Fall of FTX would have a ‘domino effect’ on crypto exchanges, they warn in LatAm

Investors liquidated their possession of cryptocurrencies this Friday (11) in the midst of another episode of uncertainty for these assets: the bankruptcy declaration of the FTX broker. This could drag in other cryptocurrency firms, say crypto players in the region.

In trading on Friday, bitcoin (BTC) fell 5.36% to $16,853.33 and ether (XET) fell 5.09% to US$1,254.20. And there is room for further pullbacks.

Reinaldo Rabelo, CEO of Brazil’s SoftBank-backed Mercado Bitcoin, said the entire market will feel the company’s collapse, just as it has with other crises of crypto companies.

“There will be both a reduction in asset prices and a reduction in confidence and participation in the sector,” Rabelo said, in an interview with Bloomberg Online. However, as the technology behind cryptocurrencies has not been affected, he expects the market to recover from the downturn.

“It is possible that other companies will also collapse, especially the global ones, which live leveraged among each other and with this there is more mistrust in the market,” said Rabelo.

For the CEO of Mercado Bitcoin, the bankruptcy of FTX has nothing to do with problems in the ecosystem or technology, but with a company that “operated without governance, without risk analysis and without any responsibility to customers.”

FTX was considered a world leader and received investments from celebrities such as Tom Brady and Gisele Bündchen.

For his part, Guillermo Torrealba, CEO of Buda.com told Bloomberg Line that the FTX represents a serious blow to the environment because it increases doubts about “some centralized services”, such as the platform created by Sam Bankman-Fried. In this sense, Torrealba accused that one of FTX’s failures was to maintain liquidity, just a factor in which “it was expected that it would not fail”.

A crypto platform, says Torrealba, “should not touch the clients’ money,” and they should always be able to withdraw all their funds.

“In the case of FTX it was shown that they did not have custody. In other words, they were keeping the custody of their clients themselves and, in fact, apparently they had lent it to third parties. That is a very hard blow. We don’t know now that they went bankrupt, probably their clients’ funds will be frozen for a period of time that could be years, until the bankruptcy process is completed”, says Torrealba.

IT WAS SEEN COMING

For Robson Gonçalves, economist and professor at the Getúlio Vargas Foundation, cryptocurrencies should be understood as “virtual goods”, and therefore “the fall in the value of cryptocurrencies and the possible bankruptcies of institutions were already expected when the Federal Reserve started the cycle of rises in interest rates.”

“When there is a slowdown in movement with cryptocurrencies, the weakest institutions in the expansion phase end up really suffering,” he said.

Binance backed out of the FTX acquisition announced this week. “Initially, our expectation was to be able to support FTX clients in providing liquidity, but the issues are beyond our control or ability to help,” the company said in a statement.

“Every time a major player in an industry fails, consumers suffer. We have seen in recent years the crypto ecosystem become more resilient and we believe that over time, actors that misuse user funds will be weeded out by the free market,” Binance said, adding that as “ regulatory frameworks develop and the industry continues to evolve towards greater decentralization, the ecosystem will grow more robust.”

According to Typson Sánchez, co-founder of Panda and director of R&D&I at Athena Bitcoin, the complex panorama of the crypto market has affected many of the firm’s businesses, “some fell completely and others are on standby waiting to see how the market behaves.”

Sánchez added that “revenues are maintained but have certain high points due to high volatility.” However, he commented that despite this, “and the companies that have been in the industry for some time, we know how to overcome this uncertainty.”

This situation is reflected in other firms in the industry in the region.

This is the case of Buda who, according to Torrealba, knows how to deal with these cycles, “these winters that happen (…) every four years (…) this does not affect us beyond what it affects the ecosystem as a whole, so the volumes of Buda have decreased in the last 12 months, but we remain very stable and healthy.”

ASSETS BACKED BY OWN ISSUES

FTX’s strategy of backing crypto transactions in its own issuance is very common at times of financial market innovation, according to Gonçalves, creating a “false exuberance of the transactions themselves.”

Daniel Vogel, CEO of the Mexican unicorn Bitso, which like FTX counts Tiger Global among its main investors, said in a statement that: “This is a difficult and sad time for the industry, and especially for those directly affected by FTX’s breach.”

“Aware of the fluid market conditions, we currently hold 100% of our clients’ Bitso+ funds in Bitso. Therefore, 0% of our client funds have exposure, directly or indirectly, to FTX/Alameda or FTT,” said Vogel.

NATURAL SELECTION: ALSO IN CRYPTO

Gonçalves explains that the cryptocurrency business must be understood as an innovation and that there are moments of contraction and expansion when innovating.

“Looking at the car industry, for example, there was a proliferation of car manufacturers early on, and then in maturity, when there’s winter, you end up having this process of natural selection.”

For him, the process of compensation and natural selection of cryptocurrency issuers will follow the line of US interest rates and will affect companies that, due to the regulatory vacuum, have achieved potential but “falsely exuberant” growth.

With information from Bloomberg Línea

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