Why FTX May Not be the Only Scapegoat in its Own Downfall?

The bankruptcy of FTX Derivatives Exchange, the once crypto behemoth valued at about $32 billion, has served as a reference point for many to look at and engage with the industry with extreme caution.


Last week, FTX still appeared normal despite revelations about inconsistencies in the balance sheet of its sister trading firm Alameda Research.

The journey toward the bankruptcy of FTX Derivatives Exchange did not prepare anyone, and as such, it caught many unaware. While we are still in the early stages of the proceedings, we are bound to see the ripple effect of these slumps over time.

FTX occupied a very pivotal position in the digital currency ecosystem, coming off as the lender of last resort to distressed firms in the entire course of the crypto winter and as an investor. FTX has investments in over 200 companies, all of which were listed in its bankruptcy filing.

While the collapse of FTX came off as a wildly shocking one, the fact that we saw some major players like Celsius Network, Voyager Digital, Three Arrows Capital, and Terraform Labs go under over the summer must have given attentive observers a clue that nothing is impossible in this space.

FTX and the Broad-based Heartbreak

A major difference in how the FTX’s demise shaped up when compared to a host of other bankrupt firms is perhaps what is breaking many people’s hearts at the moment. Despite promising the ethos of centralization, FTX notably dipped its hands into users’ funds in an unethical way which it used to fund unproductive business calls.

With the details we have seen thus far, FTX’s former CEO, Sam Bankman-Fried, transferred user deposits worth up to $4 billion to Alameda Research to prop up the firm for the failed intervention of Voyager Digital and other investments. 

“FTX now joins the infamous club of centralized crypto entities that went bust this cycle because they took enormous liberties not only with its customers’ funds but also with ethics, integrity, and the very ideals of crypto. Hopefully, both the industry as a whole and individual crypto users will be able to learn and grow from this experience,” said Anto Paroian, CEO and Executive Director at the cryptocurrency hedge fund ARK36, in an emailed statement to Blockchain.News.

The learning Anto was referring to may be necessitated following the demise of FTX, as thousands of investors will be affected. Notably, we can agree that FTX will not be the only scapegoat for its collapse, a fact that is bound to be unravelled in due course.

Exchanges Scrambling to Rebuild Trust

The collapse of FTX has placed a number of crypto trading platforms on edge. Starting with Binance, many outfits are now publishing the details of their reserves in a bid to regain the trust of customers across the board.

This position aligns with Anton’s recommendation that “users should consider every exchange potentially insolvent unless proven otherwise through proof-of-reserves.”

The published Proof-of-Reserve (POR) has thus far shown that Binance is the most healthy exchange, but keen observers have started finding faults in some crypto firms’ PoR. One such is Crypto.com, whose on-chain data shows that funds were deposited shortly before publishing its reserve.

Industry leaders, including Binance CEO Changpeng “CZ” Zhao, have indirectly advised how users should stay cautious.

Acts like this are highly antagonistic to the trust exchanges are trying to build, and a reflection of the distrust in Crypto.com has stirred a massive slump in the price of Cronos (CRO), the exchange native coin. CRO was down by 17.86% to $0.06472, corresponding to 48.49% over the trailing 7-day period.

The industry is at a pivotal time when investors will re-assess their short- and long-term goals. Many may even steer clear of the market for a while until normalcy, a highly relative word in this regard, is restored to the market.

By the time the FTX contagion has been fully manifested, and the worst of this crypto winter is finally over, only exchanges that have given investors reasons to trust it continually will likely remain in business.

The Place of Regulation

Regulators have been wading into the FTX saga, with lawmakers in various crypto-active countries calling for tighter scrutiny of the industry.

Many regulators were shaken by the collapse of Terra (LUNA), and South Korean lawmakers are still neck deep into the investigations into founder Do Kwon who is still at large. The bankruptcy of FTX only reiterates the positioning of these watchdogs over time that the industry is highly speculative and requires adequate oversight.

Gary Gensler, the United States Securities and Exchange Commission (SEC) Chairman, pointed out that the industry is non-compliant with the existing laws, and more enforcement is bound to surface moving forward.

With many already hurt by the bankruptcies in the crypto industry thus far this year, the SEC and other regulators will undoubtedly step in to wade off further losses shortly.

