Will Crypto recover? 4 Crypto Experts Say What’s Next As Volumes Drop
- Daily cryptocurrency trading volumes fell 50% following the FTX collapse, according to data from Bloomberg and Kaiko.
- The fallout from Sam Bankman-Fried’s FTX empire, once $32 billion, is weighing on investor sentiment.
- Insider spoke to four crypto experts about what’s next for the nascent industry.
Cryptocurrency trading volumes plummeted 50% after the sudden crash of FTX, the once $32 billion digital asset empire started by Sam Bankman-Fried.
Daily average trading volumes on centralized exchanges decreased from $26.7 billion in the week to Oct. 30 to $13.1 billion in the seven days to Dec. 11, Bloomberg reported on Friday, citing data provider Kaiko. These include platforms like Coinbase, Binance, Kraken, OKX, and Bitfinex to name a few.
The drop in trading volumes comes at a crucial time for the industry, which is enduring a protracted and brutal bear market. The market capitalization of cryptocurrencies has shed nearly three-quarters of its value since last year, according to messer, with bitcoin and ethereum 75% below all-time highs in November 2021.
User trust in exchanges is also in question following the FTX crash.
“The FTX crash brings us back to reality,” Shaban Shaame, founder and CEO of blockchain game developer EverDreamSoft, told Insider. “Cryptocurrency is a young industry. It is [the Wild] West where everything is possible but also full of ill-intentioned people and lack of rules”.
lost ftx $8 billion of customer deposits after a Coindesk report revealed that the exchange’s native FTT token was used to prop up Bankman-Fried’s quant trading firm, Alameda Research. The trading titan’s balance sheet, which once held $14.6 billion in assets, was largely made up of a currency its sister company invented, not a standalone asset like fiat currency.
This set off alarm bells. Swarms of investors fled the exchange and liquidated their FTT holdings in one fell swoop, sending FTX and 130 other associated entities into bankruptcy court last month.
Investors can continue to flee other centralized exchanges, Shaame says, and park their assets in non-custodial wallets, or those that allow users to be in control of their funds independent of the exchanges.
Regardless, the industry will go one of two different paths, he added.
“Either it will be heavily regulated like the traditional financial industry or it will be more decentralized. Exchanges are like banks in the old world, people trust them with their money and no one audits them,” Shaame said. “A trustless solution like decentralized exchanges exists, but it is not mature enough to support all use cases.”
Shaame added: “The drop in trading shows that people are becoming aware of the ‘it’s not your key, it’s not your currency’ mantra and are moving towards non-custodial exchanges.”
The FTX contagion could also weed bad players out of the industry in the future, another blockchain gaming executive predicts, setting the sector up for success in the next market cycle.
“Many bull market retail investors have exited the market, leading to significantly lower trading volumes,” said Andreas Christensen, founder of blockchain game developer SuperOne. “Investor FUD will hold until the next up cycle, which will then be a massive uptake of high-quality, transparent and compliant players.”
Christensen added: “In such a fragile bear market, a major criminal act like the one SBF did with FTX will have a severe impact on market sentiment and trading volumes.”
Phil Wirtjes, head of strategy at digital asset trading platform Enclave Markets, says that given the recent turmoil, it’s no surprise that investors are “playing it safe” as they assess how far the contagion will spread.
“The depletion of credit lines and a lack of confidence in centralized places is causing lower liquidity, but we would not be surprised to see volumes increase once certainty is reintroduced to the markets,” Wirtjes added.
Finally, institutional and retail investor sentiment will continue to suffer from the FTX fiasco, casting doubt on the credibility of the industry, a senior BTCM economist said.
“Institutions like Fidelity and BlackRock are slowly but steadily continuing to push their digital asset initiatives, while most traditional institutions are in a ‘wait and see’ mode,” said Youwei Yang, chief economist at the crypto mining firm that traded.
He added: “However, most crypto veterans are used to this kind of shrinking and market reassurance from previous circles and [are] still hanging in there.”