The global cryptocurrency market remains badly scarred following the tumultuous collapse of crypto exchange FTX and other big players last year, with crypto prices, volumes and venture capital investment well below their 2021 peaks.
Former CEO of FTX Sam Bankman-Fired pleaded not guilty before a New York trial on Tuesday; Charged with seven counts of fraud and conspiracy stemming from the exchange’s abrupt collapse in November 2022.
FTX was one in a series of industry meltdowns that sent bitcoin crashing to its lowest price since 2020. While bitcoin and other major tokens have partially recovered, the sector remains far from the fever pitch it hit in late 2021.
Bitcoin, by far the biggest cryptocurrency and the chief barometer for crypto market sentiment, has bounced back about 37% since Nov. 1.
The cryptocurrency was riding high in 2021, hitting a record $69,000 in November that year. But as central banks began to hike rates in early 2022, riskier assets like cryptocurrencies began to feel the pain as investors sought better returns elsewhere.
Bitcoin lost more than 65% of its value last year, pummeled by the collapse of stablecoin terraUSD, which led Singapore hedge fund Three Arrows Capital to file for bankruptcy and caused wider havoc in crypto markets.
Still, bitcoin has regained almost three-quarters of its value this year on interest from major financial firms including BlackRock and hopes that interest rate hikes are ending. It was trading on Monday at around $28,089.
After peaking at $3 trillion in November 2021, the value of the overall crypto market plummeted through 2022, hitting a two-year low of $796 billion as FTX imploded. It has since clawed back some ground, hovering above $1 trillion most of this year.
“The issues with FTX have undoubtedly hit confidence in the crypto ecosystem at large,” said Usman Ahmad, CEO of Zodia Markets, the crypto exchange of global bank Standard Chartered (STAN.L).
Known for its volatility, bitcoin has gained some stability this year.
Yet the relative calm in crypto markets is not necessarily a good thing, said some market participants, noting that many investors are attracted to crypto precisely because of its volatility, which offers opportunities to make quick profits.
Venture capital (VC) investments flooded into crypto during its boom year of 2021, and even through 2022. But such bets have slowed considerably this year, after many firms were burnt by the market meltdown.
U.S. VC crypto investments totaled $6.12 billion in the first quarter of 2022, but slumped to just $870 million in the same quarter this year, according to data firm PitchBook.
Since FTX failed, crypto trading volumes have collapsed, causing traders that had been attracted to the market’s strong liquidity to pause buying and selling tokens, or exit the market altogether.
In September 2023, total monthly volumes across spot and derivative markets fell to $1.4 trillion, down more than 60% from September 2022, according to London-based researcher CCData. Spot markets bore the brunt, with volumes down more than 70% at $272 billion.
Derivative volumes, meanwhile, have fallen by 60% to $1.1 trillion in the 12 months since September 2022.
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