FTX's Meltdown & Crypto Rebound On The Heels of Cooling Inflation
What a way the week has begun for the crypto world. It seemed as though things were alright when CZ announced that Binance would be buying out SBF's FTX to help out the troubled firm. The fact that FTX was even in trouble came as a huge shock to most. There were no signs. If there was any smoke I, like most others, missed it. So it seemed all would be well until CZ announced there were issues with FTX's balance sheet.
So now the FTX meltdown has begun. SBF is now under investigation by the SEC for potential securities law violations. Hundreds of millions, possibly billions, may be lost forever. Among FTX's largest backers:
Sequoia - $200 million
Temasek - $205 million
Paradigm - $215 million
Ontario Teachers' Pension - $80 million
Right now there's just so much uncertainty about the future. It's an ever-evolving situation, and if you're not constantly following it in real-time, you will miss the next chapter. The biggest losers in the FTX meltdown are reportedly the employees, who owned as much as $950 million worth of stock as of January 2022. That stock is now likely worthless.
What's remarkable to me is that there are still buyers of the FTX Token, which has even bounced 36% over the past 24 hours. How can anyone bet on that right now? It's very interesting to watch how the stock market and crypto market are interlaced. Major US stock indices got a major boost by a CPI print that suggested inflation is cooling and the economy is slowing. So, the Federal Reserve's recent rate hikes seem to be working and perhaps not as many further hikes are necessary to quell inflation back to the 2% target. The crypto market took a cue from this news too, as every token on my watch list is bigly in the green.
So is all the bad news priced in? Possibly, but things can still get worse if FTX customers and investors aren't getting any of their money back. Some say that it's a buying opportunity, as was the Mt. Gox hack in 2014. Both black swan events indeed; a turn of events that no one saw coming. There are lessons to be learned, however. First and foremost, it's best to keep your coins in self-custody wallets, NOT on exchanges. If I take away anything it's that no matter how trustworthy an exchange may seem, there's always a risk of insolvency.