CoinLoan Weekly: Black swan decline, impact of FTX fallout, calls for regulation
BTC dipped below $21,000, spiked, and dipped again to just over $18,200 on Tuesday, November 8. The next day, it fell headlong, reaching a bottom of $15,742.44 on Thursday, November 10. Subsequently, the price approached $18,000 and stabilized at just under $17,000 over the weekend. On Monday, November 14, it touched $16,000 before springing back.
The collapse of industry heavyweight FTX has wide-reaching repercussions. On November 9, the market nosedived as Binance tweeted it would not pursue the acquisition announced the day before, citing due diligence and alleged investigations. The next day, The Fear and Greed Index descended to 22 as investors were consumed by extreme fear. However, the market got a slight boost from fresh US Consumer Price Index (CPI) figures.
As of this writing, BTC is trading at $16,296.20, with a 24-hour change of -1.4% and a 7-day plunge of -21.8%.
Abandoning the $1,600 level, ETH moved along BTC's trajectory, falling on Tuesday, November 8, and spiking before a steep fall. On Wednesday, November 9, it rapidly descended to bottom out at $1,095.18 the next day. The price failed to hold above $1,300 and fluctuated around $1,250 through the weekend. On Monday, November 14, it briefly sank below $1,200.
Ether's 7-day change was only slightly worse than BTC's. On Thursday, November 10, it headed upward on the CPI data showing cooling off — possible evidence that the Fed's hawkish efforts had worked. While stocks saw the biggest rally in two years, ETH gained nearly 17% in 24 hours, more than BTC (13%).
As of now, ETH is trading at $1,212.55, with a 24-hour loss of -1.4% and a 7-day decline of -22.9%.
Starting at $0.473721, XRP trailed the biggest coins as it fell and jumped above $0.457 before diving to a 7-day low of $0.327003 on Thursday, November 10. It then briefly rose on the CPI news before leveling off at around $0.37 during the weekend. On Monday, November 14, XRP slid below $0.34 and rebounded.
XRP's decoupling was the most severe among the top 15 assets by market cap. Currently, it is over 88% down from the all-time high of $3.29 seen on January 4, 2018, while BTC and ETH are roughly 75% and 74% below their peak prices, respectively. However, on Monday, November 14, XRP's volume more than doubled, jumping over $2 billion, possibly due to investors rushing to buy the dip.
As of now, XRP is trading at $0.355203, with a 24-hour rise of 3.0% and a 7-day nosedive of -24.6%.
What to expect after the FTX fiasco, according to market experts
Last week's downfall of the FTX powerhouse and Alameda Research sent shockwaves across the market, causing the worst week since mid-June. However, cryptocurrencies have endured a litany of calamities, and expert opinions on the short-term future vary.
For the first time since 2020, BTC slid below $16,000 on November 10 to a level reminiscent of the bull market highs in December 2017. Meanwhile, ether, now deflationary, was precipitated to a low of $1,095.18. Both cryptocurrencies are ruled by supply and demand, with capped volumes and growing institutional adoption. Recently, they have shown an increasing correlation with stocks and susceptibility to macro events.
Meanwhile, many other digital assets rely on additional factors, including the public interest and the capabilities of the underlying protocols. According to CoinDesk's Glenn Williams, the prospects of the crypto ecosystem largely depend on improvements in three areas: economy, socio-political landscape, and crypto regulations.
Last week, the macro backdrop was perking up, with a slower-than-expected rise in US consumer prices and hopes of milder interest rate changes by the Federal Open Market Committee (FOMC). However, the spread between the yields for the ten- and two-year US Treasury bonds remained negative, a phenomenon widely interpreted as a harbinger of an economic recession.
- According to a note by JPMorgan strategists, this crypto crisis could prove "more problematic" than the preceding ones due to a lack of robust entities and balance sheets. "[...] it looks likely that a new cascade of margin calls, deleveraging, and crypto company/platform failures is starting similar to what we saw last May/June following the collapse of Terra." However, the impact on the total market cap could be milder.
- In terms of pricing, BTC's production cost, currently at $15,000, is a likely floor, although revisiting $13,000 is also possible. Coinbase's head of institutional research David Duong has cited $13,500 as the support level, noting that "it's still emerging which counterparties may have lent or interacted with either FTX or Alameda and what those exact liabilities are...."
- As for the deposits stuck on FTX, Galaxy Digital suggests their holders may "be considered unsecured creditors and face a lengthy legal process." According to Bloomberg, the chances of recovering FTX deposits are slim.
As the contagion spreads through markets, its full scope is yet to surface. Historically, Bitcoin and other digital assets have rallied to new heights following each shock. This market has survived the Mt. Gox hack and a string of bankruptcies and security breaches. Still, as noted by Joe DiPasquale, CEO of BitBull Capital, "the extent of the damage to other companies, funds, exchanges [...] may come to the fore in the weeks to come."
Lawmakers call for crypto controls citing FTX's ruin
The FTX debacle has drawn attention to the deficiencies of crypto regulations in the United States. Several lawmakers have come forward, expressing concerns about the industry and using the crisis as an argument in favor of tightening the rules.
The need for regulation is now urgent, according to Congressman Patrick McHenry (R-NC) — a ranking member of the House Committee on Financial Services, which oversees the entire financial services industry. In a press release published before FXT filed for bankruptcy, he wrote, "It's imperative that Congress establish a framework that ensures Americans have adequate protections."
On November 10, Maxine Waters (D-CA), chairwoman of the committee, underscored the urgency: "Now more than ever, it is clear that there are major consequences when cryptocurrency entities operate without robust federal oversight and protections for customers."
In the same vein, Senator Patrick Toomey (R-PA) has called for a "sensible regulatory regime" that will ensure "a centralized exchange" while segregating and safeguarding customer assets.
FTX's capsizing could be a much-needed wake-up call for American lawmakers. SEC commissioner Hester M. Peirce has suggested it could catalyze clear regulations, and "that doesn't mean just bringing enforcement actions." Previously, the SEC was criticized for failing to take decisive action and relying primarily on enforcement.
Pierce supposes the SEC should work alongside the CFTC (Commodities and Futures Trading Commission) to solve the difficulties of regulating digital assets. Timothy Massad, former CFTC Chairman, has already expressed support for a self-regulatory organization (SRO) overseen by both entities.
Meanwhile, Binance CEO Changpeng Zhao called for clear regulations for the crypto industry at a gathering of G20 leaders in Bali. "We do need some regulations, we do need to do this properly, we do need to do this in a stable way." However, this is not the sole responsibility of the regulators — it is the industry's collective role "to protect consumers, to protect everybody."