Expectations, Lessons, and Opportunities after the FTX Debacle

November 16, 2022

By Murtuza Merchant

The cryptocurrency market is in a crisis, and things look bad.

What effects will this have on the cryptocurrency market, and what can we as investors learn from this?

Expectations

Let’s start with the possible outcomes for the short- to medium-term.

We won’t fully comprehend what has transpired until at least 2023 because there are still many unanswered questions.

1. Prices will plummet sharply

In general, the upcoming weeks and months will see significant price volatility for all cryptocurrencies.

The poor macro image is of no assistance.

2. There will be contagion effects

Not just FTX users will be harmed.

Numerous parties, including owners of FTX-related assets, FTX employees, crypto VCs, and other organizations that invested in the project (such as Blackrock, Paradigm, Ontario Pension Fund), as well as other cryptocurrency projects that FTX has invested in, are impacted by this collapse (for example, Solana).

Numerous people in the cryptocurrency industry appear to be taking measures, and in the coming weeks, we can anticipate a lot more unpleasant things to come to light.

3. FTX is not the only cryptocurrency exchange to collapse

There are a lot more exchanges available, some of which have issues as well.

That more will be hit is to be expected. The public’s confidence in centralized exchange will also continue to decline, and in the short to medium term, they may experience significant money withdrawals.

4. A feast for cryptocurrency critics

This entire situation is a favour to people who oppose cryptocurrency. Not without cause, either.

Due to the fact that the causes of this catastrophe are precisely those things that cryptocurrencies have always been blamed for.

5. Upcoming regulations

In recent years, regulators have increasingly turned their attention to the cryptocurrency industry. This trend will be strengthened even more by the FTX collapse.

To stop this from happening, there will be more laws aimed at centralized cryptocurrency exchanges and cryptocurrencies.

6. DeFi’s moment to shine

Centralized crypto services have once again shown to be unreliable. In the medium to long term, the FTX fiasco is expected to have a significant positive impact on DeFi projects.

Lessons

What are the key lessons you should learn as an investor interacting with exchanges?

1. Not your keys, not your coins

Do not leave your coins on any exchange if you are investing in cryptocurrencies for the long term. People’s funds from FTX are now completely gone. It also won’t return.

Every time you purchase a cryptocurrency, remove it from the exchange, transfer it to a hardware wallet, and safeguard your private keys. If you engage in trading, only leave a tiny portion of your coins—the amount you can afford to lose—on the exchange.

2. Avoid gambling with your currencies on exchanges

For those who wish to stake their currencies to receive PoS rewards but do not know how to set up their own nodes, many exchanges provide simple-to-use options.

Purchase PoS coins supported by hardware wallets instead and stake them.

Ledger includes a list of supported coins and thorough staking tutorials.

As an alternative, you can build up your own nodes and get passive income from your coins by using services like allnodes.com.

You can store your own private keys using Allnodes.

3. Institutional investment isn’t always wise

Because FTX was able to secure investments from a variety of venture capital firms as well as endorsements from famous people, many people trusted the company.

It appears that some of them did not do due diligence.

However, there are rumours that FTX was using deception and legal technicalities to give itself the appearance of a reliable corporation. This probably aided them in obtaining finance.

Nothing in the cryptocurrency industry is too large to fail.

We must keep in mind that centralized cryptocurrency exchanges and businesses lack adequate regulation. In many ways, the majority of them are not at all transparent.

No matter how powerful they are, you should always be on guard and not believe anything they say or promise.

Opportunities

Crises do, however, also present chances.

Now is an excellent moment to prepare your course of action because further market volatility is anticipated in the upcoming weeks.

Here are some ideas:

This is a fantastic opportunity to maximize your Dollar Cost Averaging (DCA) strategy if you plan to invest in Bitcoin and Ethereum over the long run.

A fantastic technique to purchase coins at a reasonable cost is dollar cost averaging.

Typically, during a black swan occurrence, cryptocurrencies decline more than Bitcoin and Ethereum.

Look for worthwhile projects that are reasonably priced (pretty much everything right now).

For the time being, stay away from projects involving FTX.

Investments in creative DEX projects may present a fantastic opportunity given the current situation.

About the author

Murtuza Merchant is a senior journalist and an avid follower of cryptocurrencies, blockchain and NFTs.