The impact of FTX collapse
Tier 1 crypto-exchange collapses. What is the likely impact?
Its a moving story yet CEO SBF claims they are short $6bn in liquidity to fulfill demands and $12.4bn in shortfall.
They have raised $2bn from VC up to mid year. With reported revenue of $1bn and income of $250m in 2021. They clearly are short so much that they are dead.
Binance claimed to want to help yet there is little point in them doing it as the hole is too big, the regulators are already crawling over FTX and, frankly, the only thing of interest is part of its customer base.
FTX is dead. Investors have lost their cash and top VC Sequoia has already written their investment to zero. Its clear that their customers have also lost billions as they will not get any cash out this side of 2025.
It also looks like FTX and SBF have touched client funds. A total no-no in the platform space where you must must keep clients cash and assets separate. This stinks of fraud. Also the SEC would love to hammer an exchange and throw a top profile person in jail. Looks like SBF is for the noose.
Market collapse.
The crypto-industry has dropped 20% in value yet it was already on a high so its not that bad. Saying that it looks like it will try and push from current levels to test the US$12,000 level on BTC. Maybe $800 on ETH.
There is such massive support at these floor levels, it will not go lower. We have seen this before so who cares. A great time to buy.
The bigger picture.
- This is yet another, highest profile, reason why the industry will get further regulation. The big demand will simply be…
DO NOT mix client funds with company operational cash.
Exchanges and platforms are not banks. This is the first simple rule.
I own exchanges. If all our clients demanded their cash and crypto today, it could all be paid to them within 24 hours. And we could still operate as before [well if clients wanted their money, there would be something really wrong yet you get the idea.]
We even keep the client cash in a separate bank just in case!
2. The FTX problem is simply a classic example of the ‘speculation’ causing problems. Like the LUNO collapse, it was a BS concept so died.
There will be further weak badly run or corrupt business failures.
$12bn seems alot yet its 1% of the market. Tiny.
3. There will be alot of further consolidation coming. Expect 25% of all crypto-exchanges to disappear next year. Especially the investment platforms who dont have alot of volume. Unlike Binance who will probably make an extra billion this month from massive trading volumes.
Its classic consolidation and in the end there will only be a few big strong exchanges. Remember there was 10,000 social media companies in the mid 2000s before consolidation.
Summary
FTX is sad. I feel for the customers.
It will simply push the crypto-trading market in the direction it needs to go.
If SBF really has done what I think he has then I hope they burn him at the stake. Let him spend his remaining billion dollars on legal bills fighting the attacks by the SEC from jail. Dont feel sorry for him.
Ed
