The failure of the FTX platform undermines investor confidence and threatens the young cryptocurrency sector, pushing its main players to mobilize to save it.
The boss of the largest cryptocurrency trading platform, Binance, did everything to reassure on Tuesday. “The projects that survive this difficult period will be much stronger in the future,” said Changpeng Zhao in response to questions from Internet users on Twitter.
But for now, the market is rocking. All cryptocurrencies are valued at US$870 billion, according to data from Coingecko, a site that lists more than 13,000 of them across 600 exchanges.
Less than ten days ago it was over $1 trillion, and at its highest a year ago, $3 trillion, most of which evaporated as bitcoin prices crashed (- 74% over one year), but also Ethereum (-73%) or Dogecoin (-67%).
The bankruptcy of FTX, still considered in early November as one of the most reliable platforms, reminds investors of the uncertainty that reigns in the sector.
But it also has a more direct effect: the company must liquidate its cryptoassets and its stakes in companies to pay off its creditors, flooding the market.
And this, while cryptocurrencies are already recovering from a similar crisis in the first half of the year, when the Terra cryptocurrency saw its price collapse, dragging bitcoin down with it.
A “crypto-Lehman Brothers”?
But this time around, FTX was an even bigger player.
“There are parallels to be drawn with Lehman Brothers”, the Wall Street giant whose bankruptcy in 2008 had amplified the financial crisis, worries Walid Koudmani, an analyst at XTB, who confirms to AFP that the question of an outright end to cryptocurrencies may arise.
The plunge in cryptocurrencies, however, comes in a rising global market, and seems to indicate that cryptoassets are not yet significantly correlated with the real economy.
“I don’t think the industry or the concept of ‘cryptocurrency’ is going to cease to exist,” he tempers, however.
For many observers, the survival of the sector will go through a calming down, far from the decentralized and deregulated ideals of the first hours.
Already, in 2017, bitcoin had seen its price soar before collapsing. But after several lean years, dubbed “crypto winter”, it had come back strong at the end of 2020, rising to a record high of almost $65,000 at the start of 2021.
Marion Laboure, an analyst at Deutsche Bank, believes in a note that FTX’s setbacks will help clean up the sector: “We believe that this second ‘crypto winter’ will be positive, as the fall of FTX will push the crypto ecosystem to adopt standards and a form of self-regulation” similar to traditional finance.
For now, “market concentration is stronger than ever, with Binance as the big winner,” she notes.
Unstable platforms
It remains to be seen whether the current main players, exchange platforms such as Binance or Coinbase, will be among the survivors.
They allow users to buy and sell cryptoassets, but also offer more or less complex derivative products on these already very volatile assets, and are at the heart of the ecosystem.
But they are often based in regions with loose legislation: FTX has its headquarters in the Bahamas, while Binance does not have a centralized headquarters, making the job of regulators difficult.
The bankruptcy of FTX is causing some users to withdraw their funds, as they fear that their buying platform has also used their cryptoassets to invest.
“We must be wary of platforms, because what we see is the equivalent of a bank panic”, warns Mr. Koudmani.
Among the platforms in turmoil, the most important is now Crypto.com, whose boss has acknowledged a transfer from an internal wallet to the outside of several hundred million dollars, but claims to have recovered the funds.
Binance, for its part, claims to have the necessary liquidity to deal with the crisis, says it is ready to publish “evidence” of it, and claims not to lend its customers’ money without their knowledge.
Changpeng Zhao, the boss of Binance, announced on Monday the launch of an appeal fund and also proposed the creation of an industry body that would bring together the biggest players in the sector.
But he also said he was going to rescue FTX early last week, before giving up on the magnitude of the task.