- Daily crypto trading volume fell 50% after the FTX collapse, according to data from Bloomberg and Kaiko.
- The fallout from Sam Bankman-Fried’s FTX empire, once worth $32 billion, is weighing on investor sentiment.
- Insider spoke with four crypto experts about what’s next for the fledgling industry.
Cryptocurrency trading volume has plunged 50% following the sudden collapse of FTX, the once $32 billion digital asset empire started by Sam Bankman-Fried.
Daily average trading volume on centralized exchanges fell from $26.7 billion in the week to Oct. 30 to $13.1 billion in the seven days to Dec. 11, Bloomberg reported on Friday, citing data provider Kaiko. These include platforms such as Coinbase, Binance, Kraken, OKX and Bitfinex to name a few.
The drop in trading volume comes at a crucial time for the industry, which has endured a prolonged and brutal bear market. Cryptocurrency market capitalization has shed nearly three-quarters of its value since last year, according to Messari, with bitcoin and ethereum down 75% from their November 2021 record highs.
User confidence in exchanges is also questionable after the FTX crash.
“The collapse of FTX brings us back to reality,” Shaban Shaame, founder and CEO of EverDreamSoft, which develops blockchain games, told Insider. “Cryptocurrency is a young industry. It is [the Wild] A West where everything is possible, but also full of ill-intentioned people and a lack of rules.”
FTX lost $8 billion in client deposits after a Coindesk report revealed that the exchange’s original token FTT was used to back Bankman-Fried’s quantitative trading firm Alameda Research. The balance sheet of the trading titan, which once had $14.6 billion in assets, mostly consisted of coins made by its sister company — rather than independent assets like fiat currency.
This rang an alarm bell. Swarms of investors fled the stock market and liquidated their FTT holdings all at once, landing FTX and 130 other related entities in bankruptcy court last month.
Investors may continue to flee other centralized exchanges, Shaame says, and park their assets in non-custodial wallets or those that allow users to control their funds independently of exchanges.
Regardless, the industry will take one of two different paths, he added.
“It’s either going to be highly regulated like the traditional financial industry or it’s going to be more decentralized. Stock exchanges are like the banks of the old world, people trust them with their money and nobody audits them,” Shaame said. “A trustless solution like decentralized exchanges exists, but it’s not mature enough to support all use cases.”
Shaame added: “The decline in trading shows that people are becoming aware of the ‘it’s not your key but your coin’ mantra and moving to non-custodial exchanges.”
The FTX contagion could also weed out bad players in the industry in the future, another blockchain gaming executive predicts, setting the sector up for success for the next market cycle.
“Many retail investors in the bull market exited the market causing significantly lower trading volumes,” said Andreas Christensen, founder of blockchain game developer SuperOne. “Investor FUD will remain until the next bull cycle, which will then be mass adoption of high-quality, transparent and compliant actors.”
Christensen added: “In such a fragile bear market, a major criminal act like what SBF did with FTX will have a serious impact on market sentiment and trading volume.”
Phil Wirtjes, head of strategy at digital asset trading platform Enclave Markets, says that given the recent turmoil, it’s not surprising that investors are “risk averse” as they gauge how far the contagion will spread.
“The drying up of credit lines and the lack of confidence in centralized venues are causing lower liquidity, but we would not be surprised to see volumes increase once safety is reintroduced to the markets,” added Wirtjes.
Ultimately, institutional and retail investor sentiment will continue to take a hit from the FTX fiasco, calling into question the credibility of the industry, said a top economist at BTCM.
“Institutions like Fidelity and BlackRock are still slowly but steadily pushing their digital asset initiatives, while most traditional institutions are in a ‘wait and see’ mode,” said Youwei Yang, chief economist at the public crypto mining company.
He added, “However, most crypto veterans are used to this type of market decline and silence from previous rounds and [are] still hanging in there.”