Just before FTX filed for bankruptcy, Sam Bankman-Fried assured customers that its deposits were safe. He has since deleted that tweet. The bankruptcy will further shake out weaker players in the cryptocurrency market. It has multiple implications.
FTX’s illiquidity event ended the company’s fortunes. Its trading unit held too many illiquid assets. Companies exposed by having assets on the exchange or holding the FTX crypto are at risk of filing for bankruptcy also.
FTX also had more than 130 additional affiliated companies. Anyone with too much exposure to them will have liquidity risks.
Proof-of-Work
The cryptocurrency market might have a higher demand for cryptos that are based on proof-of-work. Crypto investors might sell their NFTs and stablecoins and exchange them for Bitcoin. Bitcoin holders could withdraw their holdings from exchanges and park them in cold storage.
Cold storage means saving the bitcoin on a physical wallet that is not connected to the internet. It is typically a hardware wallet that connects to a computer.
Who is Next?
Tether is a stablecoin that failed to provide an audit for more than five years. Despite promising a full review of its books, Tether has yet to prove its reserves. Unless Tether completes an audit, it is at risk of losing value.
