At one point, the entire cryptocurrency market turned to dust. Just a few days ago, the crypto market was starting to look like it was on the verge of a recovery rally. Bitcoin reaching $30k in the short term was a real possibility. Hope was returning to the market.
But now it's gone.
Here's a quick recap of what's happened over the past few days. One of the biggest pillars of the crypto market, FTX has collapsed. Not only that, but the big investment fund Alameda Research. This is indeed a black swan event in the market that has shocked almost everyone. Over the last year, FTX has become one of the largest crypto exchanges in the world, and also one of the most trusted. The reason for this is that during the summer, while the rest of the market was in chaos with bankruptcies happening almost everywhere. FTX was one of the few places that looked good. In fact, they were in such good financial shape that they were making offers to buy other bankrupt companies. Companies like Voyager, Celsius and even made offers for BlockFi.
But last week, rumors of FTX's financial problems began to circulate in the market. It all ended when CZ, the CEO of Binance, tweeted that he was divesting all of their FTT tokens and throwing extreme shade at FTX. It was the tweet that sent shockwaves through the industry and started banking on FTX. People were rushing to withdraw their assets. This eventually led FTX to bankruptcy. Binance was going to sign a letter of intent to buy and rescue FTX, but after looking at their balance sheets, they decided that FTX could not be rescued. Binance will withdraw from the deal. Which in short means it will cause pain to the entire market.
This is bigger than the drop in Celsius and on the scale of what happened this summer with Luna/UST. People have lost a lot of money in this situation that they will probably never see again. Not only that, but it's a huge problem for the entire industry. Trust is lost. Unlike the normal bear cycle where many people lose confidence in the industry due to falling prices.
With the FTX situation and everything else that happened this year. People have lost their money not by buying/selling at the wrong time. But simply by having their funds in a service that isn't as benevolent as we've been led to believe.
What does this mean?
Whereas a normal bear market usually lasts 12–18 before we start to see prices start to recover. This is different. People were burned so badly and so much trust was lost that many of the people who were hurt by this will never go back to crypto. It is also likely that this is just the beginning of the price decline. FTX was huge and could have several domino effects, similar to what we saw when 3AC went bankrupt in the summer. We could probably see a few other companies go bankrupt because of this as well. This means that the prices of Bitcoin and Ethereum could fall even more. We must be prepared for the reality that this could be an extended bear cycle that takes twice as long to recover. This is indeed a dark day in crypto history that will be remembered forever.
With that said, there is always a positive angle to any negative development. Although this situation is terrible and so many people have been hurt by it. The prices we are seeing right now are really what I consider to be "once in a lifetime" buying opportunities. Better than what we saw during the summer chaos. Better than the prices we saw during the Covid crash and even better than the bottom of Bitcoin prices in 2018. Bitcoin is currently down 77% from its all-time high of $69,000. Ethereum is also down 77% from its all-time high of $4.8k. While the market is in a panic with people who have lost a tremendous amount of money. It can be very difficult to maintain your conviction and continue to buy in this situation.
Always remember this. Those who bought Bitcoin during the Mt. hacking panic. Gox, the Covid crash, or a previous bear market, have all done extremely well. Those who buy today will have similar opportunities for success.
There is a stereotype that it is incredibly easy to get rich with crypto. The truth is, it will be one of the most challenging things you will ever do. It will test you mentally like you have never been tested before. Holding your bitcoins while everyone else is selling, when the situation seems hopeless, when everyone says crypto is dead forever.
However, this is not the end of crypto. As hard as it is to say, this could be a good thing in the long run for crypto. We learned an important lesson this week. No stock market is to be trusted. No service that offers great passive income in crypto should be fully trusted. The only safe place for your cryptocurrency is your own security. We should all strive harder to take stewardship of our own crypto. We also need to hold crypto exchanges more accountable. During all this mess, there was pressure for the exchanges to show proof of reserves. This is a development that is much needed and would greatly help the adoption of crypto in the future. For now, trust in crypto is broken. But it won't break forever. Eventually it will go higher and we will see bullish days again. Now is the time to build, and improve your skills and build up. Sometimes, when things look bleakest, it's actually the chance of a lifetime.