Thursday 10 November 2022 08:56 PM What the FTX fiasco means for battered crypto market trends now

With major cryptocurrency exchange FTX on the brink of collapse, some investors are beginning to question the viability of a sector already battered by Bitcoin's price collapse and the recent failures of other key players.

On Wednesday, after larger rival Binance walked away from a bailout deal to rescue FTX, Bitcoin touched a two-year low of $15,632, down about 77 percent from its all-time peak of $69,000 reached in November 2021.

FTX founder Sam Bankman-Fried, once hailed as the 'poster boy' for crypto with a net worth of $15 billion, is now facing potential bankruptcy and reported federal probes into his company's handling of customer funds.

The meltdown follows a year of intense pressure for crypto markets, as rising interest rates prompted investors to ditch risky or speculative assets. 

And alarm bells were ringing even before the FTX fiasco, following the collapse of several crypto lenders, including Celsius and Voyager, major tokens terraUSD and Luna, and hedge fund Three Arrows Capital.

Though investors say the FTX fiasco has shaken confidence, there are signs the damage could be limited, and little risk that the company's looming collapse could infect the wider economy.

Bitcoin, the largest cryptocurrency by market capitalization, has weathered bigger one-day and all-time declines in the past, and jumped as much as 10 percent on Thursday in a speedy rebound.

Stock in Coinbase, the largest publicly-traded US crypto exchange, rebounded 8.7 percent on Thursday after plunging 9.5 percent a day earlier, to a record low.

Broader financial markets, which were dragged down by concerns over FTX on Wednesday, surged Thursday, with US stock markets pointing toward their biggest gains in two years after a positive report on inflation figures. 

Still, some in the crypto industry say concerns about patchy oversight and counterparty risk are beginning to overwhelm likely returns from the asset class, at least in the near-to-medium term.

'Counterparty risk' refers to concerns that the other side in a credit transaction or trade may default on their obligations. 

'From a financial side, it's fair to say that confidence is going to be somewhat shaken because if you can't trust FTX then what can you trust?' Yat Siu, co-founder of Hong Kong-based investor Animoca Brands, told Reuters.

FTX's swift fall from grace followed heavy speculation about its financial health that triggered $6 billion of withdrawals in just 72 hours earlier this week. 

The company had published a valuation of $32 billion as recently as January, but is now facing insolvency as it looks to plug a reported $8 billion hole in its finances.