Crypto prices have been crashing since last week, with Bitcoin (BTC) dropping to its lowest level since November 2020. The drops come after similar price moves in July of the previous year. The total crypto market cap has fallen to $800 billion, while the big crypto is at $16,500, according to data from CoinMarketCap. Most altcoins have also plummeted as the market responds to the insolvency of Sam Bankman-Fried (SBF) led FTX exchange.
Crypto prices crash to two-year lows
Bitcoin (BTC) is exchanging hands at around $16,720 at press time after a 20% decline in the last seven days. Ether’s (ETH) price has also dropped 21% over the past week to trade at around $1,251. According to market capitalization, all the top 10 ranked cryptocurrencies have also recorded immense losses over the same period, with the largest loser being Solana (SOL), which has plunged 54% over the past week.
Digital currency prices have been dropping due to the collapse of the FTX exchange, which faces insolvency issues. The ex-CEO of FTX, Sam Bankman-Fried, stated on November 11 that the Bahamas-based exchange had filed for Chapter 11 Bankruptcy as he stepped down as the company’s Chief Executive Officer (CEO). He said:
“FTX, FTX US, and Alameda for voluntary Chapter 11 proceedings in the US.”
FTX’s SBF’s actions of mismanaging funds have seen his crypto empire add to the list of bankruptcy filings this year after Voyager Digital and Celsius called for Chapter Six protection only a few months ago. Many international lawmakers are concerned with the situation, with others already proposing more comprehensive regulations to govern and guide the crypto space.
The crypto market responded to the bankruptcy news. Similarly, it reacted when the news broke of FTX’s fund mismanagement.
The full extent of FTX’s collapse contagion effect is still unknown. It is unclear how many firms have suffered from the FTX debacle, but it is expected that filing for bankruptcy would unearth many things. Nevertheless, given the size of FTX’s operation, it is safe to assume the damage will be significant.
Sequoia Capital, for instance, has already marked its $250 million investment to $0, while others like Alameda Research record liabilities ranging from $10 billion to $50 billion, according to the bankruptcy filing.
It is still being determined whether the Binance acquisition deal for FTX will go through. However, as the market waits to see how these events will unfold, selling pressure will likely persist, and prices will go lower.
It is still being determined whether Tron founder Justin Sun’s plans to rescue FTX will be successful. However, as the market waits to see how these events will unfold, selling pressure will likely persist, and prices will go lower.
Is It A Good Time To Buy?
The strategy of “buying the dip” is premised on the idea that price drops are temporary corrections that eventually recover over time. Traders buy the dip hoping to benefit from the low prices by purchasing cryptos at a discount and cashing in when the prices rise again.
The crypto market is highly volatile, so buying at any price – let alone at lower prices – may be highly risky. This means prices could recover from the lower levels, but they could also fall even further, resulting in losses.
If history repeats itself, the current price crash could bounce back as it did in 2021, when prices fell similarly following China’s ban on crypto and rounding down on Bitcoin miners. The prices then recovered to their pre-crash levels and even hit all-time highs in November. But of course, they may not recover at all.
BTC, in particular, has shown a degree of seasonality to date, appearing to fall in value to a lesser or greater extent in the spring before bouncing back in early summer. Nevertheless, it is essential to note that past performance only guarantees future success with some investments and in the unpredictable world of cryptocurrencies.