(John Hawkins/John Hawkins, Senior Lecturer, University of Canberra)
New Delhi. Not long ago, FTX was one of the largest cryptocurrency trading platforms in the world. Established in the year 2019, this crypto exchange grew very rapidly and by the beginning of the year 2022 its value had reached $ 30 billion. But in the last two weeks, the whole picture has changed.
Concerns first emerged regarding the relationship between FTX and asset-trading firm Alameda Research. During this there are also discussions about transferring customers’ money from FTX to Alameda.
A few days later, the largest crypto exchange and FTX rival Binance announced that it would sell its holdings of FTT tokens. Panicked customers rushed to withdraw funds from FTX and the exchange is now on the verge of collapse. A message has also been issued on its website that it is currently unable to process withdrawals. However, this is not the first decline in the world of cryptocurrencies on such a large scale.
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hard way to escape
Sam Bankman-Fried, who owns the majority of both FTX and Alameda exchanges, earlier this year had a hard time bailing out other crappy crypto companies. But now he is looking for someone to invest $ 8 billion to save his companies. But with many firms already writing off their stake in FTX, it will not be easy for Bankman-Fried to find interested investors.
Binance thought of acquiring this crypto exchange but in the end its decision was negative. It backtracked following allegations of misconduct and concerns over a US Securities and Exchange Commission investigation. In such a situation, now the price of FTT has fallen a lot. A week ago it was trading at $24 but now it has come down to below $4.
caution lesson
Trading in ‘assets’ without any underlying fundamental value on not properly regulated exchanges is always a very risky endeavor. For many people, this can become a deal of loss.
Different types of assets are different from crypto. Common company shares have a fundamental value that is based on dividends paid out of the company’s profits. Real estate also has a fundamental value which reflects the rent received by the investor or his physical possession of it. The value of a bond also depends on the amount of interest earned on it. Even gold has some practical uses.
But purported cryptocurrencies like bitcoin, ether and dogecoin have no such fundamental value. They are like a parcel pushing game in which speculators try to sell them to someone else before the price drops.
impact on crypto
These events have further undermined the trust in the crypto ecosystem. Even before this new event, the ‘value’ of crypto-currency had fallen from a high of $3 trillion to $1 trillion. Now it has fallen even further.
Just as only a few companies, such as Amazon, have become giants in the Internet-based business, it is possible that only a few companies relying on the blockchain technology that underpins crypto will be permanently useful.
Also read- What will be the effect of official digital currency on the economy? Is India ready?
The idea of an electronic form of currency is now being adopted in the form of a central bank digital currency. But in the words of Hyun Song Xin, Chief Economist of the Bank of International Settlements, “anything that can be done with crypto can be done better than with central bank money.”
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Tags: Crypto, crypto currency, Cryptocurrency
FIRST PUBLISHED : November 12, 2022, 19:35 IST
