Crypto traders brace for more turmoil as FTX collapse sparks fear

The cryptocurrency industry is facing yet another turbulence even before it could completely shake off the ravages of the recently experienced meltdown that saw investors lose billions of dollars held in the digital assets globally.

The collapse of popular crypto exchange platform FTX is proving severely detrimental to the industry as it is shaking user confidence, putting the global market capitalisation of cryptocurrencies on another downward trajectory.

Barely a week after the troubled Bahamian crypto trading company filed for bankruptcy in the United States, the world’s crypto industry had shed off at least $133 billion, bringing down the global market cap by 13.5 percent to $850 billion, according to figures from CoinMarketCap. As of November 23, the total crypto market cap had fallen to $501 billion globally.

While the meltdown in June resulted mainly from mass sell-offs by investors spooked by inflationary pressures globally, the current turmoil was primarily triggered by the FTX collapse, which, experts say, might have far-reaching effects on the global crypto industry.

Already, exchanges from across the globe are feeling the brunt of the collapse as nearly all of them have been on decline in the last week, according to data from CoinMarketCap.

Massive drop

Binance, the world’s largest crypto trading platform, registered a massive drop in volume traded from $139 billion per day on November 9 to about $14 billion as at November 23, a trend that was recorded by all major exchanges globally.

Changpeng Zhao, Binance chief executive, told the company’s staff not to view the FTX collapse as a win for them, but rather embrace transparency even more and brace for “prices swinging widely”.

“FTX going down is not good for anyone in the industry,” Changpeng said in a note to all Binance staff globally.

“User confidence is severely shaken. Regulators will scrutinise exchanges even more. Licences around the globe will be harder to get.”

AAX, another crypto exchange, suspended withdrawals in the wake of the FTX crisis, citing ‘a glitch in system upgrade’, and notifying their customers that they will “continue our best efforts to resume regular operations for all users within 7-10 days to ensure the utmost accuracy”.

Going forward, industry players anticipate that many other exchanges might be shaken off the market if they do not adopt principles of transparency and openness with their customers.

“In the long-term, it is the platforms that continue to adopt a regulation-first outlook towards the industry and focus on building trust with customers will survive and flourish,” said Marius Reitz, Africa general manager at Luno, a crypto exchange platform.

Nascent sector

Although many exchange representatives declined to comment on the current state of the market, Mr Reitz said that the crypto industry is relatively a nascent sector and its survival will require players to strictly adhere to existing laws and regulations.

“In order for the industry to mature responsibly, exchanges must continue to proactively work within the laws and regulations that govern the existing financial system - especially those related to transparency and customer security,” he told The EastAfrican in an interview.

And while Africa is particularly slow to regulate the crypto sector, Mr Reitz’s assessment is that the impacts of turbulences on the crypto market are felt equally globally, as all the investors are “vulnerable to the same shocks”.

Not the end yet

But the turmoil notwithstanding, players in the industry remain confident that the end has not yet come for cryptocurrencies as many critics predicted in the wake of the FTX collapse.

“History has shown us that these markets tend to recover after short-term fluctuations,” said Reitz. “Over time, we’re generally seeing prices becoming less volatile across the board.”

“Ignore the prices,” Mr Changpeng advised his employees in the note shared. “It has always worked over the years and today is obviously no exception.”