Market Update

1. The cryptocurrency exchange FTX filed for bankruptcy, and the company worth $32 billion quickly became worthless, causing the price of the cryptocurrency to drop rapidly. The overall cryptocurrency market value fell from a previous high of $3 trillion to $900 billion, a drop of 70%.

• FTX was a major player in the industry. It attracted well-known investors such as Softbank Vision Fund and Temasek when it raised funds in January this year with its value estimated at $32 billion. FTX also provided funds and played a rescue role when many other cryptocurrencies had troubles. Even basketball star Stephen Curry and American football star quarterback Tom Brady had promoted FTX in the past.
• Before FTX’s collapse, the investors noticed that FTX needed a capital injection to meet the withdrawal needs of customers. The world’s largest cryptocurrency exchange, Binance, announced its willingness to acquire the exchange. But after reviewing relevant documents, Binance rejected the investment because it found that customer funds were improperly used by FTX. The news suggested that FTX held $16 billion in client funds, but $10 billion was lent to an affiliate trading firm to fund its struggling business. Such news made customers and investors lose confidence. In the end, FTX declared bankruptcy and the founder resigned as CEO. Many other companies have also been affected. Some announced temporary bans on customer withdrawals, suspension of operations, and even imminent declaration of bankruptcy.
• Genesis is another notable cryptocurrency company affected by FTX’s collapse because Grayscale Investments, which belongs to the same group as Genesis, currently manages the world’s largest cryptocurrency fund. The well-known fund manager Cathie Wood participated in the cryptocurrency market through Grayscale. If Grayscale is also heavily affected, it may cause far-reaching consequences.
• In addition to the direct impact on the value of the cryptocurrency, FTX’s bankruptcy may significantly delay the timetable for institutional investors to enter the cryptocurrency market. Since many parts of cryptocurrency are not regulated, institutional investors rely on investing in large-scale, relatively trustworthy companies to reduce risk. The bankruptcy of FTX, which is one of the leaders in the market, could be a reminder to investors that anything can happen. Institutional investors will be more cautious when investing in the future. It is bad news for current cryptocurrency participants who expected institutional investors to enter the market quickly and bring in a large amount of funds.

• The data shows that only investors who invested in cryptocurrency before 2017 are making money at the current price. Many people invested blindly after seeing the surge in cryptocurrency and media reports during the past two years. We recommend investors to have a full understanding of investment tools before making any decision. While investing, investors should diversify risk and avoid excessive concentration to protect their portfolios.