After FTX collapse, cryptocurrency sector fights back

Binance boss Changpeng Zhao: 'The projects that survive this difficult time will be much stronger later on'

A screen grab from the FTX website last week. The exchange platform's failure has hit the sector

The failure of the FTX platform has undermined investor confidence and threatened the young cryptocurrency sector, pushing its main players to mobilise to save it.

The boss of the largest cryptocurrency exchange platform, Binance, did everything to reassure investors on Tuesday.

But for now, the market is shaken.

Less than ten days ago it was over $1 trillion, and at its highest a year ago, $3 trillion, most of which evaporated as bitcoin prices crashed (- 74% over one year), but also Ethereum (-73%) or Dogecoin (-67%).

The company must liquidate its cryptoassets and its stakes in companies to pay off its creditors, flooding the market.

- 'Pour water on fire' -

"There are parallels to be drawn with Lehman Brothers", the Wall Street giant whose bankruptcy in 2008 amplified the financial crisis, said Walid Koudmani, analyst at XTB, who told AFP that the possibility of an outright end to cryptocurrencies may even arise.

"But I don't think it's going to fail as an industry, or as a concept," said Koudmani.

In 2017, bitcoin saw its price soar before collapsing, but after several lean years, nicknamed "crypto winter", it came back with a vengeance at the end of 2020, rising to a record almost $65,000 at the start of 2021.

"We believe this second 'crypto winter' will be a net positive because the FTX collapse will edge the crypto ecosystem closer to the established financial sector," she said.

"They're trying to pour water on the fire, but if you followed the FTX situation, Binance had quite an important role," added Koudmani

It remains to be seen whether the current main players, exchange platforms such as Binance and Coinbase, will be among the survivors.

But they are often based in regions with loose legislation: FTX is headquartered in the Bahamas, while Binance has no centralised headquarters, making the job of regulators difficult. 

Among the platforms in turmoil, the most important is now Crypto.com, whose boss has acknowledged an erroneous transfer of several hundred million dollars, but claims to have recovered the funds.

Zhao announced on Monday the launch of a rescue fund and also proposed the creation of an industry body that would bring together the biggest players in the sector. But he also said he was going to rescue FTX early last week, before giving up due to the magnitude of the task.

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