A wave of bankruptcies in the cryptocurrency industry is raising concerns about the future of digital assets in general and whether the industry can survive this market crash. . cryptocurrency market Issues related to liquidity issues have increased significantly this year. To date, Three Arrows Capital, Alameda Research, Voyager Digital, FTX, Genesis BlockFi and Celsius Network have either suspended customer withdrawals or filed for bankruptcy after being unable to continue operations. doing. balance sheet assets. Rumors that the exchange’s liquidity may have been inadequate prompted a client to withdraw $650 million in assets on November 7. It revealed that FTX was using customer accounts to fund risky bets made by affiliated trading firm Alameda Research.exchange just held $900 million (opens in new tab) It has assets that can be easily sold against $9 billion in debt the day before it collapsed. FTX is a leader in the crypto market, and its demise came as a big surprise that undermined trust in digital assets.
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Cryptocurrency holders have suffered huge losses. Over $2 trillion in market capitalization lost. This is the combined loss in the value of Bitcoin, Ethereum, and all other digital currencies since last year’s peak or since. Most of the recent issues center around crypto lenders, one corner of the booming crypto market over the past few years. Just as customers of traditional banks earn interest on their savings, so do cryptocurrency lenders and cryptocurrency users who deposit their digital assets on digital exchanges. While bank savings accounts have offered modest returns over the past few years due to historically low interest rates, some cryptocurrency lenders and exchanges have offered much higher returns. I was. The returns offered by some cryptocurrency exchanges and lenders are gaining attention. Similar to banks, these cryptocurrency companies generate profits from deposits through lending. Borrowers pay a percentage of the fee for the loan, and cryptocurrency lenders profit on the spread between interest payments paid to depositors and fees paid by borrowers. However, unlike traditional regulated lenders, crypto companies are not overseen by banking regulators. As such, there are few rules regarding the capital that must be held and few restrictions on what customers can do with their digital assets. It also shows how many of these companies are interconnected. FTX lent billions (opens in new tab) Funds used to fund high-risk bets for its associated trading arm, Alameda Research.Cryptocurrency lender BlockFi is on the list borrower (opens in new tab) Alameda Research and Three Arrows Capital. More crypto company failures are likely.Also, as a customer Concerned about the safety of digital currency deposits Who is most exposed to the effects of cryptocurrencies? Fortunately, banks look relatively safe. Together, they hold about $9 billion in crypto assets. Regulators have been warning banks to be careful about investing in this asset class for years, and they seem to have listened. A surprising number of retail investors own cryptocurrencies and face losses. However, although the exposure is extensive, it appears to be fairly shallow. About 10% of households in both the US and Europe own some form of cryptocurrency. In the US, the average holding is her $1,000. Most European investors own less than $5,000. crypto industryOf the approximately 10,000 companies involved in the crypto business, only a few hundred are publicly traded. Most of the rest is funded by his venture capitalists and is currently facing significant (and in some cases near total) losses. Some major currencies such as Bitcoin and Ethereum are likely to hold up. Bitcoin, for example, is down 75% from its November 2021 peak, but it’s still four times what it was in December 2018. However, it is clear that significant contraction is underway. Many tokens do not survive. Many exchanges and cryptocurrency lenders don’t because their customers choose to store their cryptocurrencies in “digital wallets.” This typically does not allow the owner to profit from the cryptocurrency, but ensures that the assets remain safe. Surviving exchanges prove that their customers’ funds are safe and liquid By doing so, they should work hard to convince users that they are not waiting for the next FTX collapse. Regulated by Washington It seems inevitable that the freewheeling nature of the crypto business will come to an end. For the industry to survive, it will have to wipe out currencies and companies that are pure hype and consolidate around the few that have potential. Proving their practical value and utility is now much more difficult…there are no more easy riches.
