FX.co ★ Bitcoin: Why is the FTX drama bad for cryptocurrency?

Bitcoin has stayed above its July lows for a long time, sparking speculation that the main cryptocurrency has finally bottomed out. However, recent market events have proven that the bearish cycle is not over yet.

One thing that bitcoin and the cryptocurrency market has proven over and over again is that it is impossible to predict what will happen.

A week ago, no one would have believed that the second largest crypto exchange in terms of trading volume would collapse and think about going for a takeover.

June lows are questionable

When the news broke that Binance would acquire FTX to avoid bankruptcy, the market recovered as some semblance of normalcy was recorded. But investors quickly realized the seriousness of the situation, and the price of bitcoin fell again.

Shorts in the market have already accumulated after Binance plans to sell FTT tokens. This culminated in a market crash. As investors grew more fearful, funds were withdrawn from exchanges, halting the accumulation that the market was seeing.

Bitcoin reacted negatively to this and pulled the rest of the market with it. A new cycle low has now been set, showing that there could indeed be further declines for the digital asset.

By the close of the trading day on Tuesday, bitcoin hit a new cycle low at $17,200, breaking the July low. This showed that the digital asset did not really hit bottom.

Furthermore, it indicates a possible commitment to the established trend of BTC dropping 80% from it's all-time high before bottoming out.

Where will the new bottom be?

Analysts note that if the BTC price adheres to this trend, the bottom will be about $13,000 per bitcoin, which is 82% below its historical high of $69,000. This would be more in line with the lows of the previous cycle and would clearly mean a resumption of the bull market.

Technically, now, if the price settles below the July lows, the nearest target for quotes will be at the level of $16,000. But this is not the expected bottom of the market, but only the next technical target for the fall.

Bitcoin still couldn't find a balance point after touching $17,000 on Tuesday. It remains reasonable that this mark would continue to be tested as long as the Binance-FTX deal is under discussion.

Wave of liquidations and collapse of capitalization

The liquidation of cryptocurrencies on the market has increased over the past 24 hours. The collapse of the last two days has led to the loss of hundreds of millions of dollars from traders. These liquidations cover the entire crypto market.

Within 24 hours, more than $830 million worth of liquidations were registered on the cryptocurrency market. This is the second largest liquidation event recorded so far in 2022, only slightly inferior to the October liquidation figures.

Given that the prices of digital assets are declining, more than 70% of liquidation transactions are in long positions. More than 33% of these volumes were registered on the Binance crypto exchange, followed by FTX with losses of 21.77%.

In total, the positions of 392,043 traders were liquidated over a one-day period, while the largest liquidation order was placed on the Binance exchange for the BTCUSDT pair and amounted to $6.70 million.

5.75 million FTT tokens worth $26.6 million were liquidated in 24 hours. This makes it the token with the fourth largest liquidation volume, right after Solana, which was also affected by FTX.

Despite the fact that almost $1 billion has already been liquidated, it seems that the bloodbath is not over yet. Any sudden movements like those that occurred on Tuesday could easily bring the liquidation figures up to $1 billion.

Why is the FTX drama bad for cryptocurrency?

Although the Binance/FTX drama is still very far from over, it has already revealed the main bottlenecks that threaten the cryptocurrency segment in the fourth quarter of 2022.

Centralization is the first and most dangerous obstacle to crypto progress. The funds of tens of millions of people were at risk due to a business conflict between two crypto magnats. FTT withdrawal restrictions have even increased the instability of the vulnerable market, proving the old mantra "not your keys, not your coins".

Then, as soon as the transaction is completed, the largest cryptocurrency exchange will acquire the fourth CEX in terms of trading volume — and, undoubtedly, Binance will again control the lion's share of crypto trading in the world.

The EU and US antitrust authorities have already announced that they will closely monitor the acquisition, but this segment has never been so close to becoming a monopolist.

FTX's insolvency has also affected its investors, that is, almost all top-league venture capitalists focused on cryptocurrency. In five rounds, the platform has raised more than $3 billion at an estimated $8 billion.

Retail FTT holders are in an even more vulnerable position: the token has lost 75% in less than 24 hours and is changing hands 95% lower compared to the historical high recorded just a year ago. This is even worse than that of NFT and small metaverse investments.

The collateral damage is that the entire segment is under attack, and the worst is yet to come. However, retail holders of major cryptocurrencies and stablecoins will suffer the most.