FTX Collapse: Is the Crypto Industry its Own Problem?

It's been a very wild and turbulent week for the cryptocurrency industry as several loss-inflicting and wrecking developments have surfaced. Notably, few digital tokens and crypto entities triggered these massive liquidations and significant decline in the overall cryptocurrency market capitalization.

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First, the popular and widely adopted cryptocurrency exchange, FTX, founded by a young crypto entrepreneur Sam Bankman-Fried (SBF) suffered liquidity crunches this week, as a result of using its native token, FTT, as collateral.

Of course, these exposed the exchange to potential insolvency problems, in turn putting fear in the minds of FTT holders who were forced to sell off their holdings while derivatives traders shorted the crypto token too. Binance, who offered to help out opened a dialogue to acquire the FTX exchange but later withdrew, noting that the damages were grave.

To add more salt to FTX's injury, CZ, the CEO of Binance wrote on Wednesday that, the exchange may dump its large FTT holdings in the market. These further increased the FUD in the crypto market as the selling pressure on FTT increased causing it to plummet from around $23. It's worth noting that FTT plummeted over 50% on Wednesday and is currently trading around $3, at the time of writing.

On the other hand, Bitcoin (BTC), the leader of cryptocurrencies has tanked spectacularly, almost touching $16K in a matter of days from around $20K. In consequence, Ethereum (ETH) and all other cryptocurrencies have declined massively in price.

Notably, Solana (SOL) is among the most dumped crypto as it failed over 58% on Wednesday, following the unstaking of SOL tokens by validators. The unstaked volume is reported to be about 4% of SOL's total supply.

SEC To Enforce Aggressive Policies Following FTX Collapse

It is often said the government and/or other regulatory agencies are against cryptocurrency since it is somewhat competing with traditional currencies or posing threats to conventional banks. While this could be true, to some extent, I would say the crypto industry seems to be its greatest problem.

In case you are asking what I mean; here is my viewpoint. Regulatory agencies and several governments won't seek to ban cryptocurrencies or go all-out to enforce aggressive policies on the industry if these incessant loss-inflicting outbursts and project failures were out of the picture.

But when there are several wrecking cases now and then in the crypto industry, it gives the government and other regulatory bodies a precedent to attack crypto. In other words, if crypto firms would adopt the best strategies and models to run their projects then projects would not fail over time, resulting in investors losing their hard-earned funds.

Around mid-2022, the biggest disaster in the crypto sphere occurred when the Terra blockchain collapsed. Terra-related tokens like LUNC and UST tanked massively, resulting in the wiping away of at least $60 billion from the crypto market. While individual investors were wrecked badly, several other companies like Celsius Network, 3AC, and Voyager among others were out of business as an effect of the Terra collapse.

While still trying to forget the Do Kwon-inspired incident, Sam Bankman-Fried's FTX exchange triggered another damaging episode. How then would we expect all governments to embrace digital finance or how do expect agencies like the SEC to keep their eyes off the crypto industry when all of this keeps surfacing?

The major causes of these collapse cases in the crypto industry are poor methods of operations. If existing project founders and future crypto project inventors would adopt best practices in running their businesses then cases like Terra and FTT would reduce. In turn, this would make the crypto industry a safe place.

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