What may be the cause, and why is crypto crashing right now? All year long, cryptocurrency values have decreased, but this week has been particularly difficult. The price also fell within a few days of the virtual currency exchange, FTX collapsing.
You’re not the only one who is currently concerned about the potential of cryptocurrencies. However, what caused this unexpected catastrophe, and how secure are your investments? Here is all the information you need on why crypto is crashing and whether your investment is safe.
How FTX Shook The World Overnight
The overall volatility of cryptocurrencies is influenced by a variety of reasons, but the collapse of FTX, one of the most well-known cryptocurrency exchanges, is the primary reason for this sudden decline.
According to a Wall Street Journal story, FTX has financed Alameda Research, a cryptocurrency trading company that is majority owned by FTX CEO Sam Bankman-Fried, billions of dollars in customer assets. Alameda allegedly utilized the funds to finance dangerous transactions.
FTX token, the native token of the cryptocurrency exchange, made up the majority of his Alameda balance sheet, according to a previous story from CoinDesk. Given that Bankman-Fried owns a majority stake in both Alameda and FTX and the fact that Alameda is based on a cryptocurrency developed by its sister business raises a serious red flag.
Immediately following the publication of this article, investors started taking their money out of FTX.
However, FTX had given his Alameda such a large loan that he lacked the funds to pay the investors back. It consequently had an $8 billion deficit, according to The Wall Street Journal. Bankman-Fried has resigned, and the exchange has now submitted a Chapter 11 bankruptcy petition.
How Will This Affect The Cryptocurrency Industry?
The collapse of FTX startled the cryptocurrency community and had an effect beyond the exchanges itself.
Binance, a different cryptocurrency exchange, has declared that it will sell its holding in FTX. The share price of Coinbase Global has also dropped by more than 20% in a short period of time. But the CEO assures investors that the business is stable financially and has no significant exposure to FTX.
The actual cryptocurrency has also been impacted. According to reports, FTX controlled almost $1.2 billion in Solana tokens. Making the cryptocurrency especially vulnerable to the collapse of FTX. Because of this, investors are now increasingly wary of cryptocurrencies in general, and if investor apprehension grows, prices may drop more.
Companies beyond the crypto industry were impacted by this occurrence as well. For instance, Silvergate Capital, one of the banks most closely linked to cryptocurrencies, experienced a price decline of more than 33% in less than a week.
Should You Worry About Your Crypto Investment?
Concerns regarding the effect on bitcoin holdings are common among investors. Therefore, you are not alone if you are anxious right now.
The collapse of FTX is a perfect illustration of why it’s important to consider both where and what kind of cryptocurrency you buy and remember the risks of cryptocurrency investment. It might be a good idea to keep your cryptocurrency assets in wallets rather than exchanges to secure your investment as much as possible. In the event that there are issues with the exchange itself, this enables you to prevent losses.
Sticking with the larger well-known cryptocurrencies rather than making smaller, riskier purchases may be a better choice if you want to be safe. In many ways, the crypto industry is still new ground. So something like this might yet happen before stricter regulation is implemented.
Although Ethereum and Bitcoin are impacted by these decreases (both have witnessed a decline in price as a result of the FTX issues), they are more likely to retreat during moments of considerable turbulence.
Finally, if there is anything to be learned from this experience, it is that investing in cryptocurrencies is still a risky proposition. It doesn’t always go well, but always invest only money you can afford to lose. The fall of FTX might provide lawmakers with the push they need to enact additional crypto legislation. Which has been long requested. The case is already under investigation by the Justice Department and the Securities and Exchange Commission.
It’s difficult to become a cryptocurrency investor, but now is the time to have a long-term perspective. Nobody can predict what will occur in the upcoming days, weeks, or months. But more regulation may result in cryptocurrencies being safer for everyone.
