FTX and the Future of Cryptocurrency

Image reference: Depositphotos

The recent bankruptcy of FTX, one of the world’s largest cryptocurrency exchanges, represented one of the largest financial frauds in the history of the cryptocurrency industry, and plunged the entire ecosystem into a meltdown. Let’s look at the problems of cryptocurrency and the future of the unstable cryptocurrency market through the example of FTX’s case.

 

Image reference: ZDNET Korea

First of all, it is beneficial to know how cryptocurrency exchange occurs. Cryptocurrency exchange works the same as when we are trying to exchange our money into foreign currency when we travel to a different country. However, the biggest difference between the cryptocurrency exchange and the real currency exchange is the level of security and reliability. Though touted for the security benefits of being decentralized, when cryptocurrencies are deposited or traded on an exchange platform,the threat of theft re-emerges. Not only that, if the cryptocurrency exchanges themselves are mismanaged or engaged in fraudulent behavior, the deposits of customers using those exchanges could be at risk, as the case of FTX clearly shows.  

 

Image reference: Forbes

On 7th of November in 2022, Zhao Changpeng, the founder of Binance, announced on Twitter that he would sell all 500 million worth of FTT tokens that were minted by FTX.  Because of this massive sale, the value of FTT plunged and since FTX had lots of these FTT tokens, its value also dropped. Even though Zhao Changpeng explained that he had no intention to attack FTX, his decision of disposing of FTT tokens implied his skepticism of FTX and its future prospects. Because of the LUNA coin incident that happened in the same year, many people started to withdraw their money from FTX to avoid getting embroiled in another big meltdown. This led to FTX’s bankruptcy. 

 

 

After the collapse of FTX, the values of most cryptocurrencies dropped. Bitcoin’s value fell more than 20% and Ethereum’s value fell from 2000 dollars to 1500 dollars. The economic blow was significant, but the biggest problem was the reliability of the cryptocurrency market in the eyes of the public. At this point, people are wary of investing even on similar platforms, such as Binance, Coinbase, and Crypto.com. This does not mean that those companies are on the verge of bankruptcy or that they are suspected of fraud. However, it is necessary to think deeply about why so many incidents of frauds and scams have occurred in the brief history of cryptocurrencies.