It was a year ago this week that investors were talking about the future of money and the future of development tools. The NBA's Miami Heat was just into its first full season in the newly renamed FTX Arena and non-fungible token prices were exploding.
That was the peak of the digital currency.
The two largest digital currencies have lost three-quarters of their value in the last year. The industry used to be worth around $3 trillion.
Rather than acting as a hedge against inflation, which is near a 40-year high, bitcoin has proved to be another speculative asset that bubbles up when enthusiasm is high and plunges when investors are scared.
FTX spent 135 million dollars on a 19-year deal with the Heat. The brand that once had its logo on a sports facility is poised to land in the history books with the name of the exchange.
FTX went from a $32 billion valuation to being on the verge of insolvency this week as customers demanded withdrawals, rival exchanges ripped up their nonbinding agreement to buy the company, and FTX's valuation went from $32 billion to $32 billion. Sam Bankman- Fried admitted on Thursday that he had fucked up.
The excitement and prices of assets were getting ahead of themselves and trading far above any fundamental value back in the day. Digital assets have been declared dead by many as a result of the downturn.
The 2022 bloodbath exposed the industry's many flaws and served as a reminder of why financial regulation exists. Since the beginning of the year, bankruptcies have come fast and furious, leaving clients unable to access their funds, and in some cases scrapping to get pennies on the dollar.
It looks like the future of finance is not looking good.
It was supposed to be a transparent market. All transactions could be tracked. Digital ledgers allowed us to serve as the single source of truth.
The narrative is no longer being told.
Michael Saylor is the executive chairman of MicroStrategy, a technology company that owns 130,000 bitcoins. Regulators are coming into this space to help the industry grow. Everyone has the investor protections they need when it comes to trading digital assets on regulated exchanges.
Saylor was talking on CNBC about the demise of FTX. The digital currency sank to a two-year low this week. Solana, one of the popular coins used by developers, fell by more than half.
They suffered as well. The trading app that counts Bankman- Fried as one of its biggest investors fell by 30% over the course of two days.
There was a lot of pain to deal with. The company reported a revenue plunge of more than 50% in the third quarter from a year earlier. The exchange cut 18% of its workforce.
On the earnings call, the finance chief said that they were prepared to reduce operating expenses further if market conditions worsened.
The downdraft began. When inflation rates started to go up, there was concern that the Federal Reserve would hike borrowing costs. In December, investors moved into safer assets as the economy went through a rough patch.
The sell-off continued in the month of January. David Marcus used a phrase that would soon become part of the vocabulary.
The best entrepreneurs build the better companies during the winter. The time is right to solve real problems instead of pumping token.
The winter didn't start for a while. The markets were stable for a short time. Stable coins became unstable in May.
A type of digital currency designed to maintain a 1-to-1 peg with the U.S. dollar is called a stable coin.
There was a different type of panic set in when TerraUSD and luna dove below the $1 mark. The peg was no longer functioning. There was no more of a sense of confidence. The collapse of luna wiped out tens of billions of dollars in wealth. It was as if no one was safe in the digital currency.
In a single week, the leadingcryptocurrencies dropped by more than half from their peak, putting it down by more than a year. The central bank was committed to raising rates as much as was necessary to slow the increase in consumer prices.
The bottom dropped out in June.
The lending platform paused withdrawals because of market conditions. Block Fi slashed 20% of its workforce after more than quintupling since the end of 2020.
FTX signed a deal giving it the option to buy BlockFi at a fraction of the company's last private valuation after 3AC defaulted on a loan worth more than $670 million.
The month of June was the worst on record for the digital currency. The price of ether plummeted.
The bankruptcies followed.
After revealing that it had $10 billion in assets, 3AC filed for Chapter 11 protection in Singapore. Borrowing money from across the industry was part of the firm's risky strategy.
The fall of 3AC was followed by a rise in the stock price of Voyager Digital. 3AC had a huge default on a loan from Voyager.
Stephen Ehrlich, CEO of Voyager, said at the time that they needed to take action because of the continued volatility in the markets.
Celsius filed for protection in July. Customers were being paid interest of up to 18% to store their coins on the platform. Assets would be lent to counterparties who would pay sky high rates. As money dried up, the structure crashed down.
Bankman- Fried was making himself out to be a hero. The 30-year-old living in the Bahamas was poised to pick up the carnage and consolidate the industry because he claimed FTX was in better position than its peers because it kept overhead low. His net worth had grown to $17 billion and he bought a 7.6% stake in the company.
He was dubbed by some as the "JPMorgan of crypto". He told Kate Rooney in September that the company had $1 billion to spend on rescues if the right opportunities came along.
If we have real pain, if we have real blowouts, and it's not fair to customers, it's not good for regulation. Bankman- Fried said it was not going to be good for anything. It was important for the ecosystems to be able to operate without being terrified that unknown unknowns were going to blow them up.
Bankman- Fried was describing his own fate.
The descent of FTX began over the weekend after Changpeng Zhao, the CEO of Binance, said that his company was selling the last of its FTT token. The article pointed out that Bankman-Fried's hedge fund, Alameda Research, held an outsized amount of FTT.
The plunge in the price of FTT was caused by Zhao's public declaration. The largest by a huge margin was demanded by FTX clients on Sunday, according to Bankman-Fried. FTX needed help covering the virtual bank run.
Equity investors were expecting FTX to be wiped out in a deal that was announced on Tuesday. FTX's issues are beyond our control or ability to help, according to the reversal.
Bankman- Fried is trying to stay out of bankruptcy. He says he is trying to keep his clients' money out of his bank account.
The $213 million investment in FTX was marked down to zero by the venture firm. The funds still stranded there represent 15.6% of the fund's assets and there is no guarantee that they will be recovered.
Multicoin said it was taking a hit because its largest position was tumbling in value because it was considered to be within SBF's sphere of influence. The firm said it is looking for assets that can perform well in the market.
Multicoin is not a short term or momentum trader. We are going to stay focused on our strategy.
It is going to be difficult.
The FTX implosion has caused a crisis of confidence in thecryptocurrencies, according to Ryan Gilbert. Gilbert said Bankman- Friedman was comfortable representing the industry on Capitol Hill.
Trust is important in a market without a central bank.
Can trust exist in this industry at this point in time? Gilbert spoke in an interview. The concept of trust is as bad as some of these companies.
The exchanges are trying to work out a solution.
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