- Former FTX CEO and founder Sam Bankman-Fried has been found guilty on all seven charges he faced in relation to the misuse of customer funds and eventual collapse of the exchange.
- While the verdict may not have a direct price impact for crypto markets, some market watchers warn that it could provide a false buy signal for retail investors.
- Some retail investors might be getting back into crypto, but they shouldn’t be quick to restore their confidence in cryptocurrencies just yet.
- There’s renewed optimism around bitcoin as more traditional finance players move into the space, but that doesn’t necessarily extend to all other cryptocurrencies.
Almost exactly a year since FTX collapsed, its founder and former CEO was found guilty on multiple counts of fraud. While this verdict was expected by many, what does it mean for the future of the cryptocurrency markets and more importantly retail investors putting their money in them?
Is There Going To Be a Price Impact In Crypto Markets?
Despite the carnage in the crypto market last year, the asset class has enjoyed a rather positive 2023, especially when it comes to bitcoin, and this verdict is unlikely to change that immediately. But it may also be giving some retail investors some false hope.
“I do think that most retail investors fail to understand right now that there are still a significant amount of assets within the holdings of both FTX and Alameda that have yet to be liquidated,” said Aaron Rafferty, CEO of StandardDAO, in an interview.
The actual impact on prices of crypto such as bitcoin, ether and XRP will depend on when the liquidations begin, how much is sold, and how quickly. But Rafferty said they could end up hurting retail investors “that are looking at this verdict and saying, ‘Wow, yeah, market as usual, let’s buy, this is a great signal,’ when truly it’s, it’s not yet.”
Should The Verdict Restore Investor Confidence in Crypto?
The immediate fallout of the FTX bankruptcy was called crypto winter, which may be over. Volatility in tech stocks and a rebound in crypto prices, mainly bitcoin, saw investors cautiously return to crypto in October.
But investors shouldn’t be too quick to restore their faith in crypto after this verdict.
“Crypto exchanges remain largely unregulated, and investors should not leave their crypto on exchange. You can and should take custody of your own assets. Use exchanges to trade but then remove them to your own wallet,” Peter Eberle, CIO and President of Castle Funds, said in an email.
Many who lost their money with FTX are still waiting to see refunds. The company recently announced a new plan to refund up to 90% of distributable assets, but that’s still many steps away from execution.
An Image Makeover For Crypto Markets?
StandardDAO’s Rafferty said he believes “that crypto forever has a stain on it for retail investors” and that it needs a rebrand.
That might have already started with more traditional financial institutions entering the industry.
“I was recently at the Coin-Alts conference in San Francisco and one of the speakers commented that no one in the conference was wearing hoodies unlike 2017 when the first conference took place. You are seeing more and more traditional finance people in the industry,” Eberle said.
One of the biggest takeaways of the verdict, according to Eberle, is that Bankman-Fried is no longer the face of crypto.
Where Does Crypto Go from Here?
The presence of more traditional finance players is boosting investor sentiment to some extent.
Overall optimism around the approval of a spot bitcoin ETF has increased ever since BlackRock originally filed for their offering over the summer, and market participants now see an approval as imminent.
But that excitement around bitcoin may not extend to other cryptocurrencies. The Bitcoin Dominance Index is at levels not seen since March 2021.
“The main point is we have massive tailwinds for bitcoin because of BlackRock, Fidelity, and two other trillion-dollar plus asset managers all applying for a spot bitcoin ETF, and that looks like it’s going well,” Swan Bitcoin Managing Director Terrence Yang told Bloomberg.
“On the other hand, you have crypto, which has destroyed many Americans’ – especially poor and middle class – life savings through these pump and dumps, these digital penny stocks that these unregulated casinos are basically shilling on the American public, and that does not look so good,” he said.