The $1 trillion market recently faced a huge crisis that crashed its worth to $830.35 billion. Keep reading to learn why crypto is down and how much you should invest in it.
Why Is Cryptocurrency Going Down Today? – FTX Collapse
Since FTX liquidation, crypto prices are falling down as investors are withdrawing their assets and avoiding staking risks at the moment. This has greatly affected the rates of Bitcoin and other cryptocurrencies.
FTX (the fourth largest crypto exchange before its downfall) filed for bankruptcy on November 11, 2022. The FTX collapse resulted in the loss of billions in the crypto market value. The company took this initiative, as it did not have sufficient assets to cater to the high rate of customer withdrawals.
After the FTX announcement, the value of cryptocurrency is not the only thing that took a great hit. As FTX disabled the withdrawal option for its customer, the FTX investor funds were also frozen in the process, further damaging the value of cryptos.
FTX Collapse – The Context
On November 4, CoinDesk published an article that revealed significant red flags in the balance sheet of Alameda Research. Alameda Research is a crypto trading firm, also run and founded by Sam Bankman-Fried. The balance sheet of Alameda showed that its foundation is largely dependent ($5 billion) on FTT (a coin made by the sister company) instead of being powered by an independent asset.
This means that Alameda’s total holding of FTT is higher than the token’s whole market capitalization. In case FTX is under a financial crisis, Alameda is also at risk of becoming insolvent. The fall of both these companies would affect the entire crypto world.
Alemeda Research (FTX’s sister company) was deeply investigated after its balance sheet was brought to the public by CoinDesk. The numbers reveal a strong hold of the FTT token, which id an exchange token issued by FTX.
A few days prior to the incidence, the companies’ CEO, Sam Bankman-Fried made an attempt to raise funds.
Two days after CoinDesk’s revelations, Binance announced that it will liquidate its entire FTT holding, which amounts to more than $500 million tokens. As a result, other investor firms also filed withdrawal requests. When FTX was unable to fulfill these withdrawal demands, it had to liquidate the assets and file for bankruptcy.
On November 8, Binance announced on Twitter that it signed a non-binding LOI and will take over the bankrupted crypto exchange.
However, the next day, Binance tweeted that it had decided to withdraw its offer due to new investigations on mishandling of customer funds. After this announcement, FTX collapsed completely.
FTX has filed for bankruptcy as it has to pay $8 billion to investors. The crypto exchange has suspended the withdrawal option and asked investors not to make more deposits. FTX has tried to take help from other crypto firms, but no company is willing to take this risk. On November 11, Sam Bankman-Fried also resigned from the post of CEO.
FTX Collapse – Effect On Other Firms
FTX was the fourth-largest crypto exchange before the liquidation crisis. Therefore, multiple crypto firms and financial companies invested their assets in this exchange. Since FTX now has zero financial resources to return the assets, other firms have lost millions of dollars that they might never recover.
Due to this situation, most investor fears that they will lose their investments. However, most crypto-centered companies do not have enough assets to facilitate all the withdrawal requests. Thus, they have paused the withdrawal option on all accounts, further lowering the value of crypto.
Why Is Bitcoin Dropping?
Bitcoin has experienced its first price drop down this year. The coin price suffered major lows during the Covid-19 pandemic, but it has been holding its value at $20,000 since October. However, due to FTX collapse, its current value is $16486.
Aside from Bitcoin, Ethereum prices are also dropping rapidly. At the start of November, Ethereum reached an all-time high price, going over $4,850. But now its price has fallen down to $19.49. In short, the FTX liquidation crisis is also responsible for the price value of Bitcoin & Ethereum going down.
Future of Bitcoin & Ethereum
Despite the volatility and recent decrease in Bitcoin’s value, experts predict that Bitcoin will reach the $100,000 mark in the upcoming years. This is because volatility is not new in the crypto world. As Bitcoin has always risen from the ashes and accomplished to increase its value, crypto experts are pretty confident that it will bounce even now.
Ethereum token lost more than 70% of its price after the FTX bankruptcy crisis. Before that, it attained the highest value and was going stable for a long time. As a result, experts believe that this fluctuation will not affect long-term investors. Moreover, experts forecast that ETH will again reach $4,000 value at the end of 2022.
Effects of Price Drop on Crypto Investors
The changes and fluctuations of price in the crypto ecosystem are common for long-term investors. Investors who engage in buy and hold strategy are used to price swings and also expect them. Therefore, they do not worry about big dips.
If you have also invested in crypto and are worried about your investments, follow the experts’ advice and refrain from checking on your investments during market dips. Moreover, make sure that your crypto investments fall under 5% of your portfolio and do not exceed this limit.
Crypto market volatility will keep resolving and reoccurring with time. As long as it is not affecting your other financial goals, it is perfectly fine to wait for the crypto price to rise again.
Should You Still Invest in Crypto?
If you are worried about what is happening to crypto, then know that volatility is a big part of crypto investment. As a potential investor, you should understand the fluctuations are part of the deal before buying the dip.
Currently, crypto prices are very low, and you can buy many tokens for less price. However, be prepared to see the value decline before it rises back up. Therefore, only invest how much you can comfortably spare.
How Much You Should Invest in Crypto – Experts’ Advice
Before investing, you should research which coins are the best investment option and how many risks they carry. It is better to refrain from crypto investment if your finances do not cover essential needs such as mortgage payments, emergency funds, and retirement funds.
Different crypto experts have their own perspectives on how much you should invest in cryptocurrencies. You can check their opinion and invest depending on your feasibility.
- Vrishin Subramaniam suggests you can invest 2% to 5% of your net worth
- Theresa Morrison advises investing 1% to 4% of your portfolio
- Dan Herron advises your investments should be up to 1% of your assets
- Ryan Sterling says your crypto investments should not exceed 3% of your total liquid assets
- Michael Kelly suggests that staking 1% to 2% of your investment portfolio is a good decision
Cryptocurrency is liable to fluctuation and volatility, but its value is currently decreasing because of the FTX collapse. FTX has recently declared that they do not have enough assets to return their customers’ and investors’ funds. Thus the company is liquidating and filing for bankruptcy. These events have shaken the crypto market, bringing down the value of all crypto tokens.
However, if you want to invest in crypto regardless of the current situation, secure your financial assets and invest the amount you can comfortably spare from your investment portfolio.
Why crypto market is down today 2022?
The Crypto market is crashing down due to instability among stablecoins. Moreover, the liquidation of FTX exchange has also reduced the price of crypto, increasing the volatility of the crypto market. In addition, high-interest rates and government regulations have brought down the value of crypto tokens.
Can I store Cryptos on FTX?
After the FTX collapse, the crypto exchange is no longer operational for depositing, storing, trading, and withdrawing crypto tokens. So, no, you cannot store cryptos on FTX.
Why FTX collapsed?
After the revelation of Alameda Research’s balance sheet and their FTT holdings, most people started to withdraw their tokens from the exchange. On November 11, the company filed for bankruptcy as SEO Sam Bankman-Fried admitted that they do not have sufficient funds to meet the withdrawal demand of all customers.
Is Luna a good coin?
Terra (Luna) has recently entered the list of leading cryptocurrencies and has great potential to grow. Today Luna’s price is $1.70 with a trading volume of $46,899,045.
Is FTX illegal?
FTX exchange was built on a risky trade system in which investors borrow financial assets to place big bets on the future of cryptocurrencies. This trading system is illegal in the US, making FTX an unlawful company.