Many people today are wondering if FTX collapse puts an end to the cryptocurrencies. The answer is “no” and here are the reasons why.
On Feb. 7, 2014, one of the world’s largest cryptocurrency exchanges announced it was halting all Bitcoin withdrawals. It triggered a sell-off that shaved 16% off the price of BTC by dinnertime that same day. The entire exchange was defunct two weeks later after a leak revealed it had “lost” 744,408 bitcoins — representing about 7% of the entire Bitcoin supply. It was the infamous Mt. Gox disaster of 2014. The news published hundreds of articles that Bitcoin is dead.
They were wrong. Because big players were making their moves behind the scenes. Despite all the negative predictions, Bitcoin did not “trade for under $10” by June 30, 2014 — not even close. In fact, it opened at $602.62. Today, eight years later, the market is reeling from another leading crypto exchange going down in flames — this time, FTX. Now, we are once again witnessing the crypto skeptics plunged into “Extreme Fear” territory, and the doom-and-gloom “crypto bears” are trumpeting the message that the crypto party is over and done.
However, despite the plummeting valuations and exchange closures, crypto will survive the winter. When you strip everything back to its essentials, the fundamentals behind trading crypto are similar to how traditional financial markets operate. To avoid such collapses as the FTX case, the world should focus on smart regulations and better analytics.
Adequate regulations will bring greater stability, security, and efficiency which it can be argued will lead to more, not less, innovation, competition, and choice. Better oversight and governance will also further strengthen its role as an additional form of currency, silencing the doubters who say it is like the wild west. Ultimately, it’s all about giving choice and security to both existing players and new market entrants.
Alongside the need for stronger regulation is the need for better analytics and again, technical experience and understanding gained in traditional financial markets can be deployed to great effect here too. Surveillance platforms have been built to do just that, capturing, processing, and analysing vast amounts of data in a variety of formats, created by a myriad of systems and market players. Applied to crypto they can help firms analyse the market better, test and deploy custom proprietary pricing, hedging, and trading strategies while managing the associated risk in real-time.