Last year, the collapse of crypto exchange FTX and other major firms left the global cryptocurrency ecosystem wounded, with prices, volumes, and venture capital investment significantly below 2021 levels.
FTX’s former CEO Sam Bankman-Fried faces seven fraud and conspiracy charges in New York on Tuesday after the exchange’s unexpected collapse in November 2022. His plea is not guilty. FTX was one of several sector meltdowns that drove Bitcoin to its lowest price since 2020. Bitcoin and other key tokens have rebounded, but the industry is far from its late 2021 peak. Five charts depict crypto’s evolution.
The Bitcoin Blues
The largest cryptocurrency and market gauge, Bitcoin, has recovered 37% from Nov. 1.
Bitcoin reached a record $69,000 in November 2021. In early 2022, when central banks raised rates, investors sought greater returns elsewhere, hurting riskier assets like cryptocurrency.
Bitcoin lost almost 65% of its value last year after stablecoin terraUSD collapsed, causing Singapore hedge firm Three Arrows Capital to declare bankruptcy and wreaking chaos in crypto markets.
Last November, FTX’s failure pushed Bitcoin below $16,000. Other firms also fell. In early 2019, Silvergate Bank, a major U.S. crypto partner, announced its closure, hurting Bitcoin again.
However, BlackRock’s involvement and predictions that interest rate rises are finishing have helped Bitcoin recover over three-quarters of its value this year. It traded for about $28,089 on Monday.
“The FTX fiasco came after an annus horriblis that had already witnessed a tech sector collapse, dramatically increased interest rates, and self-inflicted industry wounds,” said eToro global markets strategist Ben Laidler.
Falling market cap
The crypto market fell to $796 billion in 2022 as FTX collapsed after peaking at $3 trillion in November 2021. It has now recovered over $1 trillion most of the year.
“The issues with FTX have undoubtedly hit confidence in the crypto ecosystem at large,” said Usman Ahmad, CEO of Standard Chartered’s Zodia Markets crypto exchange.
Stabilizing Bitcoin?
Bitcoin, notoriously volatile, has stabilized this year. According to some market participants, crypto’s relative quiet may not be good because many investors are drawn to its volatility, which delivers rapid rewards.
“We expect low to medium volatility over the near-term,” said AKJ founder Anders Kvamme Jensen.
The crypto industry saw a surge in venture capital (VC) investments in 2021 and 2022. After the market crisis burned many corporations, such investments were halted this year.
PitchBook said U.S. VC crypto investments dropped from $6.12 billion in 2022 to $870 million this year.
“This slowdown wasn’t primarily due to FTX’s failure but was already underway with the [terraUSD] ecosystem collapse earlier in the year,” said Pitchbook senior crypto analyst Robert Le.
He continued, “Venture investors are now proceeding with caution.”
Declining volumes
Since FTX failed, crypto trading volumes have plummeted, forcing traders attracted to the market’s great liquidity to stop purchasing and selling tokens or leave.
London-based researcher CCData reported that spot and derivative market volumes plunged 60% to $1.4 trillion in September 2023. Spot markets lost over 70% of volumes at $272 billion.
In the year since September 2022, derivative volumes fell 60% to $1.1 trillion. “The exit of some large market makers post-FTX significantly reduced liquidity, which has led to both low trading volumes and low volatility,” said crypto economist Noelle Acheson.
