“November 2022” is a nightmare haunting digital currencies, and the worst is yet to come

Since last May, the red color has dominated digital currency trading platforms, and losses have continued to haunt the market until the current month of November, turning into a terrifying nightmare that haunts investors after a wave of collapses and bankruptcies, but despite this stormy wave of Losses Projections indicate that the worst is yet to come.

Over the past two weeks, the collapse of the FTX platform, a multibillion-dollar crypto exchange created by one of the biggest and brightest stars of the crypto market, Sam Bankman Fried, was announced. areas, as investors rushed out of risky positions, and in a panic depositors rushed to withdraw their funds from several crypto platforms, forcing lenders to halt withdrawals, in what one industry observer described as a “death watch”, overnight. Bankman Fried has gone from a “hero” in the cryptocurrency market to a “villain”.

In contrast to the losses incurred by cryptocurrencies over the past months, JP Morgan expects the price of Bitcoin to continue to decline and reach $13,000, with more investors having to cover their exposed positions due to the recent declines.

How did the landslides begin and where do they reach?

On November 2, an article from crypto-commerce publication CoinDesk cited a leaked financial document that raised questions about the relationship between Bankman Fried on the one hand and the FTX platform and Alameda trading house on the other.
On paper, FTX and Alameda were separate companies that happened to be owned by the same man, but the CoinDesk article stated that Alameda is “based largely on a coin invented by a sister company.”

A few days later, the head of Binance, FTX’s biggest competitor, said the company would liquidate $580 million, and that set off a firestorm of decline that FTX didn’t have the money to facilitate. With the spread of a state of fear and panic, the value of currencies declined, and losses chased the largest and strongest currencies in the “crypto” market.

FTX faced a massive liquidity crisis, it needed a bailout plan, and for a short time it looked like it might be bailed out by Binance, its rival whose withdrawal escalated the crisis, saying FTX’s problems are out. of our will or ability to help.”

On November 11, FTX and Alameda filed for bankruptcy, and Bankman Fried resigned as CEO of the exchange, writing in a lengthy apology on Twitter, “I’m done.” FTX promptly appointed restructuring expert John J. Ray III as CEO to shepherd the rest of the company through bankruptcy.

Ray took a hard look at the company’s financial statements to see exactly how much assets and liabilities it held, and a week after taking charge of the restructuring he declared it the biggest mess he’d ever faced.
The comment comes from an executive who made his name overseeing the liquidation of Enron, the largest bankruptcy reorganization in US history.

“Never in my professional life have I seen such a complete failure of corporate controls and such complete absence of trustworthy financial information as happened here,” Ray wrote in a court filing. Bankman Fried is not charged with any offences.

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The crypto industry is on the brink

However, indications confirm that the cryptocurrency industry is standing on the edge of the abyss, and is awaiting more collapses and bankruptcies. Shortly after the collapse of FTX, crypto companies received requests from customers seeking to recover their money, and many companies were forced to suspend withdrawals. While resolving its liquidity issues, Daniel Roberts, a crypto market watcher, says, “In the crypto world, the minute you see a company advertising, we put withdrawals on pause…you have to put them on death guard… It’s very unusual for someone to say we’re stopping the withdrawals, and then say, OK, the withdrawals are back, we’re fine.”

Among the companies at risk is Block V, which has announced the suspension of most of its operations in the wake of the collapse of the famous platform. According to the Wall Street Journal, Block V is preparing to file a possible bankruptcy.

And the damage isn’t limited to crypto companies, as venture capital firm Sequoia has cut its $210 million investment in the FTX platform to zero.
The Ontario Teachers’ Pension Plan, which invested $95m, has also announced that it now believes the investment is worthless and that nearly a million people may have lost all the money they put into the FTX platform.

Meanwhile, Binance is stepping in as a potential lifeline for companies affected by the FTX collapse.

A few days ago, the CEO of the “Binance” platform, Changing Zhao, said that his team would establish an “industry recovery fund” for projects facing a liquidity crisis.
Binance and others were quick to try to differentiate themselves from FTX, reassuring clients and investors that their financials were on solid foundations.

Changing Zahu said that the collapse of the “FTX” platform does not pose a threat to “Binance” investments, and when asked about the possibility of refunding investors’ money if requested, he said, “We always welcome that and there is no problem at all.”

The crash destroyed confidence in the market

A few days ago, the “FTSX” platform announced that its representatives are in contact with “dozens” of federal, state and international regulatory agencies, and in addition to the investigation in the southern region of New York, the collapsed platform is said to be under investigation by the Securities and Exchange Commission and the Commodity and Futures Trading Commission .

Authorities in the Bahamas, where the famous platform is located, opened a criminal investigation shortly after the company filed for bankruptcy, and in a recent statement, a subcommittee in the US House of Representatives said it was seeking internal documents and communications from Bankman Fried and FTX. To understand how the cryptocurrency exchange suddenly collapsed, and what is being done to get customers’ money back.

“In the short term, the collapse of FTX has destroyed confidence… A fringe cryptocurrency investor will now think twice before signing up for an account, and many will sit back,” says Matt Hogan, CIO of crypto asset manager Bitwise. Institutional investors are on the sidelines waiting to see what happens.”

Many observers have compared cryptocurrencies to the dot-com bubble of the late 1990s, in which many companies went bankrupt, but those that survived, like Amazon, emerged as a cornerstone of the tech industry, and cryptocurrency optimists may be quick to point out. That Lehman Brothers during its crisis in 2008 did not completely wipe out Wall Street, skeptics might counter that it only happened because the US government intervened, a highly unlikely outcome in the unregulated world of crypto.

“There are attempts to make this about cryptocurrency and adequate regulation, but this disaster has nothing to do with cryptocurrency per se…it’s about fraud and the strength of virtue signals,” said economist Pete Earl of the American Institute for Economic Research. Far from destroying cryptocurrencies, the scandal practically guarantees that cryptocurrency will survive for a very long time.”

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