The Crypto Apocalypse is Here
In one moment, the entire cryptocurrency market went to dust. Just a few days ago, the crypto market was beginning to look like it was on the verge of a recovery rally. Seeing Bitcoin reach $30k in the short term was a real possibility. Hope was coming back to the market.
But it is now gone.
Here is a quick summary of what has taken place during the last few days. One of the biggest pillars in the crypto market, FTX has collapsed. Not only that but so has the large investing fund, Alameda Research. This is truly a black swan event in the market that has shocked nearly everyone. Throughout the last year, FTX had become one of the biggest crypto exchanges in the world, and also one of the most trusted. The reason for this is that during the summer while the rest of the market was in chaos with insolvencies happening nearly everywhere. FTX was one of the few places that were seemingly okay. In fact, they were in such a good financial position that they were making offers to buy other companies that had become insolvent. Companies such as Voyager, Celsius, and even made offers for BlockFi. Their investments even reached outside of the crypto market, by investing in Robinhood, financial groups and the list goes on.
But then last week, rumors about FTX having financial problems started to spread around the market. It was all capped off when CZ, CEO of Binance, tweeted that he was dumping all of their FTT tokens, and throwing extreme shade toward FTX. This was the tweet that sent shockwaves across the industry and started a bank run on FTX. People were rushing to withdraw their assets. This eventually led FTX towards becoming insolvent. Binance would sign a letter of intent to buy and bail out FTX, but upon looking at their balance sheets decided that FTX wasn’t salvageable. Binance would walk away from the deal. Which in short means that this is going to cause pain for the entire market.
This is bigger than Celsius going under and on the scale of what happened during the summer with Luna/UST. People have lost a lot of money in this situation, which they likely will never see again. Not only that, but this is a huge black eye for the entire industry. Trust has been lost. Unlike a normal bear cycle, where many people lose trust in the industry due to prices dropping.
With the FTX situation, and everything else that has happened this year. People have lost their money not by buying/selling at the wrong time. But, simply by having their funds sitting on a service that wasn’t as well-intentioned as they led us to believe.
What does this mean?
While a normal bear market typically lasts 12–18 before we start to see prices begin to recover. This is different. People have been burned so badly and so much trust has been lost that many of the people who have been hurt by this will never come back to crypto. It’s also likely that this is just the beginning of price drops. FTX was enormous, and there could be several domino effects, similar to what we saw with 3AC becoming insolvent during the summer. We could likely see several other companies become insolvent due to this as well. This means that the prices of Bitcoin and Ethereum could drop even further. We need to be prepared for the reality that this could be an extended bear cycle that takes double the length of time to recover. This is truly a dark day in crypto’s history that will be remembered forever.
With that said, there is always a positive angle to every negative development. While this situation is horrible, and so many people have been hurt by this. The prices that we are currently seeing are truly what I consider to be “once in a lifetime” buying opportunities. Better than what we saw during the summer chaos. Better than the prices we saw during the covid crash, and even better than the Bitcoin price bottom of 2018. Bitcoin is currently down 77% from its all-time high of $69k. Ethereum is also down 77% from its all-time high price of $4.8k. While the market is in panic with people having lost an extreme amount of money. It can be very difficult to maintain conviction and continue buying during this situation.
Always remember this. Those who bought Bitcoin during the Mt. Gox hack panic, the covid crash, or any previous bear market have all done extremely well. Those who buy today will have similar opportunities to be successful.
There is a stereotype that it is incredibly easy to become rich with crypto. The truth is that it will be one of the most challenging things you ever do. It will test you mentally like you have never been tested before. Holding on to your Bitcoin while everyone else is selling, when the situation seems hopeless when everyone is saying crypto is dead forever.
However, this is not the end of crypto. As hard as it is to say, this might be a good thing in the long run for crypto. We have been taught a vital lesson this week. No exchange should be trusted. No service that is offering great passive income in crypto should be completely trusted. The only safe place for your crypto is in your self-custody. We need to all strive harder to take custody of our own crypto. We also need to hold crypto exchanges more accountable. Throughout all of this mess, there has been a push for exchanges to show proof of reserves. This is a development that is much needed and would help crypto adoption greatly in the future. As for now, trust in crypto has been broken. But it won’t be broken forever. Eventually, it will rise up and we will see bullish days again. Now is a time for building, and improving your skills and accumulating. Sometimes when things seem the darkest, it is actually a chance of a lifetime.
How about you? What are you doing during this dark time in crypto’s history?
As always, thank you for reading!
