The cryptocurrency world is in shock, as the world’s third largest exchange, FTX, is insolvent. A lot has been said about the fall of the FTX and its CEO, once dubbed the next Warren Buffet, but this article goes beyond a singular case and touches on a comparison between cryptocurrencies and the S&P 500.
FTX Token in free-fall after #Binance walked away from his bailout for FTX. FTX investors told that w/o more capital, bankruptcy likely. pic.twitter.com/Jdt15fe7Sq
— Holger Zschaepitz (@Schuldensuehner) November 9, 2022
The market’s volatility attracted many investors in cryptocurrencies. The prospect of making a quick fortune led to some mortgaging their houses to buy Bitcoin or putting their life savings into alt- and shitcoins.
Buying stocks was viewed as boring. After all, if money dies because of inflation, what better way to hedge against inflation exists other than Bitcoin? Scarcity should have made Bitcoin immune to inflation.
Only it didn’t.
The industry looks broken. Scammers took advantage of the lack of regulation in the space, so companies like FTX lost their customers’ funds by lending them out when it was not supposed to do so.
How can anyone still trust a cryptocurrency project? I’m not saying all of them are scams, but investing requires due diligence, and anyone doing just a bit of research should be scared away from putting even one dollar in cryptocurrencies.
We might be only at the start of a massive liquidation. No one says anything about Tesla’s Bitcoin investment or MicroStrategy’s Bitcoin purchases, but the more Bitcoin drops, the bigger the shock will be.
What is worth mentioning is that the fall of the third-largest crypto exchange did not affect financial markets. It went like a non-event, telling us how small the entire sector is.
Buying stocks may be boring for those looking for adrenaline investing. But a close look at Bitcoin vs. S&P 500 in 2022 reveals that the stock market, while down, outperformed the cryptocurrency by a huge margin.
Moreover, if you bought Bitcoin in December 2017, or five years ago, you would be down by about -13%, while the S&P 500 is up by a little over +40%.
The ugly truth is that when it comes to money, retail traders should think twice about what to do with their money. Many have lost everything while believing a new form of money appeared.
Instead, they were just part of a bubble that popped by the time the pandemic was over.