[Bitcoin Now] Back to November 2020... Direct Hit from the FTX Crisis

Bitcoin Price at $16,000 Range
Back to November 2020
Investor Sentiment Recovers from 'Fear' to 'Extreme Fear'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] As FTX, one of the world's top three cryptocurrency exchanges, collapsed due to a liquidity crisis, Bitcoin, which leads the coin market, is also suffering from the aftershocks. With the Luna-Terra incident, fears of tightening, and now the collapse of FTX, prices have reverted back to November 2020 levels.

According to the global cryptocurrency market tracking site CoinMarketCap, as of 1:50 PM on the 19th, the price of Bitcoin was recorded at $16,635 (approximately 22.34 million KRW), down 1.10% from the previous day.

Until early May, Bitcoin prices maintained the $37,000 range, but with the Luna-Terra incident and the ongoing trend of interest rate hikes, prices plunged to the $18,000 range by mid-June. Despite continued interest rate increases, Bitcoin prices held the $18,000 level as a support line and even approached the $20,000 range. Even when the US stock market, which tends to move in sync, declined, Bitcoin's perception as a safe asset sometimes led to price increases.

However, the collapse of FTX brought another blow to Bitcoin. Beyond the price dropping to the $16,000 range, trust issues in the coin market also spread.

This incident began when cryptocurrency specialized media CoinDesk pointed out the opaque financial structure of Alameda Research, a virtual asset investment company established by FTX founder Sam Bankman-Fried. In response, Zhao Changpeng, CEO of Binance, the world's largest exchange, announced plans to sell FTT, the coin issued by FTX, causing prices to plummet. As FTT prices fell sharply, FTX faced liquidity problems, triggering a bank run as customers demanded withdrawals. Although Binance expressed intentions to acquire FTX, it withdrew the offer within a day, causing the crisis to spiral out of control. Ultimately, FTX filed for bankruptcy protection.

The aftershocks of the FTX incident hit the entire coin market hard. First, cryptocurrency lending companies also suffered as liquidity dried up. BlockFi, a cryptocurrency lending firm, is reportedly preparing to file for bankruptcy protection along with employee layoffs.

Another cryptocurrency lending service provider, Genesis Trading, announced on the 16th that "after consulting with professional financial advisors, new loans and redemptions will be temporarily suspended." Genesis Trading had revealed that $175 million was tied up in FTX accounts and faced a crisis due to abnormal withdrawal requests. Additionally, the impact reached the Gemini exchange, where repayment to Gemini Earn users, who receive interest by depositing coins, was halted. Gemini Earn operates services jointly with Genesis Trading, and with Genesis Trading suspending new loans, this measure was taken accordingly.

On Wall Street, voices have been raised urging cautious investment in Coinbase, one of the world's top three cryptocurrency exchanges. Global bank Bank of America (BoA) downgraded Coinbase's rating from 'Buy' to 'Neutral' citing the repercussions of the FTX incident.

[Image source=Reuters Yonhap News]

The impact was also felt domestically, as the exchange Gopax announced in a notice titled 'Gopay Free-type Product Withdrawal Delay Notice' that withdrawals from Gopay, a coin deposit service, are delayed.

The Gopay product is provided by partner Genesis Global Capital, which has temporarily suspended new lending and repayments due to a surge in repayment requests. Genesis Global Capital is a subsidiary of Genesis Trading, which previously faced a liquidity crisis.

As coin prices fell and distrust grew, investor sentiment froze sharply. According to cryptocurrency data provider Alternative, the Fear & Greed Index, which measures investor sentiment, remained at 23 points (extreme fear) on the day, the same as the previous day. On the 6th of this month, the index had risen to 40 points, indicating a stage of fear. However, following this incident, the index dropped, reaching 20 points (extreme fear) on the 17th. Alternative's Fear & Greed Index ranges from 0, indicating extreme fear and pessimism about investment, to 100, indicating optimism.