Cryptocurrency Market Collapse

Weeks ago, the crypto market faced a big collapse that started with the FTX blowout.

To give a quick overview of what caused this, FTX, a cryptocurrency exchange platform that had over 1 million and was ranked second after Binance before the collapse, was hacked which put over $1 billion of user funds on the move.

Everything started when CoinDesk shared a leaked document which was Alameda Research’s balance sheet that showed that Alameda had $14.6 billion on their balance as of June 30th: it was a lot of money, speculating that there is a deep hole in the balance sheet. It also revealed that most of Alameda’s assets were held in their very own token, which is FTT that they printed themselves. In other terms, Alameda’s Research borrowed more money than normal in customers’ funds from FTX, which caused a big cashing problem: so instead of just holding money, they were borrowing and trading it.

CZ, Binance’s CEO, shared a tweet informing people that his exchange will dump all of their FTT stakes, saying “Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books.”. This tweet was what took FTX down. CZ again shared on Twitter that they are staying in the free market, refusing that deal. He even offered a letter of intent, to “unofficially” buy FTX and get them out of this problem, but bailed on the deal eventually because of troubles that were present within this balance sheet. In 24 hours, FTX value dropped by 30%, leading FTX, FTX US, Alameda Research, and more than 100 affiliates to file for bankruptcy. Everyone started withdrawing their money out of FTX and the market collapsed.

When all crypto owners or a large part of them start selling their assets, the whole market crashes down, not just the exchange platform in question. So what should you do during a similar crisis?

There are more effective ways to protect yourself than selling your assets. You should stick to your investment, the risk is everywhere, and it’s not a sufficient reason to withdraw crypto.

Instead, try to diversify into different cryptos; lowering the risk comes from distributing the risk. When everyone starts selling collectively at the same time, like what happens now after the FTX collapse, the market (no matter what it is) will go down. Distributing your money across investments is key to reducing investment risk and smoothing the ride through a tumultuous market.

If you are a long-term investor, try avoiding anything radical, since it is proven that during crisis times, radical decisions are the reason for an even worse situation: eventually, the crash will stop and go up. Plus, buying other stakes can be an excellent solution at this time since the market is affected and prices have gone down, it is the best time to invest and not to withdraw: seize the opportunity for a market dip, and eventually, you will watch the value of what you invested in is growing.

Try getting a second opinion: you shouldn’t hesitate to seek help. There is so much information in the crypto market, you may miss an important one that would change your perspective or your future decision.

Changing your investment strategy without a valid reason might be a bad idea. Consider basing your vision on the long term to see beyond the fallout.

As for crypto exchanges, CZ shared a tweet mentioning two lessons to learn after the FTX collapse:

1: Never use a token you created as collateral.

2: Don’t borrow if you run a crypto business.

To sum up, while facing a crypto market collapse, try staying calm and not making any decisions based on panic.

You can watch our last webinar about that subject here to know more about it!