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Weekly Crypto Market Performance Review Amid FTX Implosion

The digital currency ecosystem is trading with massive volatility that was engineered by the collapse and eventual bankruptcy of the FTX derivatives exchange over the past week. The combined crypto market cap has slumped to $837.47 billion, one of its lowest points over the past year.


FTX Token (FTT) visibly induced the breakdown in prices dropping by over 92.33% in the trailing 7 days period to $1.78 according to data from CoinMarketCap. The coin’s collapse mimicked that of Terra (LUNA) which shed 12 months’ gains in just about a week when the TerraUSD (UST) algorithmic stablecoin collapsed earlier in May.

Investors in the industry have lost trust in FTX even before its bankruptcy filing, a move that stirred the withdrawals of funds that precipitated the trading platform’s liquidity crunch. Seeing the bleak future of the company, FTT holders had to sell off the coins on other exchanges also.

How the Top 10 Coins Performed for the Week

Every digital currency in the top 10 list has performed relatively poorly over the past week to date. Bitcoin is changing hands at $16,655.55, down 21.50% in the week-to-date period. Bitcoin even dropped as low as $15,682.69 in the course of the week, its lowest point in close to 2 years.

Ethereum (ETH) met a similar fate and slumped 23.63% over the week to $1,237.73. Binance Coin (BNB) is trading at $278.36 atop a 20.41% slump. XRP, Polygon (MATIC), Dogecoin (DOGE), and Cardano (ADA) also recorded more than a 20% drop over the week under review. 

Despite the onslaught that has been recorded thus far, the ecosystem is still not out of the woods as the ripple effect of the FTX collapse is bound to be revealed in the coming weeks. Investors will need to err on the side of caution until the coast is adjudged to be clear.

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Was the Secret Transfer of $4 Billion to Alameda, FTX’s Undoing?

The liquidity crunch facing FTX might have emanated from Sam Bankman-Fried, the crypto exchange’s CEO, secretly transferring at least $4 billion to boost Alameda, with part of the funds being customer deposits, according to Reuters.

Per the report:

“Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc. Bankman-Fried did not tell other FTX executives about the move to prop up Alameda.”

Lucas Nuzzi, the head of research & development at CoinMetrics, shared similar sentiments and stated:

“I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them. 40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared.”


Source: LucasNuzzi

FTX’s downfall was also prompted by Bankman-Fried’s decision to save struggling crypto firms as the bear market continued to bite. The report noted:

“Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing.”

Part of the losses that Alameda Research endured entailed a $500 million loan agreement with collapsed crypto lender Voyager Digital. 

FTX’s future is in jeopardy after Binance halted acquisition plans, citing misappropriation of customer funds, Blockchain.News reported.

Binance disclosed that this decision was reached based on corporate due diligence and reports of alleged U.S. agency investigations and mishandled client funds. 

Based on a shortfall of up to $8 billion, Bankman-Fried acknowledged that FTX needed $4 billion to remain solvent to avoid bankruptcy. 

The rain started beating FTX after experiencing a “giant withdrawal surge” of $6 billion in cryptocurrencies in just 72 hours. The crypto exchange was accustomed to daily withdrawals that amounted to tens of millions of dollars. 

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Is Bitcoin Gearing Up to Exit the Current Bottom?

Since Bitcoin (BTC) has been trading above the psychological price of $20K, Glassnode has released its weekly on-chain report titled “Hammering Out The Bottom,” scrutinizing the stakes and the risks that may lay on the road ahead.

The market insight provider stated:

“Bitcoin has rallied back above the $20k level this week, pushing off a low of $19,215, and trading as high as $20,961. After consolidating in an increasingly tight range since early September, this is the first relief rally in many months.”

Source: Glassnode

Bitcoin was up by 6.6% in the last seven days to hit $20,626 during intraday trading, according to CoinMarketCap.

With the realized price being the average acquisition price per coin, Bitcoin is presently approaching the underside of the realized price set at $21,111. A break above it would signify notable strength. 

Source: Glassnode

Redistribution of wealth continues to happen

During the Bottom Discovery phase, diminishing investor profitability usually triggers the redistribution of coin wealth because weaker hands capitulate into severe financial pain. 

