The events which transpired in the digital asset industry, between 6-14 November 2022 are nothing short of remarkable, shocking, and disappointing, to say the least. Within the span of just one week, one of the most popular and high trade volume exchanges, FTX.com;
- Experienced a bank run.
- Halted customer withdrawals.
- Entered into failed talks to be acquired by competitor Binance.
- Discovered to be short between $8B to $10B in customer funds.
- Had exchange wallets allegedly hacked to the tune of ~$500M.
- Filed for Chapter 11 bankruptcy alongside sister company FTX US.
- Exposed what appears to be malfeasance perpetrated by the Alameda / FTX entity.
Such an event is a tremendous blow to the industry, leaving millions of customers with trapped funds, damaging many years of constructive industry reputation, and creating new credit contagion risks, many of which likely still remain undetected. The event brings back unfortunate memories of the failure of Mt Gox in 2013, whereby a significant custodian is found to be fractionally reserved.
Amidst this chaos, it is important to remember that the digital asset space is a free market, and this event represents a failure of a trusted centralized entity, not of the underlying cryptographic technology. There are no bail outs for Bitcoin, and the forest fire of an industry wide deleveraging will purge all excess and malfeasance, albeit with significant pain along the way. With a renewed focus on exchange Proof-of-Reserves underway, and a push towards self-custody, the market will heal, recover, and return stronger in the months and years ahead.
In this weeks report, we will cover:
- Details regarding the bank run on FTX on-chain wallets.
- Wider impact on exchange balances and self-custody.
- Observations the impacts to Bitcoin long-term holder conviction.
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