All of this has occurred during the previous fortnight. At first, rumours circulated that consumers' money had been moved from FTX to a different company, Alameda Research, which specialises in asset trading.
For a while, FTX ranked high among the most popular venues for trading digital currencies.
The crypto exchange, which was founded in 2019 and is situated in the Bahamas, rose to popularity quickly and was valued at over USD 30 billion in early 2019.
All of this has occurred during the previous fortnight. At first, rumours circulated that consumers' money had been moved from FTX to a different company, Alameda Research, which specialises in asset trading.
Several days later, Binance, the largest cryptocurrency exchange, revealed it will be selling its holdings in FTT tokens, a cryptocurrency that is said to make up a large portion of Alameda's assets.
A banner sign on FTX's website states, "currently unable to process withdrawals," indicating that the firm is on the verge of collapse as clients panicked and raced to withdraw their money.
In the mostly unregulated world of cryptocurrencies, this is hardly the first time we've witnessed a quick collapse like this, and it's not likely to be the last.
Nobody seems to be coming to help
Sam Bankman-Fried, who is the primary owner of both FTX and Alameda, has previously saved other struggling crypto firms. In order to salvage his businesses, he is frantically seeking an investor willing to commit a sluggish $8 billion.
The FTX holdings of several companies have been written down to zero. Finding new investors that are willing to back Bankman-Fried will be difficult.
Binance considered completely acquiring the struggling business. It opted not to because of worries about potential misbehaviour and an SEC probe.
Recently, the cost of FTT has dropped dramatically. It was trading at USD 24 a week ago. It has dropped to below $4 USD.
Discouraging Observations
Trading "assets" with no intrinsic value on exchanges with lax regulation is a high-risk activity. Sadness and despair are probable outcomes for many.
Aside from stocks and bonds, other asset classes function differently. The value of a stock is dependent on the dividend given to shareholders (or the expectation of future dividends) from the company's profitability.
There is a base value for real estate that is based on the amount of rent an investor may expect to collect (or the owner-occupier saves).
A bond's price is proportional to the interest it pays. Whether it's for making jewellery, dental fillings, or circuit boards, there are at least some real-world applications for gold.
But Bitcoin, Ether, Dogecoin (and thousands more "alt-coins" and "meme-coins") have no such underlying value in the crypto market.
It's a game of pass the parcel in which speculators attempt to offload their holdings to others before the market crashes.
Unchecked banks face the same risks as those in the Great Depression.
When people start to question their legitimacy, they'll all want to get their hands on their money as soon as possible before supplies run out.
Bankman-Fried recently gave an interview in which he outlined a business plan that seems to depend on the capital injection of new investors rather than on the future returns based on the intrinsic worth of the assets themselves for profit.
Effect on cryptography
As a result of these happenings, trust in the whole crypto sector has been severely shaken. The "worth" of cryptocurrencies has fallen from more than USD 3 trillion to USD 1 trillion before this latest disaster. The price has dropped considerably more.
It's conceivable that just a select few uses of the blockchain technology that underlies crypto have lasting usefulness, much as how only a select few stars rose from the debris of the dot-com boom.
Meanwhile, digital currencies issued by governments are putting the concept of electronic cash into practise.
"Everything that can be done with crypto can be done better with central bank money," said Hyun Song Shin, head economist of the Bank of International Settlements.
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