On November 11, the crypto market watched in horror as Sam Bankman-Fried, CEO of FTX, the second-largest crypto exchange in the world, filed for bankruptcy. The collapse of the exchange is one of the most shocking incidents the crypto industry has ever witnessed.
Several firms associated with FTX were affected. This is because any funds tied to the exchange were frozen and at the mercy of FTX's bankruptcy proceedings. The crash also sent crypto prices plummeting, leaving investors with massive FUD about the future of cryptocurrencies.
However, a little over a fortnight later, it seems like the crypto market may be able to tackle the effects of the FTX collapse and hold itself steady going forward. Let us look at some of the positive developments that are taking place across the crypto space, which instil hope for a market recovery.
Several cryptocurrencies are showing potential recovery
After the collapse of FTX, most of the cryptocurrencies started projecting obvious downtrends. Everyone expected the market to decline further, but surprisingly, the market gathered enough momentum to display signs of recovery in recent times.
Over the past week, the global crypto market cap increased by two percent, hinting at a possible uptrend. Bitcoin, Ethereum, and other altcoins, which suffered significant losses after the FTX collapse, started correcting their price action shortly afterwards.
At the time of writing, BTC was trading at $16,936. That's a 3.19 percent increase over the last seven days. It's a similar story with the second-largest cryptocurrency by market capitalisation, Ethereum (ETH).
ETH suffered significant losses as FTX came crashing down. The altcoin's price plummeted from $1,640 to $1,109. However, due to support from whales and increasing validator nodes on the Ethereum network, the price valuation of ETH has seen an 8.16 percent uptick over the last week, currently trading at $1,274.92.
Crypto market largely unphased by China unrest and BlockFi bankruptcy
On November 11, the day FTX declared bankruptcy, Bitcoin nosedived from the $21,300 range to a low of $15,840. Fortunately, BTC was able to register a slight comeback and establish a support level at $16,000, which it has stayed above since then.
Following the FTX crash, crypto markets were hit by two more major events that threatened to send prices plummeting once again. To begin with, leading crypto lender, BlockFi declared bankruptcy on November 28, citing exposure to FTX. On the same day, uncertainties around China's anti-lockdown protests took a toll on the broader stock market, and analysts feared a rub-off effect on cryptos.
While the cryptocurrency market faced some headwinds from these events, prices recovered the following day. For instance, Bitcoin registered a slight drop falling from the $16,500 range to its $16,000 support level on Nov 28 before rising back to $16,501 on November 29. Ethereum also saw a slight dip, falling from $1,216 to $1,162 on November 28. However, the largest altcoin quickly regained its losses, jumping to $1,201 on November 29.
The Fed lowering the interest rates could be a bonus
Hiking interest rates to battle inflation is a customary practice. The Federal Reserve in the US has been on a continuous spree of rising interest levels to avoid an ugly recession. However, rising interest rates are painful for investors and detrimental to the conduction of business.
The US Federal Reserve once again hiked interest rates by 0.75 basis points at the start of November. This was the 4th increase of the same amount this year, as efforts to cool the economy and slow inflations continue. And the ramifications of each new Fed rate increase continue to play out across the crypto and stock markets, with investors uncertain how to react to the tumultuous economic environment.
However, a ray of hope emerged when Jerome Powell, the Chairperson of the US Federal Reserve, recently hinted that the Fed is willing to lower the pace of interest rate hikes. While Powell did mention that a complete pause of interest hikes was out of the question, reducing interest rate hikes after four large, consecutive increases would be an excellent boost for the global crypto market. It would be an encouraging development and could help crypto markets recover from the FTX collapse.
Conclusion
If we look at historical data, cryptocurrency valuations usually follow a cycle of booms and busts. There have been plenty of other black swan events in the past that have sent the crypto markets tumbling. However, the digital asset industry usually rebounds to reach new heights every time. Therefore, the recent FTX meltdown could be just another bust in the crypto cycle, and a huge boom could follow in the near future.
