Key Incidents that Led to the Crypto Crisis in Current Times
Nova Reyes
Markets Navigator
TL;DR
The crypto crisis has been shaped by key incidents, including the near collapse of Terra, Babel Finance's withdrawal restrictions, and the unexpected collapse of FTX. These events have significantly impacted market confidence and trading activity.
Key Takeaways
- The crypto market faced a major collapse in early 2022, affecting many cryptocurrencies.
- Terra, a stablecoin, lost over 26% of its value, leading to substantial investor losses.
- Babel Finance imposed withdrawal restrictions, impacting user access to funds.
- FTX's unexpected collapse resulted in a liquidity crisis and eroded market confidence.
What Led to the Crypto Crisis?
Near Collapse of Terra Due to Losing Its Dollar Peg
In the first quarter of 2022, the crypto market saw its most recent collapse. Almost all popular cryptocurrencies experienced double-digit value falls. Panic selling by investors led to a drop in the value of many digital assets. Bitcoin's value dipped by 11%, while ether lost 20%. However, the most affected was Terra, which lost over 26% of its value during the crypto meltdown. Many predicted the end of Terra.
Impact
Investors who held Terra’s native cryptocurrency faced substantial losses. Many individuals and entities that had invested in Terra or its associated projects experienced financial setbacks and potential disruptions to their business operations.
Date
May 9th, 2022
Babel Finance Announcing Withdrawal Restrictions
Babel Finance, a leading cryptocurrency institution, ordered the restriction of withdrawals on its platform. The CEO of Babel Finance, Del Wang, stated that implementing withdrawal restrictions aimed to mitigate potential risks associated with fund movements and protect the interests of its users. This step was taken as the value of cryptocurrencies gradually fell.
Impact
Users of Babel Finance were greatly affected by the platform’s withdrawal restrictions. They were unable to manage their cryptocurrency holdings, causing significant inconvenience even in situations of immediate financial needs or trading plans. This unexpected step affected the overall liquidity and trading activity within the cryptocurrency market, ultimately leading to the crypto crisis.
Date
June 17th, 2022
Unexpected Collapse of FTX
FTX, the Bahamas-based crypto trading platform and the third-largest platform in terms of crypto exchange, experienced an unexpected collapse. The situation changed abruptly in the first week of November when Binance announced the sale of their highly significant FTT token. This announcement caused a spike in withdrawals and resulted in a liquidity crisis. More than 100 affiliated entities of FTX declared bankruptcy, leading to its collapse.
Impact
With the collapse of FTX, users faced immediate challenges, including potential loss of access to their funds and inability to execute trades. The collapse of a prominent exchange like FTX eroded market confidence in the cryptocurrency industry as a whole, leading to increased skepticism and hesitation among investors and traders.
Date
November 2nd to November 8th, 2022
Conclusion
The recent crypto crisis sent shockwaves throughout the digital currency market, causing significant price volatility and leaving investors uncertain about the future. Key incidents in 2022, such as the near collapse of Terra, Babel Finance announcing withdrawal restrictions, and the collapse of FTX, have contributed to the crypto crisis in current times. This crisis serves as a reminder of the nascent and evolving nature of the cryptocurrency market, underscoring the need for ongoing research, education, and responsible crypto investment practices.