The collapse of Bahamas-based crypto exchange FTX sent shockwaves through the alternative investment world and arguably changed the cryptocurrency market forever. Following a mass exodus of investors that exposed an $8 billion gap in the company’s accounts, the market has been attempting to bounce back and once again earn the trust of investors.
As we enter what many are considering the post-FTX era, the perception of risk surrounding cryptocurrency may be the biggest shift seen among investors. Considerations such as regulatory changes and increased risk of alternative investments have the potential to significantly alter the way investors approach the market overall.
Still, both market and investor behavior post-FTX will depend on several factors. Given that the cryptocurrency market is still in its relative infancy, the post-FTX reaction will likely become a case study for alternative investing and influence the market’s direction well into the future.
Post-FTX Reflection
The collapse of FTX must be taken into consideration for anyone looking to start investing in cryptocurrency. The importance of due diligence in investigating the reasons for the exchange’s collapse cannot be overstated to protect their investments from a similar fate.
However, FTX was not the only cryptocurrency exchange to experience headline-making problems in the past few years, as other well-known exchanges such as Genesis, BlockFI, and Voyager Digital all filed for bankruptcy. These well-publicized failures have led to understandable instability in the market and distrust among investors, both seasoned and new.
Many investors — especially those who may not have long-term experience within the market — may ultimately determine that investing in cryptocurrency is still too risky to consider. Investors may want certain assurances from the market before diving in again, though the market may not be able to immediately provide these without some much-needed and long-overdue restructuring and regulatory changes.
If anything, the fallout of FTX’s collapse has laid bare the need for greater vigilance and oversight within the market. Investors will need to protect themselves and use common sense in their approach to the crypto market to avoid becoming entangled in a web of fraud and deceit such as the one woven by FTX.
Post-FTX Investment Patterns
The question remains: Although we are over a year removed from the FTX collapse, what investment patterns are crypto experts and savvy investors seeing in the marketplace? Despite concern over the stability of the cryptocurrency market, things could be looking up for exchanges that are willing to adapt and follow the directives of increased regulation.
For example, Bitcoin remains the world’s largest cryptocurrency, having rebounded by 157% in 2023. Ethereum has also remained a popular choice with investors, especially with the rise of decentralized finance (DeFi) applications. Instead of playing into the “Wild West” feel of the early crypto market, a landscape that led to situations like the FTX collapse, investors are now following the pathway of better regulation, verifiable wins, and transparency from crypto company leaders.
As the tension clears and the dust settles from the FTX collapse, we may begin to enter a season of altcoin investing. Second-tier altcoins such as Solana and Cardano may join the ranks of Bitcoin and Ethereum for a time as people become more comfortable with exploring crypto again.
The markets are already showing signs of rebound. As more people become accustomed to conducting proper due diligence and allowing for regulatory oversight, the crypto market will likely see a full recovery just a few years removed from the downfall of FTX.
An Eye on Regulation Needs
The collapse of FTX has prompted louder calls for regulatory oversight, an understandable response given the eye-boggling amount of cash investors have lost to crypto scams. Incidents of misconduct and fraud uncovered in high-profile cases like FTX have highlighted the need for protective measures that safeguard investors and uphold market integrity.
Though trust in the crypto space may have suffered some temporary damage due to FTX, it has not been an unsurvivable occurrence. The industry is currently experiencing a robust resurgence, with the understanding that situations like the FTX collapse cannot occur without some sweeping changes to the market as a whole. Industry experts are viewing the call for regulatory oversight as a sign of the market’s maturity and commitment to accountability to its investors.
Following the bankruptcy filings of behemoths like FTX, the Securities and Exchange Commission (SEC) has taken steps to prevent further fraud and market manipulation within the crypto space. At the same time, the SEC has moved to open lines of communication with crypto investors who have otherwise largely been excluded from conversations about crypto company behaviors or concerns, having no real skin in the game regarding the direction of these companies until their assets are lost.
The collapse of FTX could have positive long-term implications for the crypto market. More regulatory oversight and transparent conversation will allow more people to comfortably enter the market and invest without fear of losing everything to unscrupulous exchanges.
The Market Outlook
There are bad apples in every industry, and the cryptocurrency market is no exception, yet despite known issues with exchanges like FTX, there is still a strong interest in crypto investing, especially from the asset class. Those with more investment experience better understand the benefits of considering crypto as part of a diversified portfolio.
In January of 2024, the SEC approved 11 spot Bitcoin ETFs. This could prove to be a game-changer for the entire market, leading to greater and more diverse interest in Bitcoin, increased acceptance of crypto by traditional financial markets, and adoption by retail and institutional investors. The optimism within the market is palpable, signaling a full rebound from the dark days immediately following FTX’s collapse.
The collapse of FTX sparked necessary and significant developments in the crypto market. From increased calls for institutional regulation to a renewed effort to listen to and protect investors, the post-FTX market is looking radically different than before. While the FTX incident and well-publicized bankruptcies from other crypto exchanges may have disrupted investor confidence and trust, the collapses have also been a catalyst for positive and necessary change.
Moving forward, the crypto industry must continue to adapt and evolve, embracing the promise of greater oversight and accountability. The long-term sustainability and growth of the crypto market will depend on how the market positively responds to upheaval, such as the FTX collapse, and moves to strengthen the market overall.
Shane Rodgers is CEO & Co-Founder of PDX Global Ltd. Rodgers has over 30 years of experience in investment banking, corporate finance, management, and operations in Australia and the United States. He has served in a wide variety of positions, including Co-founder, Chairman, and CEO of Anglo Arabian Corporation Ltd., an unlisted Australian public investment company from 1980 to 1985; Director at Satco Power Corporation, which he helped take public from 1985 to 1987 Chairman; CEO of the Chancellor Group, Inc., a publicly-traded US oil & gas company, from 1997 to 2001; Partner and Chairman of Capital General Partners, an Australian boutique corporate advisory firm from 1996 to 1998; and as a Partner in KKR Associates, an Australian investment partnership (unrelated to Kohlberg Kravis Roberts & Co.), from 1993 to 1995.