FTX is done — what’s next for bitcoin, altcoins and crypto in general?

2022 was a rough year for crypto, and November was especially tough for investors and traders alike.

While this was incredibly painful for many, the explosion of FTX and the ensuing malaise threatening to drag down other centralized crypto exchanges with it could be a positive in the long run.

Let me explain

What people learned the hard way is that the exchanges were running fractional reserves like banks to fund their own speculative, leveraged investments, in exchange for providing a “guaranteed” yield to users.

Somewhere in the crypto Twitterverse, the phrase “If you don’t know where produce comes from, you are produce!” floating around.

This was true for decentralized finance (DeFi), and it has proven to be true for centralized crypto exchanges and platforms as well.

Who would have known that some mistimed bank would end up with a full house of cards proving that exchanges have high revenues and tons of tokens on their books, with many users completely unable to meet withdrawal requests?

They took your coins and pawned them to make extreme speculative bets.

They lock your coins in centralized DeFi platforms to earn a yield, some of which they promise to share with you.

When customers and platform users wanted to access their funds, they held their own reserves as well as user funds in illiquid assets, which were hard to convert into the stablecoins Bitcoin (BTC) and Ether (ETH) .

Not your keys, not your coins.

The phrase has never been more true.

Let’s explore some of the things that happened in the crypto market this week.

Investors withdraw a record number of coins from exchanges in self-custody

As Cointelegraph reported earlier this week, crypto investors withdrew record amounts of bitcoin, ether and stable coins from exchanges.

Separate reporting cited a sharp increase in hardware wallet sales as investors realized the importance of self-protecting their portfolios.

If the bankruptcy numbers and “temporarily stopping deposits and withdrawals” messages continue to pop up over the next few weeks, it looks like this trend of coins leaving exchanges and popping up in hardware wallets will continue.

with #bitcoin Only exchanges are flooding in, we now have a ~5 year high in total sovereign supply of 87.7%.

all $BTC which was floated on the exchanges since January 2018, has now been withdrawn.

self-custodial, and spot operated #bitcoin Markets are back on the menu. pic.twitter.com/Kqr36SBBJC

— _Check ⚡☢️️ (@_Checkmatey_) November 18, 2022

DEX and DeFi see surge in flows, perhaps a sign of things to come

Cointelegraph reported an increase in decentralized exchange (DEX) activity and inflows into DeFi occurring concurrently with record outflows from exchanges. Following the events of the past two weeks, trust in centralized exchanges and crypto companies may crumble, and the current and next wave of crypto investors may embrace more Web3-centric DEX and DeFi protocols.

Perpetual exchange rate. Source: Token Terminal

Of course, DeFi and DEXs need a more transparent framework and processes that ensure user funds are safe and are being used “properly”.

related: DeFi Platforms See Profits Amid FTX Collapse and CEX Exodus

A steady flow of bad news may present an opportunity for good

Currently, Ether price looks a bit soft from a technical analysis perspective, and recent news about FTX con holding the 31st largest Ether spot position, as well as concerns over censorship, centralization, foreign exchange of the United States Asset control offices apply to this “whale”. And other Ethereum-based protocols that have risk or bankruptcy proximity with FTX and Alameda may incite a bit of FUD that affects altcoin price action.

Top 10 addresses with the largest ETH holdings:

– There are 6 CEX related wallets
– Jump Trading only coming in third with 2M ETH
, @arbitrum Bridge with ~750K ETH
– Over 19M ETH in ETH staking and WETH contracts combined

Expect to see fewer CEXs on the list in a year pic.twitter.com/S1HHi5swnN

– Martin Lee | Nansen (@themlpx) November 18, 2022

The uncertainty over when the Shanghai upgrade will be implemented and investor concerns about when actually staked coins can be withdrawn are also interesting conversations that could turn short-term sentiment against Ether.

ETH/USDT 2-day chart. Source: TradingView

The thesis is quite simple. ETH has held support around $1,200-$1,300 through all of the past months of bearish market development, but will the level be tested again from the potential challenges mentioned above?

Stackers are essentially spot long and are earning a yield, so at this time, it could potentially be profitable to open a low-level short position with a take profit order at $700-$600.

This newsletter was written by Big Smokey, author of “The Humble Pontificator Substack” and Cointelegraph’s resident newsletter writer. Every Friday, Big Smokey will write market insights, trending how-tos, analysis, and early-bird research on potential emerging trends within the crypto market.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

Source: news.google.com