Very recently, the conventional wisdom in the cryptocurrency world was that the safest place to start buying Bitcoins and other virtual currencies was something called the FTX exchange. FTX was the safe-for-beginners destination for buying and selling assets that were electronically manufactured. In fact, one of them, called FTT, was a digital token that was manufactured by the computers at FTX itself.
That was before FTX filed for bankruptcy, and before it was learned that the company was using customer funds to prop up a related company’s hedge fund trading operation without permission. (The hedge fund, Alameda Research, has also filed for bankruptcy.)
In the process, an estimated $30 billion of crypto vanished, and the FTT coin has dropped 90% of their value. This confirms what many traditional investors have long believed: that the cryptocurrency market contains speculative assets. But the larger question is whether this signals greater declines of Bitcoin, Ethereum, Dogecoin and a few hundred other virtual tokens that have been circulating. And if billions of dollars are wiped out of investor balance sheets, what will be the impact on the more traditional investment markets?
So far, the FTX collapse has caused few ripples outside the crypto world, in part because the financial marketplace has never been an active participant in it. Banks are not collateralizing loans in Bitcoin, very few mutual funds have allocated investor money in crytocurrencies and most publicly traded businesses have declined to accept virtual tokens in return for their goods and services. That means that any impact will come from suddenly cash-strapped retail investors who might have to liquidate their stock holdings to make up for their speculative losses from the FTX collapse and a potentially wider drop in crypto values.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.