Crypto’s (Nuclear) Winter
FTX was recently regarded by much of the public as the safe-haven for the crypto curious public. That is now completely unraveling.
The events currently unfolding have and will continue to cost billions in value up and down the crypto space, from asset depreciation as algorithmically manipulated tokens crash, to the collateral damage being incurred by coins such as Ethereum and Bitcoin — once thought to be more safe.
So what’s next for the space, now that FTX’s $32B valuation has imploded?
Contagion: The collateral damage has officially extended beyond just FTX
- Tom Brady is thought to have lost most of his strategic investment in FTX. The GOAT and his now-ex wife took an equity stake in the company in 2021.
- Robinhood, which FTX founder Sam Bankman-Fried (SBF) owns nearly 8% of, is trading down more than 30% over the last two sessions. This is likely due to sentiment related to SBF’s impending need to liquidate assets to raise capital.
- Coinbase is also trading down over 20% during the last two trading sessions — less due to exposure to FTX, and more due to the overall drop in cryptocurrency values.
- Solana, which shows SBF as a big investor, seems to be sliding as well. As of this moment, $SOL is down more than 60% from its 11/5 high of $38.55. A lot of companies in the crypto ecosystem are built on Solana, and will undoubtedly feel the pain.
- Tens of billions of dollars in value have been wiped out of the market, much of that in consumer funds — and as a result of the liquidity crunch, folks are once again having trouble withdrawing their funds.
The good in the bad
While awful for people and companies involved, many of whom joined FTX after their recent spate of acquisitions, there may be some potential positives coming out of this latest debacle.
Much needed regulation
Following the Paperwork Crunch of the late 1960s, Congress passed and enacted the Securities Investor Protection Act of 1970 (SIPA). As stock prices fell due to extremely high paper trading volumes (yes, orders in the stock market were placed and filled by hand — electronic order technology has largely solved this), Wall Street had a tough time keeping track and accurately processing the sheer volume of trades. At one point in 1968, the stock market would even close on Wednesdays to allow brokerages to work through the sheer backlog of information.
As a result, many broker dealers failed or merged/were acquired — which left consumers exposed. Congress stepped in at 1970 to pass SIPA which was followed by the creation of the Securities Investors Protection Company (SIPC) that we know today. That protection offers up to $500,000 to brokerage customers in cases of failure/fraud/liquidation of the assets at any FINRA registered broker-dealer.
It seems beyond time that something similar is created to protect consumers, especially when the platforms they operate on make risky bets/make bad decisions.
This is part one of a mini-series of thoughts/stream of consciousness that I may or may not be putting together over the coming days and weeks — haven’t decided yet. If I do continue on, it will focus on how regulation and compliance measures in Web2 can protect consumers can be replicated and adjusted for life in Web3 and beyond. If I do post a Part 2, it will focus on liquidity/capital requirements, regulatory bodies and their roles in all this, and more.
The statements, thoughts and beliefs contained herein are not reflective of the beliefs of my employer, whom I love and appreciate dearly.
