with exposure to FTX reveal the extent of their losses.”

FTX Collapse: The Latest Revelations

The hacker behind the FTX collapse is now the 35th largest holder of Ethereum (ETH) with an Ether haul estimated at $288 million at current market prices. According to the blockchain intelligence firm Elliptic, the wallets of FTX had been drained for over $663 million in various crypto assets. This occurred the following day FTX had filed for Chapter 11 bankruptcy.

The blockchain intelligence company has also suspected stealth of  $477 million with a large chunk of that being converted into Ether. It is believed that $186 million worth of over a hundred different tokens had been moved into secure storage by the crypto trading platform itself.

As the news goes, four days after this incident, the hacker was continuously draining wallets in a process that the analysts term “on-chain spoofing”. As per Beosin, another blockchain security firm, the attacker had conducted several swaps as well as cross-chain transactions in the past day. The hacker also holds about $338 million in crypto assets (as of the 15th of November).

The exploits occurring on both FTX and FTX.US, lead to speculation that this incident could have been an “insider job”. Hugh Brooks, Director of security operations at analytics firm Certik, mentioned that unless there was a private key compromise, an insider having access to these wallets moving the funds cannot be easily ruled out.

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