Following the turbulent collapse of cryptocurrency exchange FTX and other major businesses last year, the global cryptocurrency economy is still severely damaged, with prices, volumes, and venture capital investment much below their 2021 levels.
On Tuesday, Sam Bankman-Fried, the former CEO of FTX, will go on trial in New York on seven counts of fraud and conspiracy related to the abrupt collapse of the exchange in November 2022. He entered a not-guilty plea.
A string of industry collapses, including FTX, caused bitcoin’s price to plunge to its lowest level since 2020. Although big tokens like bitcoin and others have somewhat recovered, the market is still far from the peak it reached in late 2021.
These five graphs demonstrate how the cryptocurrency environment has evolved.
BITCOIN BLUES
Since November 1, Bitcoin, by far the most popular cryptocurrency and the primary indicator of market sentiment, has recovered around 37%.
In 2021, the price of bitcoin reached a record high of $69,000 in November. However, riskier assets like cryptocurrency started to suffer when central banks started to raise rates in early 2022 as investors looked for greater returns elsewhere.
Over 65% of Bitcoin’s value was lost last year as a result of the collapse of the stablecoin terraUSD, which also triggered wider chaos in the cryptocurrency markets and forced Singapore’s Three Arrows Capital hedge fund to declare bankruptcy.
Other businesses also failed, but it was the demise of FTX that caused the price of bitcoin to drop below $16,000 in November of the previous year. The announcement that Silvergate Bank, a well-known U.S. partner for cryptocurrency businesses, would close its doors earlier this year caused further damage to bitcoin.
Despite this, Bitcoin has nearly recovered three-quarters of its value this year due to interest from major financial institutions like BlackRock and expectations that interest rate hikes are coming to a halt.
According to Ben Laidler, global markets strategist at eToro, the FTX fiasco came at the conclusion of a terrible year that had already seen the collapse of the tech sector, dramatically increased interest rates, and self-inflicted industry wounds.
CRUMBLING MARKET CAP
Following a peak of $3 trillion in November 2021, the global crypto market value dropped through 2022, reaching a two-year low of $796 billion when FTX exploded. It has now recovered some ground, hovering above $1 trillion for the majority of this year.
The FTX troubles have likely harmed trust in the crypto ecosystem as a whole, according to Usman Ahmad, CEO of Zodia Markets, the crypto exchange of global bank Standard Chartered (STAN.L).
STABILIZING BITCOIN?
Despite its reputation for volatility, bitcoin has been more stable this year.
However, several market participants argued that the relative calm in the cryptocurrency markets is not necessarily a good thing, pointing out that many investors are drawn to the asset class precisely because of its volatility, which presents chances for quick gains.
Anders Kvamme Jensen, the creator of the cryptocurrency company AKJ, stated, they anticipate low to medium volatility over the near-term.
VC CRYPTO BETS TUMBLE
Venture capital (VC) investments poured into the cryptocurrency market in 2021, continuing into 2022. But because many businesses were burned by the market collapse, such bets have slowed significantly this year.
According to data, U.S. VC crypto investments totaled $6.12 billion in the first quarter of 2022 but dropped to just $870 million in the same quarter this year.
According to Robert Le, senior crypto analyst at Pitchbook, this slowdown wasn’t mainly caused by FTX failing; it had already started with the collapse of the [terraUSD] ecosystem earlier in the year.
Venture capitalists are currently acting cautiously, he continued.
DISAPPEARING VOLUMES
Since FTX failed, cryptocurrency trading volumes have decreased, prompting investors who had been drawn to the market’s high liquidity to scale back their purchases of tokens or leave the market altogether.
According to London-based researcher CCData, the combined monthly volumes for spot and derivative markets dropped to $1.4 trillion in September 2023, a decline of more than 60% from sept 2022. With volumes down more than 70% at $272 billion, spot markets suffered the most.
In the 12 months since September 2022, derivative volume has decreased by 60% to $1.1 trillion.
According to Noelle Acheson, an economist who closely follows cryptocurrency, the exit of some major market makers following FTX severely impacted liquidity, which resulted in low trading volumes and low volatility.
