Cryptocurrencies have continued to slump following a difficult day yesterday as the world’s largest cryptocurrency firm, Binance, announced plans to buy fellow exchange, FTX as it suffered liquidity issues from heavy selling volumes.
FTX’s native token, FTT lost most of its value after its rival announced plans to acquire the company. The drama has been causing more pain for the crypto sector with cryptocurrencies across the board losing value.
Michael Hewson, Chief Market Analyst at CMC Markets noted “Crypto currencies had a tough day after crypto currency exchange Binance reached agreement to buy fellow crypto exchange FTX, after the latter experienced liquidity problems, when users rushed to withdraw funds. It was only a few months ago that Robinhood announced that FTX had taken a 7.6% stake in the business.”
Bitcoin fell 10% to sit below the $20k mark, its lowest levels in two years, while Ethereum fell almost 15%, although not yet testing its October support levels. There was a double digit percentage loss across the crypto landscape with more speculation-sensitive tokens like Dogecoin (-20%) being the worst hit.
Cryptocurrencies and risk
Cryptocurrencies are a non-regulated industry and while decentralisation is a big attraction for many traders, it does present considerable risks. When one of the largest crypto exchanges can suffer liquidity problems, the question of regulation is likely to be raised.
Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank noted, ” investors would be, once again warned, that they are operating in a mostly non-regulated industry, and problems could pop up anytime. [However], if history is any guide, it should be fine. We will see a couple of days of high volatility and selloff, but the contagion will likely remain limited, and the survivors will carry on. “
However, for crypto traders brave enough to buck the trend, there may be some value to be found. Marc Kimsey, Equity Trader at Frederick & Oliver suggested, “”The FTX-induced crypto crash is a buying opportunity for established coins, Bitcoin and Ethereum, regardless of Binance’s potential intervention. Should Binance buy FTX, confidence will be restored. Should they walk away, the inevitable declines will present even greater discounts.”
