The crypto market is flashing red. Most coins are showing double-digit losses, and the total crypto market capitalisation has plummeted to $781 billion, its lowest point since Dec 2020. The crash has undoubtedly caused a lot of pain for investors and has also resulted in widespread panic. But what has caused this downward spiral?
The main reason for the market downturn is the crash of FTX, one of the largest global crypto exchanges. It was business as usual for the platform until CoinDesk published an article that raised questions about FTX’s financial health.
What is FTX and Binance:
FTX and Binance are cryptocurrency exchanges, meaning they enable customers to trade digital currencies for other digital currencies or traditional money, and vice versa. The two exchanges process the majority of all crypto trades in the world, according to CoinMarketCap, an industry data tracker. FTX, one of the world’s largest exchanges, was run by Sam Bankman Fried and is headquartered in the Bahamas. It has spent millions of dollars lobbying US legislators to institute crypto-friendly regulation.
Soon, rumours of insolvency began to do the rounds, causing widespread panic among investors. This triggered a massive sell-off as investors began withdrawing their funds from the platform. At the same time, rival crypto exchange, Binance, announced that it would be offloading all its FTT holdings, which were worth a whopping $500 million. FTT is the native token of the FTX exchange.
These factors combined sent FTT tumbling. The token dropped from $22.79 late on Nov 7 to around $15.04 by midday on Nov 8. FTT’s plummeting valuation also had a tradeoff effect on the rest of the market, putting most coins in the red.
Things then took a turn for the worse after Binance announced its plans to purchase FTX. Following the announcement, FTT nosedived from $19.01 late on Nov 8 to $3.59 early on Nov 9. Fortunately, news of the Binance takeover eventually helped soothe investor nerves, as FTT showed signs of recovery, climbing to the $5 range a couple of hours later.
Impact of FTX Fall:
The FTX crash reminds us that even the biggest players can fail, and the bigger they are, the harder they fall. Also, crashes like this put a massive dent in investor confidence as they affect the entire market. Moreover, this is the second such event this year.
The FTX crash is a very recent development, and the road ahead looks long and arduous. “The dagger will continue to hang over the crypto market, as long as the outlook of FTX’s fate remains unclear,” said Lennix Lai. However, crypto prices are cyclical and generally tend to recover from such crashes.
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Bitcoin’s price traded around $18,000, while ether traded around $1,300, down only swipe store 1 or 2 over the past hour, according to CoinGecko.