Will FTX Collapse Cause a Crypto Winter ?

The FTX crypto exchange, was second largest in the world, has collapsed. Binance, the largest crypto exchange, was considering buying FTX but is now unlikely to follow through.

Bitcoin (BTC) is under $17000. Ether (ETH) is below its post-Merge low of $1,160.

As of June 30, 2022, Alameda Research (sister company of FTX, both headed by Sam Bankman-Fried) balance sheet showed assets amounted to $14.6 billion. The assets were mainly FTX tokens and other crypto tokens. They also had about $8 billion in bank debt.

Owners of the FTT token get discounts on FTX trading fees, increased commissions on referrals and earn rewards. The value of FTT is maintained by FTX’s rolling program of buying back and burning tokens, a process used a third of the exchange’s trading commissions.

Bloomberg also reported on the Crypto Markets having huge losses as Binance looks like it will not follow through on the FTX deal.

If Crypto completely collapses then it would be an evaporation of what was a paper valuation of $2 trillion at the peak. This would dwarf the $68 billion Maddoff Ponzi scheme.

How much real activity is and was in Crypto? If fluffing transactions between exchanges like FTX and Voyager and Binance were ignored, then how much actual activity was there ? There were a float of about 197 million FTT (FTX tokens). This was likely about $5 billion of actual activity.

There is some real activity and value. We will find out how much and where based upon what emerges after this Crypto winter.

8 thoughts on “Will FTX Collapse Cause a Crypto Winter ?”

  1. FTX was doing crypto lending. That’s why they had the $8 billion bank debt. Crypto lending is analogous to a ponzi scheme because you are lending to people to make speculative bets on crypto-currencies. FTX was a complete fraud from the get-go. It is no surprise that it has failed.


    This is the kind of crap that prevents the wide spread adoption of cryptos as an alternative to fiat currencies. If bitcoin goes back down to around $1000 to $3000, I may consider buying some. Not until then.

  2. What’s worse is people are using leverage to buy crypto currencies, thus, introducing the same problems of fiat currencies into the crypto scene.

    • Since people are not trading crypto for services; they are trading crypto for cash and using crypto as a speculative asset; this means you will have centralized exchanges. If people leave their crypto in the exchange instead of taking it into their account you will have fractional reserve banking.

      A centralized exchange will be able to print crypto. If few people ever take crypto out of the “bank” and into their own account then the bank will discover that they only need a small reserve to deal with the people who withdraw. The rest of their customers assets they can lend out or embezzle.

      Even if you do not use these exchanges or immediately withdraw crypto and transfer to your wallet adress the mere existance of such exchanges will devalue your crypto. A bitcoin on an exchange can spend like a bitcoin in your wallet, and it will have *much* lower transfer fees. Suddenly the limit is not 21 million coins; it is the inverse of the reserve ratio. The only thing that limits the reserve ratio from approaching the zero bound is periodic bank runs.

      This is what happened with gold. The gold was collected and said to be “redeemable to the bearer on demand” of various paper notes and bank balances. This gradually devalued actual, physical gold. Eventually when a run on the gold was threatened they just closed the gold window. They had already effectively collected the gold by voluntary transaction into centralized locations where it was easy to confiscate.

      • Exactly when did this happen to gold? 1933? 1971? The Truth about Gold? It has yet to recover its loss of value from Columbus’ Discovery of the New World!

        • It happened repeatedly, over and over, in a hundred different places with every ”monetary metal”. Commodity backed money is a bad idea to begin with, but doubly so with fractional reserve banking.

          In the scottish free banking period 2% of the gold backed money was actual gold; meaning that if you held an actual gold coin it was devalued by the existance of 49 pieces of ”paper gold” in circulation that spent just like gold. Whether the government is involved or not this generates the typical boom and bust pattern from fractional reserve banking with wild gyrations of the money supply and it eventually ended with suspendion of specie payment as is typical.

          Even pure coin systems don’t stop bad governments from acting badly. E.g. the currency of Rome wasn’t silver; it was the denarius which happened to be made from silver. Well, since it wasn’t defined as a static weight of silver you first payed extortionary seignorage to have silver minted as denari. When the silver mines ran out the government simply lowered the fraction of silver in a denarius and forced you to take it as worth its face value. It devalued about as fast as the dollar did in the 20th century.

          That silver and gold never recovered their purchasing power may be true; they are also not money anywhere anymore. They are no different than tin (consumed like silver) or palladium (mostly recovered and retained like gold); just a relatively durable and storable commodity.

          Bad government cannot be driven out with ”good” money, which is the main thesis and impetus of crypto bros and gold bugs before them. There’s no shortcut to well functioning government by trying to bind and restrain them through the monetary system. If you could restrain them you wouldn’t need the gold; if you can’t the gold won’t help you. The decentralized payment system aspect of crypto has failed; it’s not used for that except for maybe drugs and some other illegal activities. Whether regulated or unregulated you will have the same old frauds that central exchanges get away with (for a time).

  3. So much of the crypto scene has been based on fraud and hype that I am not surprised by any of this. I’m a strong advocate of crypto-currencies as an alternative to government-run fiat currencies. But the fraud and hype has to end before many people, including myself, start using crypto-currencies for as both a medium of exchange (e.g. money) as well as speculation (e.g. Forex). There are way too many hucksters and fraudsters involved in it right now.

Comments are closed.