Bitcoin has fallen back to its lowest price in more than two years as analysts warn the ongoing FTX bankruptcy proceedings could lead to a “contagion” felt across the crypto space.
The world’s most valuable cryptocurrency was trading below $16,000 on Tuesday before a slight recovery brought it back to $16,500 – still more than 75 per cent down from its price just one year ago.
The downturn has impacted the entire crypto market, which has lost nearly $2 trillion in value over the last year, as experts warn that the so-called Crypto Winter will not end until the FTX saga is concluded and trust returns to the space.
Court filings revealed that FTX owes more than $3 billion to its top 50 creditors, with attorneys claiming that the collapsed crypto exchange was run as a “personal fiefdom” of co-founder and former CEO Sam Bankman-Fried.
Bankruptcy hearings began this week, and will continue again in January, meaning it may be months before customers are reimbursed – if ever.
The continued uncertainty could well lead to more price volatility in the sort term, despite some institutional investors like Pantera Capital announcing plans to purchase a further $140 million worth of bitcoin.
Even with big players stepping into the space to shore up the market, some analysts predict this may not yet be the bottom of this price cycle.
“The whole industry is eager to see what approach the bankruptcy attorneys will take – either reorganisation or sale – in order to bring a speedy solution and support to thousands of creditors and the exchange’s investors,” Vladimir Gorbunov, founder and CEO at the crypto firm Choise.com, told The Independent.
“The entire saga has continued to weigh down the prices of crypto assets... We would continue to experience a tremendous slip-off as the FTX contagion is felt across the board. However, the fall may crest at $14,000 after which we might see a positive rebound.”
Which way the price will go is notoriously difficult to predict, though one aspect that does seem certain is that the FTX fiasco will lead to far greater scrutiny on the crypto space.
Companies, particularly exchanges and custodians, will likely be subject to much more regulation, with some calling for them to be far more transparent with their balance sheets.
“In the wake of the FTX bankruptcy, what we have been anticipating for years is finally hapening,” said Jenny Lee, a former banking agency official and a leading expert on financial services and consumer protection.
“This was the crisis visible enough to the mass public that awakened legislators and rulemakers, galvanising them to act in a more comprehensive way.
“This will be the first time that the US federal government could likely craft hollistic rules of the way to help ensure the solvency and soundness of intermediaries in the crypto system, and to provide consumer protection against undue losses from financial failure or opportunistic behaviour.”
US President Joe Biden has signalled such rules are on the way, having promised to “strengthen regulatory outcomes” in a statement posted to the White House website last week.