The year 2022 was an overall rough one for crypto, and in early November, there was a sharp meltdown in the markets that was largely triggered by the collapse of FTX, a leading cryptocurrency exchange platform. FTX was founded in 2019 by Sam Bankman-Fried (popularly known as SBF in crypto circles). At its founding, it received massive backing from Silicon Valley and Wall Street, and it was also promoted by many top celebrities. It even received a capital injection from Binance, the largest crypto exchange in the world by trading volume. With such huge backing, FTX quickly became one of the leading crypto exchange firms in the world.
So, What Went Wrong?
Prior to founding FTX, SBF had founded Alameda Research, a quantitative crypto trading firm, in 2017. There was seemingly a conflict of interest between the two companies controlled by a single CEO. On November 2nd, a report hit the headlines that claimed Alameda had assets worth over $14.6 billion. But further investigation showed that the bulk of those assets was in FTT, FTX’s own digital token. An attempt by the company to deny any signs of financial distress was not convincing.
On November 6th, Binance announced that it would be offloading its FTT holdings. This triggered a run on FTX, with customer transaction requests topping $4 billion on that day, the highest ever processed by the company on a single day.
On November 7th, the figure topped $6 billion, and by November 8th, FTX was officially in a crisis. It would later be reported that FTX had used customer deposits to fund high-risk speculative bets made by Alameda Research. Both Alameda Research and FTX filed for bankruptcy on November 11th, and their collapse had ripple effects on the market.
How Crypto Markets Reacted to FTX Headlines
In just three days between November 6th and November 8th, the already depressed crypto markets plunged further. The top 15 cryptocurrencies wiped off over $152 billion in market capitalization.
Bitcoin, for instance, saw its price plunge from around $21k on November 6th to below 16k by November 8th. As a major price influencer in crypto markets, Bitcoin’s fall triggered losses in several other digital coins and tokens.
Crypto markets have been suffering from a loss of confidence from investors, and such bad news can only dampen morale further. Many investors have been left reeling from huge losses as their crypto holdings have depreciated in value. It is even worse for FTX investors who do not know the eventual fate of their funds as the largest crypto-related bankruptcy case proceeds. Nonetheless, it is still possible to be exposed to lucrative opportunities in the crypto markets without taking on as much risk as FTX investors.
Crypto CFDs
Crypto CFDs represent a safer and more secure way to get exposed to opportunities for trading digital assets. With CFDs (contracts for difference), investors do not own or store the underlying cryptocurrencies, they only trade their price changes.
In the aftermath of the FTX scandal, reports emerged that millions of dollars’ worth of digital assets had been stolen by a hacker. There is no such risk when you are trading CFDs because there are no coins owned or stored in any wallet.
With crypto prices suppressed, even safely stored coins have seen their values fall. With crypto CFDs, investors can earn profits whether the market is rising or falling. CFD profits depend on trade size and how far prices move in your predicted direction. There is even potential for additional profits because CFDs are leveraged products.
To get started with crypto CFDs, you must sign up with an online broker. It is important to ensure that your broker is regulated (preferably with multiple reputable agencies). CFD brokers generally operate under stricter regulatory frameworks compared to cryptocurrency exchanges.
Highly regulated brokers are mandated to hold client funds in segregated bank accounts that are completely separate from accounts that hold their operating cash flows. A good broker should also have a good trading platform. A trading platform like MT4 is user-friendly and features multiple analytical tools, advanced charting, and algorithmic trading functionality, as well as convenient mobile apps compatible with both Android and iOS.
Additionally, good brokers also provide their traders with plenty of educational materials and other practical trading resources to help them exploit opportunities in the market effectively.
Final Words
The crypto markets have experienced turmoil since the start of 2022. The FTX collapse highlighted how negative headlines are a huge source of risk for investors in this space. But a surge in volatility can also present opportunities for savvy investors.
By exploring alternative ways of trading cryptocurrencies such as CFDs, investors can avoid the fate that befell those that were heavily invested in FTX. Cryptocurrencies remain unique financial assets and gaining exposure to them the right way can help investors cap risks and enhance their profit potential.