Using the UTXO Realized Price Distribution (URPD) indicator, Glassnode noted that more consolidation and duration may still be required in the current bear market because coins changing hands are lower than the 2018-2019 bottom discovery phase where 22.7% of total supply was redistributed.

The market insight provider pointed out:

“Performing the same analysis in 2022, we can see that around 14.0% of supply has been redistributed since the price fell below the Realized Price in July, with a total of 20.1% of supply now having been acquired in this price range.”

Even though Bitcoin is getting ready to exit the bottom, the bear-to-bull transition has not completely formed because of the lack of a convincing influx of new demand. 

Meanwhile, crypto trading firm Cumberland recently highlighted that Bitcoin volume remained absolutely massive given that BTC derivatives worth approximately $50 billion were being cleared on crypto exchanges daily, Blockchain.News reported

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Are Bitcoin Miners Earning Minimum Reward as Hash Price Plunged to Historic Lows?

The revenue of Bitcoin (BTC) miners continues to dwindle, given that hash price has nosedived to historic lows of $66,500 per Exahash, according to Glassnode.

The market insight provider explained:

“The Bitcoin Hash Price has reached an all-time-low of $66,500 per Exahash. This means that BTC miners are earning the smallest reward relative to hashpower applied in history, and likely puts the industry under extreme income stress.”


Source: Glassnode

Therefore, this indicates that miners are earning the lowest revenue in Bitcoin’s 13-year journey.

Furthermore, this is happening as the mining difficulty in the Bitcoin network hits an all-time high (ATH). Glassnode added:

“BTC mining difficulty just reached an ATH of 158,208,051,864,292,013,637,632. Previous ATH of 152,947,196,320,564,012,646,400 was observed on 23 October 2022.”


Source: Glassnode

Mining difficulty is a metric of how hard or easy it is to generate new Bitcoin and is often impacted by the number of machines plugged into the network.

High mining difficulty implicates enhanced network security because more computing power is required to mine a similar number of blocks as before. 

78% of BTC Supply has been immobile for More Than 6 Months

With the immobile Bitcoin supply reaching ATH, it seems some hodlers have remained steadfast in their objective.

Market analyst Will Clemente pointed out:

“A new all-time high 78% of Bitcoin supply has not moved in at least 6 months. Pretty remarkable in the face of the worst macroeconomic backdrop in recent history, geopolitical uncertainty, and WW3 fears. There is a group of seriously convicted hodlers out there.”


Source: Glassnode

Hodling is one of the favoured strategies in the Bitcoin market because coins are stored for future purposes other than speculation.

For instance, hodled BTC recently hit a 5-year high, Blockchain.News reported. 

Meanwhile, Bitcoin price was hovering around $19,315 during intraday trading, according to CoinMarketCap. 

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DeFi TVL Rebounds to the $54 Billion Mark, Eth-based MakerDAO Remains Dominant Lender

Fresh data from tracking service DeFi Llama shows that the total value locked (TVL) in decentralized finance (DeFi) protocols has rebounded to the $54 billion mark.

According to the data, the total TVL was down — between $53.7 and $53.29 billion — since October 12. In September, the TVL was down to $52.22 billion, the lowest since March 2022.

Source: DefiLlama

As per the data, the largest DeFi lending platform across all chains remains the Ethereum-based MakerDAO, with a market dominance of 14.48% and $7.83 billion TVL. Lido is the second most dominant DeFi lender with a market cap of $6.11 billion, while the third is Curve Finance with $5.92 billion, Aave comes fourth with $5.19 billion, and Uniswap is fifth with $4.97 billion.

As it can be seen in the data, the value locked in Ethereum remains the largest, with around $31.2 billion, or just over 57% of the aggregate value locked today. Ethereum is followed by Tron’s $5.54 billion, Binance Smart Chain (BSC)’s $5.33 billion, and Avalanche’s $1.41 billion, among other DeFi protocols.

In simple terms, TVL measures the total value of all assets locked into DeFi protocols. TVL includes all the tokens deposited in all the functions that DeFi protocols offer, including staking, lending, and liquidity pools. In other words, the TVL is a measure of the funds deposited in smart contracts, and this figure is closely monitored by analysts as an indicator of investor confidence in the market.

