The cryptocurrency market is going through a critical period, after it received several blows, the latest of which was the drop in cryptocurrency prices, leading to the bankruptcy of the FTX trading platform and the disappearance of at least one billion dollars of customer funds on this exchange.
Analysts are divided into two categories, the first defending the cryptocurrency market, considering that these problems occur in all other markets, and they attribute what is happening to the absence of laws that sponsor the blockchain.
Blockchain is the technology that allows an individual or company to transfer assets of value to another person safely and without the intervention of any intermediary.
As for the second category, it says that what happened with FTX is a clear indication of the fragility and lack of seriousness of this market, and that it is on the verge of extinction.
Is it possible to say that the era of encryption and digital currencies is over? What is the seriousness of this market and how can it be controlled?
FTX collapse story
The story that rocked the cryptocurrency world began on November 2 and culminated Friday when FTX filed for bankruptcy protection in the US, and after founder Sam Bankman-Fried resigned from his position as CEO, according to Reuters.
Bankruptcy occurred after the currency trading platform failed to collect billions to stave off bankruptcy after traders rushed to withdraw $6 billion from it within 72 hours, after learning of a fraud.
Rival Binance ditched a proposed bailout of FTX this week.
In a statement on Twitter, FTX said its cryptocurrency trading company Alameda and about 130 of its other businesses have begun voluntary Chapter 11 bankruptcy proceedings in Delaware.
In contrast, people familiar with the matter told Reuters that at least $1 billion in client funds had disappeared from FTX. They note that Bankman Fried has secretly transferred $10 billion in client money from FTX to Alameda.
They said that much of that money has since disappeared, with one source estimating the missing amount at $1.7 billion, and another person estimating the gap between $1 billion and $2 billion, according to Reuters.
This led to a nine-day turmoil in the struggling cryptocurrency markets, sending bitcoin to its lowest level in two years.
Cryptocurrency bubble burst?
Financial market expert Nadim El-Saba considers that FTX is not the first platform to fail, and it will not be the last, as other cryptocurrency trading platforms will successively collapse like “dominoes”.
But he points out in an interview with Al-Hurra that "it cannot be said that the era of crypto is over because the market is more than just a trading platform. The idea of the blockchain is broader than just a digital currency that is trading and falling apart."
He added that what is happening is laundering the market so that it is cleaned of all platforms that were using people's money for suspicious investments. This now leads to many losses.
The era of encryption is going through a sensitive stage, but it will not eliminate it, but will continue in a dysfunctional way, according to Al-Sabaa.
He stressed that "in the digital currency market, it is normal for people to lose their money, especially as they invest in assets with a high degree of risk.
For his part, financial expert Dan Azzi, who defines himself as an opponent of digital currencies, explains that "these currencies are nothing but fraud that seduces people, and the end of it is a total collapse," and adds in an interview with Al-Hurra that "this collapse will not happen now."
For Luzzi, two things must happen for crypto to completely collapse:
To begin with, the blind imitation phenomenon must be ended, after people who lost their money in these currencies are unable to enter again into speculation, and therefore will not be a motivating factor for others to imitate them.
On the other hand, there must be an accounting process that affects the markets, as cryptocurrencies are not monitored, and everything that is forbidden in the normal markets is allowed in the digital currency market, and this leads to the exploitation of many institutions for this situation, and the benefit of people who do not know much about the field .
He points out the importance of "the authorities' intervention in the crypto world, or putting an end to it by holding outlaw institutions to account, and the FTX incident may be a lesson in this area."
However, CoinBase CEO Brian Armstrong has a different opinion. In an article he wrote for CNBC, he considered that "the downfall of FTX occurred as a result of risky and unethical business practices, including conflicts of interest between intertwined entities, as well as the decision to lend clients assets without permission.”
Blockchain solve the problem?
“These activities happen in traditional financial markets as well,” Armstrong noted, explaining that “blockchain technology will make it easier to track and prosecute actors over time.”
But Azzi asserts that “Blockchain is not a technology, but a methodology, that is, a way of working.”
It means that people put their money in a system whose whereabouts are unknown, who manages it, or who has access to it, according to Azzi, who asked, "What problem does this system solve?"
Azzi stressed that, "Whoever claims that digital currencies are the future, he must determine the problem that currencies will solve? In reality, they will not solve anything."
unregulated market
Al-Saba explains that "in the cryptocurrency market there is no regulation, as it is vulnerable to money laundering, as a result of the absence of laws that sponsor it."
He stressed, "the need for a comprehensive audit of the accounts of companies that trade in digital currencies," adding that "we must see accountability for individuals who establish digital currency platforms and then go bankrupt, and prove their responsibility in managing investors' liquidity in a wrong way."
And he considered that "central banks should compel trading platforms to deposit a mandatory amount with them related to the volume of investments, and oblige them to declare their business."
Within this framework, Armstrong writes in CNBC, "After what has happened this week, we are seeing calls for more regulation of the crypto sector, and tougher restrictions. The problem is that so far, officials have refused to provide clear and reasonable regulations. Cryptocurrencies will protect consumers.”
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