Bitcoin continues to make headlines, even though many people outside the investment world may still not know exactly what it is. For some, this is negotiable, though at this point soil is legal tender in both countries: El Salvador and the Central African Republic. For others, it is a store of value, like gold. This is the place to invest when the waves of inflation hit so we don’t lose purchasing power. However, while inflation has plagued households around the world, bitcoin did nothing but crash. This Monday marks the one-year anniversary of an all-time high, when a unit of the controversial cryptocurrency was valued at around $65,500. As of press time this Sunday, it’s about $16,500, down more than 70%.
Cryptocurrencies, which are still unregulated financial assets and without any institutional oversight, have taken their place in the media again this past week. after bankruptcy in two actions of the broker FTX, a platform for buying and selling these assets. In particular, the platform has been investigated by US authorities for possible fraudulent use in handling customer money, and it is suffering from withdrawals from its users. The giant Binance, which has withdrawn funds from this platform, has raised a possible purchase. But at the last moment, took a step back leaving FTX with no alternatives.
This Friday, the platform announced that it had filed for bankruptcy and that its CEO, Sam Bankman-Fried, had resigned. This 30-year-old American, who in 2021 the richest man in the world under 30, fell out of favor within a week. Forbes considered him a “modern-day JP Morgan” compared to one of the wealthiest and most influential bankers in the American financial sector of the late nineteenth century. As of early this week, Bankman-Fried was worth about $16,000 million, according to Bloomberg. This Monday, your heritage is worthless.
Changpeng Zhao, CEO of Binance, the world’s leading cryptocurrency exchange to date, warned this Friday. that FTX bankruptcy can cause cascading “cryptocrisis”. The bankruptcy of the mentioned broker was caused by a lack of liquidity. It remains invisible if its collapse will cause another liquidity crisis for other entities.
This year, the world of cryptocurrencies suffered other blows. In May, one of the most popular “stablecoins”, Terra, collapsed. The purpose of these currencies is to maintain parity with the dollar, and they are presented as a safe haven where investors can leave their assets during periods of high volatility. But Terra lost parity and collapsed. What happened on May 8 was worth a dollar, today it is worth two cents. Namely, who invested 10,000 euros in Terra today has 200 left. Not long after, Voyager, Three Arrows Capital and Celsius went bankrupt in July, raising additional questions for crypto investors about the financial health of exchanges amid rising interest rates.
Price gouging for corner crypto assets
Disruptions to global supply chains caused by the pandemic and Russia’s invasion of Ukraine have caused inflation to rise around the world. But there are many more factors that have been putting pressure on prices. The Federal Reserve Bank of the United States has been printing dollars at a record pace in history since the financial crisis and especially during the pandemic, which has helped inflation progress and persist, at least in the North American country. For this reason, the Fed decided to raise interest rates, dragging the rest of the world’s central banks.
The rise in interest rates is a setback for the crypto market, as most of these platforms have grown very rapidly due to leverage, which is now becoming more expensive. the tap also closes. This cause facilitated the bankruptcy of FTX due to lack of liquidity and cast doubt on the financial health of the remaining platforms as the cost of credit increased.
Where is bitcoin going?
“Given the huge uncertainty, in a contraction scenario, I think bitcoin will continue to be more or less the same price. We will continue the “crypto winter” until 2024“, predicts Luisas Garvia,…