Bad Credit And The Collapse Of FTX

The world of crypto has been anything but rosy since the spectacular collapse of FTX last month, with many questioning the very future of the broader cryptocurrency markets.

Can crypto survive the failure of FTX and the other exchanges that folded in the aftermath? To answer that, we need to take a closer look at the events that led to the demise of FTX.

2020 saw a Bull market for Cryptos, with early adopters of Altcoins realizing some mind-blowing returns. People were becoming millionaires on the back of tiny investments in Altcoins.

Trading firms were quick to jump on the bandwagon, and, as usual, borrowing was the preferred way to raise capital to invest.

The promise of double-digit returns meant there was no shortage of lenders. The outlook looked bright until the Federal Reserve raised interest rates, which impacted Crypto prices.

Altcoins fared the worst, and hedge funds took heavy losses on their Crypto positions. The Stablecoin remedy worked for a while and then backfired equally spectacularly with the collapse of the Luna network in June.

That led to the collapse of Three Arrows Capital, Celsius Network, BlockFi, and Alameda Research!

What set Alameda apart from the rest was its sister company, FTX. FTX was cash-rich from customer deposits and eager to bail Alameda out after they failed to raise more funds in June.

That’s when FTX moved billion in customer deposits to Alameda, hoping to shore things up and that no one would notice.

The problem is someone did notice, and Coindesk broke the story in early November, showing Alameda Research for what it was. A company with a mountain of debt and no way to pay back its creditors. That left FTX holding a giant black hole of bad lending and, eventually, the collapse and bankruptcy filing.

While many companies find themselves in deep hot water and struggling to stay afloat, the fundamentals of crypto remain unchanged. The short-term outlook might look bleak, but the technology behind crypto is here to stay.

The long-term future of crypto looks secure, although we’ll probably see more casualties along the way.