When you’re told that a $32 billion company can collapse in a matter of hours, you probably have one question: How is that possible? That’s what everyone has been thinking since FTX, the second largest crypto exchange in the world, filed for bankruptcy and its founder and CEO resigned after this huge controversy. All of what happened is not yet known and it will require a thorough investigation to get to the roots, but what we do know now is that FTX used approximately $10 billion of its assets to launch its sister company Alameda save research. With everything that’s going on, the crypto market, which was already in bad shape, fell even deeper. As a result, many investors and traders are wondering what impact this collapse will have on the crypto trading industry.
State of the Crypto Trading Industry
The crypto market was already in bad shape before FTX collapsed. Cryptocurrencies have been in retreat since hitting astronomical heights in November 2022, with Bitcoin being a good example of it falling from $69,000 to $18-20,000. But still, most of the people affected by this crash are investors, not traders. A crypto market crash always brings great volatility to the market, giving traders an opportunity to make big profits with small capital.
The collapse of FTX has further fueled volatility and from a pure trading perspective it can be seen as something positive. High volatility causes token prices to jump up and down throughout the day and a large number of traders take advantage of this. With traders using free crypto trading apps like Bitcoineer, these traders monitor the market and trade according to the trend of the day. When traders see everything down, most traders use short positions, while on green big tokens, they open long positions to make profits. Therefore, we can say with confidence that day traders will benefit the most from this FTX collapse.
FTX issues
While day traders may reap certain benefits from this collapse, overall this is devastating news for the crypto trading industry. The collapse of FTX has shown us that it does not mean that a crypto exchange that is the second largest is perfectly safe to trade and store funds on. This leaves traders wondering what is keeping other exchanges from the same fate. Especially in this difficult situation, since exchanges like Crypto.com have already come under criticism.
As reported by The Guardian, most of the traders affected by this FTX meltdown are institutional traders with large investments in FTX. However, small institutional traders have not seen large losses. But with the current FUD (Fear, Uncertainty, Doubt) there is a strong possibility that these small traders will also suffer long-term consequences of this collapse. We should expect tightening regulations in crypto trading and cryptocurrencies in general. And while these institutional traders are already under some regulation, small retailers who have taken advantage of this regulatory loophole may need to revisit this market if regulations are tightened and the benefits this regulatory loophole has brought, in the interests of a long-term security to be removed.
What exactly happened to FTX?
If you’re reading this article and aren’t sure what we’re talking about, then you’re probably living under a rock. While we don’t know many details, the general outline of this situation is as follows: It all started when Coindesk ran a report on Alameda Research, an investment firm owned by FTX CEO Sam Bankman-Fried, which mentioned that most of Alameda Research’s holdings are FTT. After that, Binance announced that they will sell all their FTT holdings worth more than $500 million. This created a huge panic and people started withdrawing all their funds from FTX, causing a liquidity crisis. This made it clear that FTX did not have the number of assets they were reporting and it became clear that those assets were used to trigger Alameda Research. Following this announcement, Binance and FTX agreed to sell FTX to Binance, but after a books review, Binance withdrew from the deal. This left FTX and SBF with only one option, to file for voluntary Chapter 11 in the US and declare bankruptcy for FTX and around 130 partner/sister companies.
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