Many economists are predicting, for example, a recession in the United States in 2023. To prepare for this sharp slowdown in economic activity, many investors are reducing their exposure to risky assets such as cryptocurrencies.
The sector suffers above all from numerous scandals linked to the crypto sphere. There was the liquidity crisis that affected many prominent crypto lenders in the summer of 2022 following the unexpected collapse of sister tokens Luna and UST, or TerraUSD.
Uncertainties This debacle led to the liquidation of hedge fund Three Arrows Capital, or 3AC, the bankruptcy of Voyager Digital and Celsius Network. Above all, it weakened firms like BlockFi and Robinhood (HOOD ) – Get Free Report , allowing the emergence of a saviour, Sam Bankman-Fried, who would himself go bankrupt several months later.
Bankman-Fried, the former emperor of the crypto sphere, filed for Chapter 11 bankruptcy of his crypto empire on November 11. This empire was composed of the FTX cryptocurrency exchange and the hedge fund Alameda Research.
This bankruptcy was a real earthquake in financial circles because FTX was for example valued at $32 billion in February. Regulators are still trying to piece together what happened.
They have filed a series of criminal and civil charges against Bankman-Fried whom they accuse of defrauding FTX and Alameda customers and investors.
“Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the Security and Exchange Commission (SEC ) alleges in its civil complaint.
This scandal has already caused BlockFi to file for bankruptcy and could impact other firms according to industry sources. FTX’s fall has yet to reveal all of its nasty surprises.
In the meantime, it impacts cryptocurrency prices. Besides BTC, Ether (ETH), the second cryptocurrency by market value, started the year down 0.5% at $1,195.06. The drop is 2.1% over the past seven days.
Meme coins Dogecoin (DOGE) and Shiba Inu (SHIB) are down 2% and 1% respectively for the first session of the year.
The crypto sector is also suffering from regulatory uncertainties as disaffection and distrust from the general public has never been higher.