With $8 billion (Dh30 billion) in customer funds stolen, the wrongdoings of Sam Bankman-Fried, founder of the now-bankrupt crypto exchange FTX, have gone down in history as one of the largest financial scams ever. The ex-billionaire, widely known as SBF, now faces a sentence of over 100 years in prison – drawing comparisons to Bernie Madoff’s 150 year sentence for the $18 billion (Dh66 billion) Ponzi scheme he masterminded.
So, what does this mean for the future of the crypto industry and the prices of cryptocurrencies? Do investors sell their investments or hold onto them in anticipation of a profitable future?
Brian Deshell, an Abu Dhabi-based cryptocurrency trader and industry researcher, says that investors should “not take [the conviction of SBF] lightly”. The market decline, he says, is a sign of increasing risk. The volatility of the prices attracts investors hoping to buy low and sell high – but does little for price stability.
Cryptocurrencies have lost $1.5 trillion (Dh5.5 trillion) in value since their peak in 2021, with the total market valuation currently standing at $1.4 trillion (Dh5.1 trillion), and daily traded crypto volume at $70 billion (Dh257 billion). Bitcoin’s portion of the $1.38 trillion cryptocurrency market has decreased to 49%, down from its peak of 51.5% in October. These losses have wiped out over 67,000 crypto millionaires since 2021, and Bitcoin’s trading volume is at its lowest in more than four years.
The prime reason for the market downturn, according to crypto experts, is “undeniably” the downfall of FTX and the “misdeeds of SBF”. It has not only triggered a huge sell-off, but has also reduced liquidity from the crypto market. The resulting distrust and skepticism has cast doubt on the survival of other crypto trading firms.
Bitcoin and Ethereum, however, are staging a somewhat of a recovery. Bitcoin has risen 100% this year and Ethereum has rallied 58%, though they both still lag behind their all-time highs. Investment manager Brody Dunn, at a UAE-based asset advisory firm, holds a positive opinion on cryptocurrencies. He believes that, although volatile, they have outperformed most financial markets in recent years.
Crypto experts advise investors to give only 5% exposure to cryptocurrencies in their overall investment portfolio, as prices are highly volatile and speculative. It is best to invest only an amount which can afford to lose, particularly if you are new to the asset class.
With more global crypto regulation on the horizon, the digital currency could become steadier in the months to come. For experienced investors, now is a good time to invest in stable digital coins such as Bitcoin or Ethereum. For new investors, however, it is a good opportunity to observe the cryptocurrency market and find your favourite digital asset at a fair value.