4 crypto experts break down what's next for the industry with trading volumes down 50% since the FTX collapse
"Most crypto veterans are used to this kind of market drawdown and quietness from previous circles and still hanging in there," an economist said.
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- Crypto daily trading volumes plunged 50% following FTX's collapse, per Bloomberg and Kaiko data.
- The fallout of Sam Bankman-Fried's once $32 billion empire FTX is weighing on investor sentiment.
- Insider spoke with four crypto experts about what's next for the nascent industry.
Cryptocurrency trading volumes plummeted 50% after the sudden downfall of FTX, the once-$32 billion digital asset empire started by Sam Bankman-Fried.
Daily average trading volumes on centralized exchanges declined from $26.7 billion in the week through Oct. 30 down to $13.1 billion in the seven days to Dec. 11, Bloomberg reported on Friday, citing data provider Kaiko. These include platforms like Coinbase, Binance, Kraken, OKX, and Bitfinex, to name a few.
The plunge in trading volumes comes at a pivotal time for the industry, which is enduring a prolonged and brutal bear market. Cryptocurrency's market cap has slashed nearly three-fourths of its value since last year, according to Messari, with bitcoin and ethereum down 75% from record-highs in November of 2021.
User trust in exchanges are in question following FTX's downfall as well.
"FTX collapse brings us back to reality," Shaban Shaame, founder and CEO of blockchain gaming developer EverDreamSoft, told Insider. "Cryptocurrency is a young industry. It's [the Wild] West where everything is possible but also full of ill-intentioned people and lack of rules."
FTX lost $8 billion of customer deposits after a Coindesk report revealed that the exchange's native token FTT was used to prop up Bankman-Fried's quant trading firm Alameda Research. The trading titan's balance sheet, which once had $14.6 billion in assets, was largely comprised of a coin that its sister company made up — not an independent asset like fiat currency.
This rang the alarm bells. Swarms of investors fled the exchange and liquidated their FTT holdings all at once, landing FTX and 130 other associated 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 have control of their funds independent of exchanges.
Regardless, the industry will go down one of two different paths, he added.
"Either it will be heavily regulated like the traditional finance industry or it will be more decentralized. Exchanges are like the banks of the old world, people are trusting them with their money and no one audits them," Shaame said. "A trustless solution like decentralized exchanges exists but is not mature enough to support all use cases."
Shaame added: "The drop in trading shows that people are getting conscious of the mantra 'not your key not your coin' and move to non-custodial exchanges."
FTX contagion could also weed out bad industry players in the future, another blockchain gaming exec predicts, setting up the sector for success for the next market cycle.
"Many bull market retail investors have vacated the market causing significant lower trading volumes," Andreas Christensen, the founder of blockchain gaming developer SuperOne, said. "The FUD of investors will remain until the next upwards cycle, which then will be a massive uptake for high quality, transparent and compliant actors."
Christensen added: "In such a fragile bear market, a big-time criminal act like SBF did with FTX will have a severe impact on the market sentiment and trading volumes."
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 off," while they assess how far contagion will spread.
"Credit lines drying up and lack of trust in centralized venues is causing lower liquidity, but we wouldn't be surprised to see volumes pick up once certainty is reintroduced into markets," Wirtjes added.
Finally, institutional and retail investor sentiment will continue to take hits from the FTX fiasco, bringing the credibility of the industry into question, a top economist at BTCM said.
"Institutions like Fidelity and BlackRock still slowly but steadily pushing their digital assets initiatives, while majority of the traditional institutions are in 'wait and see' mode," Youwei Yang, chief economist at the publicly-traded crypto mining company, said.
He added: "However, most crypto veterans are used to this kind of market drawdown and quietness from previous circles and [are] still hanging in there."