Market Rout Was Needed to Tame Euphoria, Says FTX CEO

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FTX CEO Sam Bankman-Fried (SBF) believes the worst of the cryp­to win­ter is over as long as no macro shocks ensue.

If the Nas­daq drops 25%, inter­est rates con­tin­ue to increase, and a two-and-a-half-year reces­sion occurs, then a bit­coin price of $10K to $15K is a real­i­ty, SBF cau­tioned. If that hap­pens, SBF says, there could be fur­ther devastation.

SBF’s FTX has weath­ered the bet­ter part of a some­what chilly win­ter that has left some com­pa­nies out in the cold and exposed. Voy­ager Dig­i­tal, Cel­sius, Babel Finance, and Three Arrows Cap­i­tal have all expe­ri­enced a shock freeze that has left some investors des­per­ate to recov­er deposit­ed funds.

Market rout not over, says SBF

Bankman-Fried believes that a small part of the cryp­tocur­ren­cy mar­ket rout has yet to occur and that it will be man­age­able. The rout began after the col­lapse of the algo­rith­mi­cal­ly-backed Ter­raUSD sta­ble­coin, a type of cryp­tocur­ren­cy pegged to a fiat cur­ren­cy using reserves or algo­rith­mic means.

The founder of Frax, a sta­ble­coin par­tial­ly col­lat­er­al-backed and par­tial­ly algo­rith­mic, believes that the col­lapse of anoth­er sta­ble­coin is unlike­ly in the cur­rent cryp­to win­ter. By hold­ing exoge­nous assets as col­lat­er­al, this is “lit­er­al­ly impos­si­ble,” Sam Kazemi­an told Be[In]Crypto in an exclu­sive interview.

SBF said that the win­ter was nec­es­sary to sift out those invest­ing in cryp­to with­out delib­er­ate­ly con­sid­er­ing an asset’s actu­al val­ue. He says that kind of “unground­ed” think­ing only works dur­ing peri­ods of eupho­ria in the market.

SBF has poured mon­ey into ail­ing cryp­tocur­ren­cy firms in what he says is a bid to pro­tect cus­tomer assets and pre­vent the adverse effects of inter­con­nect­ed lend­ing from spread­ing. Addi­tion­al­ly, he said, FTX con­sid­ered clos­ing deals that were not cat­a­stroph­ic but not opti­mal either. This spend­ing spree by FTX drew com­par­isons to the roles played by banks like JPMor­gan Chase, which act­ed as a lender of last resort to banks dur­ing the 2008 finan­cial crisis.

One of the deals FTX and SBF saw as favor­able was Block­Fi, to which it extend­ed a $400 mil­lion cred­it line as the lender strug­gled to meet liq­uid­i­ty demands. It has an option to buy the com­pa­ny for $240 million.

In May, SBF bought a 7.6% stake in Robin­hood Mar­kets as the brokerage’s share price took a beat­ing in the spring. In addi­tion, he loaned cryp­to lender Voy­ager Dig­i­tal $200 mil­lion and 15,000 bit­coins. The com­pa­ny used $75 mil­lion, then filed for bank­rupt­cy in May 2022.

He said that the lack of trust between coop­er­at­ing com­pa­nies makes any busi­ness between them cost­ly, which he wished he knew more about before ven­tur­ing out on his own.

Bitcoin going to $100K is pushing it

Speak­ing about Ethereum, SBF shied away from mak­ing any price pre­dic­tions asso­ci­at­ed with the upcom­ing merge. Vita­lik Buterin said that he doesn’t antic­i­pate any proof-of-work forks to dis­rupt the merge that would see Ethereum’s con­sen­sus lay­er change to proof-of-stake. He added that he hopes peo­ple don’t lose money.

Regard­ing bit­coin, SBF’s sen­ti­ments are cau­tious­ly opti­mistic. He believes that the envi­ron­ment of greater reg­u­la­to­ry trans­paren­cy accom­pa­nied by a recov­ery in price will aid bitcoin’s ascent to greater heights. How­ev­er, $100k may be a bridge too far.

At press time, bit­coin was $23,172.

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