Over the last two years, the cryptocurrency sector recorded a dramatic increase in the total value locked (TVL) across all DeFi platforms because of the boom associated with the bull market that attracted massive capital during that time. But all that changed in 2022.

As of March this year, the value locked in DeFi traded above the $200 billion mark. But things started turning worse in May amid a wider sell-off in global markets and waning interest in risky assets, such as cryptocurrencies. The total value locked in the crypto market declined from $160 billion in mid-April 2022 to $52.2 billion in September 2022, the lowest level since March 2022.

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Crowd Sentiment towards Crypto Turns Bearish as Inflation Data Looms

The crypto market has not yet been able to find the right footing based on tightened macroeconomic factors and Russia’s invasion of Ukraine.

As a result, crowd sentiment toward cryptocurrencies has turned negative. Market insight provider Santiment explained:

“With Bitcoin, Ethereum, and most altcoins ticking down slightly Monday, the crowd’s bearish outlook continues to be evident. Green bars indicate more FUD than usual toward an asset, and red bars indicate more FOMO.”



Source: Santiment

Based on Santiment’s data, fear, uncertainty & doubt (FUD) continue to rock the crypto market, prompting a bearish outlook. Bitcoin (BTC) and Ethereum were down by 1.89% and 2.95% to hit $19,067 and $1,278, respectively, during intraday trading, according to CoinMarketCap. 

This trend is being witnessed ahead of the release of the U.S. inflation data scheduled for October 13. 

Riyad Carey, a research analyst at Kaiko, pointed out:

“There seems to be some jitters and derisking across all markets as we approach Thursday’s CPI release.” 

Carey added:

“Bitcoin is moving closely with equities and I’d expect that to continue as there haven’t been many crypto-specific catalysts in recent weeks. I also expect significant volatility on Thursday, with a move up or down depending on the inflation figure.”

The Bureau of Labor Statistics is set to unveil the consumer price index (CPI) for September, with some economists expecting a 0.3% monthly increase and the annual gain to jump to 8.1%.

The federal reserve (Fed) has been on a roller coaster ride of increasing interest rates to tame runaway inflation, but this has been detrimental to the crypto market.

This trend has prompted concern from various players. For instance, James Butterfill, the head of research at CoinShares, stated:

“We believe there is a building narrative that central banks are beginning to make policy errors. Several of our clients have made the point that they don’t want to buy Bitcoin right now, but as soon as the Fed pivots, they will add to positions.”

The UNCTAD recently pointed out that the Fed should ease interest rate hikes because this could trigger a global recession, Blockchain.News reported. 

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Crypto Gets Resilience in the Past Month as Forced Selling Exit

The exodus of forced selling made cryptocurrencies partly resilient in the last month, according to Galaxy Digital Holdings founder Mike Novogratz.

Speaking at a conference in Singapore, Novogratz pointed out:

“We’re in this weird equilibrium where there are a few buyers, there are a few sellers, and there’s not that energy in the market like you’re seeing in the equity market or the bond market where you have to sell, right?”

Significant leverage has engulfed the crypto market, triggering a bearish run.

Nevertheless, Novogratz acknowledged that cryptocurrencies would take off again once the Federal Reserve (Fed) eased the aggressive monetary tightening, but this would not happen in a sustainable way until Web3 projects experienced mass adoption.

He added:

“Many crypto hedge funds won’t survive 2022’s rout in virtual coins. The implosion of Do Kwon’s Terraform Labs project was ‘heartbreaking’ and a lesson for the crypto industry.”

South Korean authorities have asked Interpol to issue a red notice for his arrest after Kwon denied being in hiding from law enforcement.

The crash of TerraUSD (UST) and Luna, which triggered the loss of $60 million of investor funds following the bearish outlook in the market, has made cryptocurrency platforms witness the least amount of engagement in two years based on the departure of weak hands. Market insight provider Santiment explained:

“If it feels like there are less people commenting and showing interest in crypto these days, your intuition is correct. Commentary hasn’t been this scarce since the end of 2020. Twitter has especially taken a hard fall in the past month.”

