Key takeaways
- Crypto.com’s CEO stated that the company’s exposure to FTX was limited to $10 million instead of the $1 billion many initially feared.
- Crypto.com reported that it had recovered the $400 million in crypto that was reported as missing to ease investor concerns.
In a matter of days, the cryptocurrency exchange FTX went from being worth $32 billion to bankruptcy. The liquidity crunch led to customers demanding withdrawals, while Binance (another crypto exchange) abandoned an agreement they had with FTX. This all led to the FTX exchange filing for bankruptcy on November 11, 2022.
An entire crypto exchange can’t collapse without taking down others with it, can it? There are mounting, general concerns about what this recent news could mean for crypto prices as interest rate hikes continue to hurt all assets.
In even more concerning news, FTX may have over one million creditors, which could have a colossal impact on the overall crypto market. This has led to speculation about what the future holds for Crypto.com. Will this crypto exchange thrive or dive post-FTX? We attempt to make sense of the crypto landscape in this article.
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The ripple effect of the FTX collapse
How does an exchange go from a $32 billion valuation to bankruptcy? In case the crypto space hasn’t suffered enough in 2022, FTX filed for chapter 11 bankruptcy protection on November 11, 2022 after a sudden fall from grace. Crypto prices started to plunge even further after the FTX issues popped up. Other crypto exchanges have responded with restrictions. Gemini, BlockFi and Genesis have all started to pause custom withdrawals.
Investors panicked to pull about $6 billion from the platform, while Binance abandoned the deal to rescue FTX.
Many other firms reported big losses when FTX went bankrupt on November 11. The venture capitalist Sequoia Capital lost $210 million, while Softbank lost about $100 million.
Before FTX’s collapse, CEO Sam Bankman-Fried was the world’s richest person under 30. He had a personal net worth of about $26.5 billion. The company had an increasing celebrity endorsem*nt profile promoting their exchange, and SBF himself was well on his way to celebrity status.
This news comes on the heels of the Luna collapse, where $60 billion was wiped out from cryptocurrency. This newest bit of terrible news will only hurt the cryptocurrency markets even more. Many popular forms of cryptocurrency are heavily down in 2022 already. This leads us to the question that many have been asking — which domino will be the next to fall?
Will Crypto.com collapse next?
Many crypto investors took to Twitter to speculate if Crypto.com would collapse next, especially after it became evident that FTX didn’t have the necessary liquidity to deliver customers their money. There was speculation that other exchanges would have a similar liquidity crunch.
Crypto.com is much smaller than FTX, but the exchange is still in the top 15 globally. In response, CEO Kris Marszalek did a live interview on YouTube to address these concerns. The Singapore-based exchange has assured investors that there won’t be any liquidity issues.
The Crypto.com and FTX connection
There were fears that Crypto.com and FTX could have strong ties. However, Marszalek informed skeptics that the exposure to FTX was at $10 million, down from the $1 billion in business that the exchanges shared together earlier in the year. Crypto.com recovered everything, so users don’t have to worry about $1 billion being wiped out.
Marszalek never stated when they received the funds back, but the company had sent $1 billion to FTX to purchase stablecoins — digital currencies that don’t fluctuate in price.
Marszalek made it clear that Crypto.com’s token, CRO
The $400 million crypto mistake
Crypto.com came under fire for an issue with $400 million going missing. Investors went to Twitter to voice issues with a transfer of $400 million worth of ether tokens to the Gate.io exchange that occurred on October 21. Crypto.com reported that the ether was recovered and returned to the exchange. Either way, this news was enough to raise fears as that was a large sum of money to go missing.
It doesn’t appear that Crypto.com will collapse any time soon, but this also doesn’t mean that the exchange will thrive. The goal at this point is for Crypto.com to survive.
Can Crypto.com gain investor confidence now?
Many experts have been predicting an extended and frigid crypto winter, but nobody saw all of these casualties wiping out billions overnight. This has us wondering if Crypto.com can gain investor confidence at this time. Here are a few points to consider.
Crypto.com continues to invest in expensive marketing campaigns
Crypto.com made headlines in 2021 for a $700 million deal to rename the Staples Center in Los Angeles to the Crypto.com Arena. Crypto.com will also be the only crypto platform sponsor of the FIFA World Cup, which is arguably the second most popular event worldwide, next to the Olympics. The hope is that this global publicity will ease any concerns as 5 billion people could potentially be exposed to the company’s advertising.
CRO has dropped along with every other cryptocurrency
It’s worth noting that as of November 28, CRO (the native token of Crypto.com) is still falling, over 85% year-to-date. While this continued loss would be shocking during any other time period, it’s par for the course in 2022 as every other token has also seen significant losses.
For example, ether is down 67%, while bitcoin has dropped 64% in 2022 alone. CRO had dropped about 45% at one point during this entire situation in the last week or so. While the news of the FTX collapse triggered a crypto sell-off, it’s worth mentioning that the current overall macroeconomic environment, with soaring inflation and persistent rate hikes, has also contributed to plummeting crypto prices.
Marszalek also brought up how an audit is being conducted that should have results ready in a few weeks. This audit is designed to provide transparency to skeptical investors who are worried about the company's financial health.
How’s Crypto.com performing?
It’s safe to say that all crypto exchanges will suffer for the time being as crypto investor confidence is likely at an all-time low. Here are some interesting bits of information about the performance of Crypto.com.
- Daily volume for the exchange has dropped from record highs in 2021 of $4 billion to about $284 million in October.
- 20% of the reserves of Crypto.com are in Shiba Inu coins, since that’s what customers trade.
- Everything in the reserves is backed one to one.
- The Crypto.com exchange is finishing the second year in a row with revenue of over $1 billion with 70 million users globally.
What’s next for the cryptocurrency space?
All of the bankruptcies and failures in the cryptocurrency market have led to rumors that increased scrutiny and regulations will finally gain control of the digital asset space.
The SEC Chair Gary Gensler is now under fire for his lack of involvement in the FTX collapse. There are rumblings that Congress will take the opportunity to grill Gensler for how the agency missed such a large and public fraud.
In other crypto news, the Fed’s top regulatory official, Michael Barr, warned that oversights could be coming to cryptocurrency. The Fed’s news release also made this point about possible regulations:
“Crypto-asset-related activity requires effective oversight that includes safeguards to ensure that crypto companies are subject to similar regulatory safeguards as other financial services providers.”
There’s no secret that this space has been garnering attention for the wrong reasons. The biggest issue with regulation and oversight would be the idea that cryptocurrency was designed to be independent of the traditional financial system.
How should you be investing?
Investing in digital assets is risky in the best of times, and these risks are not the best of times.
If you’re looking to invest in the cryptocurrency space, you may want to consider our Crypto Kit or Emerging Tech Kit. Both kits help spread risk across industries, not just investing in a single coin or company but the entire system. They both use AI to allocate portfolio weights each week across four vertices: crypto, tech ETFs, large tech companies, and small tech companies.
You can activate Portfolio Protection at any time to help protect your gains and reduce your losses, no matter what industry you invest in.
When we wrote about the Luna crash, we speculated that this could be more of a black swan event rather than the start of an era. We’re not sure. The key takeaway remains the same — if an investment seems too good to be true, it is. The other message is that investors who are bullish on crypto should still be cautious about investing too much of their savings into these volatile assets - the percentage of your total portfolio invested in crypto should be relatively small. Diversification is still the best strategy in a volatile market.
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