A Shocking Collapse of a $30 Billion Cryptocurrency Exchange has Left many Crypto Investors Worried.

The Bahamas-based cryptocurrency exchange, which debuted in 2019, rose quickly to prominence and reached a valuation of more than US 30 billion dollars earlier in the year. FTX was formerly one of the biggest cryptocurrency trading platforms in the world.

In the last two weeks, everything has changed. First, there were worries raised regarding connections between FTX and the asset-trading company Alameda Research, including claims that client funds had been moved from FTX to Alameda. Mark Tencaten said that a few days later, the largest cryptocurrency exchange and competing company Binance stated they would sell their ownership of FTT coins, which are said to make up the majority of Alameda's assets.

Customers who were in a panic raced to withdraw money from FTX, and now the business is in danger of failing. A popup notification on its website states that it is "temporarily unable to process withdrawals."

According to Mark Tencaten, this isn't the first such quick collapse we have witnessed in this highly decentralized world of cryptocurrencies, and it's not likely to be the last either.

No rescues can be seen.

Earlier this year, Sam Bankman-Fried, the largest stakeholder of both FTX and Alameda, managed to save other struggling crypto businesses. He is currently in desperate need of an investor with $8 billion to salvage his businesses. Numerous companies have also taken off the capital of their FTX shares. Therefore, finding investors prepared to contribute new funding will not be simple for Bankman-Fried.

Binance considered outright acquiring the struggling business. It made this decision in light of the US Securities and Exchange Commission's investigation and issues regarding misconduct claims.

Currently, the FTT price has dropped. It was listed at US 24 dollars a week ago. It is currently below US 4 dollars.

Precautionary advice by Mark Tencaten

Trading on poorly regulated exchanges with "assets" that have no underlying intrinsic value has always been an extremely dangerous endeavor. It's going to be a traumatic experience for a lot of people. There are also other types of assets. Company shares have an intrinsic worth depending on the dividends (or at least an anticipated future payout) paid from the firm's profits. The fundamental worth of the real estate is determined by the rent an investor receives.

A bond's value is influenced by the interest rate it offers. Even gold has certain useful use in jewelry, dental fillings, and electronics. The so-called "cryptocurrencies" Dogecoin, Ether, and thousands of other "alt-coins" and "meme-coins" do not, however, have such a fundamental value. Investors attempt to sell it to a different buyer before the price plummets in this game of passing the parcel. The equivalent of a "bank failure" in the form of the Great Depression is possible with unregulated financial firms. Each participant has the incentive to be first in line to take their investment before the resources run out once questions about their soundness start to surface.

In a recent conversation, Bankman-Fried described his business strategy, which appears to place more emphasis on capital from fresh investors than on potential profits based on the inherent value of the assets.

Effect on Cryptocurrency

These incidents have further damaged credibility in the cryptocurrency environment. The "worth" of cryptocurrencies had already decreased from a height of more than US 3 trillion dollars to US 1 trillion dollars before this most recent disaster. It has since descended considerably further.

It's likely that just a small number of uses of the blockchain technology that powers cryptocurrencies have enduring utility, much like how a select few stars like Amazon emerged from the rubble of the dot-com sphere.

The concept of an electronic version of money is also becoming a reality due to central banks' digital currencies. But according to Bank of International Settlements chief economist Hyun Song Shin, anything that can be performed with cryptocurrency can indeed be done in a much better way with central bank currency.