Meanwhile, Santiment acknowledged that profit-taking tendencies surfaced after Bitcoin closed the $20,000 mark and said:

“Many traders were apparently awaiting the $20k threshold to begin selling their bags. As Bitcoin crossed back above this psychological level, mass profit taking ensued.”

Therefore, time will tell how cryptocurrencies continue shaping up amid a tightened macroeconomic environment. 

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Bitcoin’s Trading Volume Reaches High Since June as Price Slips Below $18.8K

After touching the psychological price of $20K recently, selling pressure has emerged in the Bitcoin (BTC) market, causing the price to drop below $18,800. Furthermore, trading volume hit a three-month high.

Market insight provider Santiment explained:

“Trading volume has heated up for crypto markets, and especially Bitcoin. During the big leg down on Tuesday, BTC peaked at its highest level of trading since June 14th. Volume has gradually risen all year since bottoming out in late January.”


Source: Santiment

The leading cryptocurrency was down by 7.32% to hit $18,744 during intraday trading, according to CoinMarketCap

Market analyst Michael van de Poppe believes Bitcoin should hold a zone between $18,600 and $18,800 to avoid further downside. He pointed out:

“Back in the range for Bitcoin, through which the levels still stand. On the upside, breaking & flipping $19.3K and preferably $19.5K activates continuation towards $22.5K. Supports to hold; $18.6K-18.8K range.”


Source: TradingView/MichaelvandePoppe

Based on Santiment data, profit-taking tendencies emerged after Bitcoin jumped above $20,000. The market insight provider noted:

“Many traders were apparently awaiting the $20k threshold to begin selling their bags. As Bitcoin crossed back above this psychological level, mass profit taking ensued. Now we find out whether those anxious to sell will regret their decisions.”


Source: Santiment

With Bitcoin trading volume exploding against the British pound (GBP) recently, it remains to be seen how the top cryptocurrency trends in the short term. 

James Butterfill, the head of research at CoinShares, stated:

“Bitcoin volumes against GBP were US$881m yesterday (US$70m average), when a FIAT currency is threatened, investors start to favor Bitcoin.”


Source: JamesButterfill

Meanwhile, interest in BTC recently spiked, causing social dominance to surge to a 2-month high, Blockchain.News reported. 

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Ethereum’s Speculative Action Goes through the Roof as the Merge Edges Closer

Since the merge of Ethereum (ETH) has been awaited with bated breath by the crypto community, the network’s speculative action has skyrocketed.

Market insight provider Glassnode explained:

“Ethereum speculative action continues, with over $6.12B in outstanding Open Interest for Call Options. Put options account for a much smaller $1.5B, making for a Put/Call Ratio of 0.25.”


Source: Glassnode

Call options entail buying, whereas put options signify selling. Therefore, based on open interest being depicted in the ETH network, buying pressure outways selling, thanks to the much-anticipated merge event slated for September 15. 

Despite the merge being elusive for a couple of years, it is anticipated to be the largest software upgrade in the Ethereum ecosystem because it will change the consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS).

Therefore, various experts and institutions believe this event will heighten Ethereum’s quest to be a deflationary asset. 

For instance, American multinational investment bank Citigroup or Citi recently pointed out that the merge would slash the overall Ether issuance by 4.2% annually, making it deflationary, Blockchain.News reported. 

Therefore, the merge seems to have made Ethereum be watched with a keen eye, given that transaction volume hit a monthly high. Glassnode stated:

“Ethereum Transaction Volume (7d MA) just reached a 1-month high of 80,910.738 ETH. Previous 1-month high of 80,814.148 ETH was observed on 02 September 2022.”


Source: Glassnode

Furthermore, Ethereum address activity has been scaling heights, with the number of addresses holding more than 100 ETH, recording an 18-month high. 


Source: Glassnode

ETH was up by 6.7% in the last 24 hours to hit $1,622 during intraday trading, according to CoinMarketCap.

With the Bellatrix upgrade having already set the ball rolling for the merge, it remains to be seen how the second-largest cryptocurrency plays out after this event. 

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Bitcoin (BTC) $ 27,169.28 0.85%
Ethereum (ETH) $ 1,901.55 1.26%
Litecoin (LTC) $ 94.60 0.36%
Bitcoin Cash (BCH) $ 114.66 0.03%