Meteorologists have just confirmed that the summer of 2022 was the hottest in Europe since records began. Regardless of the heat, though, in the last few months what has been called a “crypto winter” has set in. The term was first coined in 2018 when Bitcoin lost half of its value, dragging the rest of the digital coins down with it. The current bear market in cryptocurrencies is proving to be even more pronounced, however. The bedrock Bitcoin, for instance, which hit a record high of USD 68,789 just in November 2021, has since fallen below the USD 20,000 mark and is now trading lower than it has even been these last two years. Its little brother Ethereum has also had to absorb huge losses, the number two crypto having lost three quarters of the market capitalisation it had at its peak.
Nevertheless, Ethereum has since staged something of a recovery on the crypto market. In the middle of September, after years in the making, came the eagerly anticipated update called “The Merge”. This changed the mechanism from the electricity-hungry “Proof of Work” to the “Proof-of-Stake” method. “Happy merge all”, tweeted Ethereum founder Vitalik Buterin following the successful reform. According to the developers, the revamp slashes energy demand by more than 99%. That is a huge benefit, because it makes the digital currency attractive to those investors who look at sustainability criteria as well. Another positive influence on the value of Ethereum, say the experts, is the fact that the rate at which new cyber coins are issued could be sharply reduced as a result of the changeover. This anti-inflationary effect can, conversely, lead to rising share prices. There are even suggestions on the market that Ethereum’s increasing attractiveness could see it displace current industry behemoth Bitcoin from its leading position in terms of stock market value.
The positive changes of direction for crypto prices in summer and then again in autumn were short-lived, however. In fact, most recently the downward trend has accelerated significantly once again, as Bitcoin, for instance, dropped by a fifth within just one week. The latest crash was triggered by the cash flow problems of cryptocurrency exchange FTX.com. The company came under pressure when customers withdraw huge quantities of capital within a very short space of time. According to media reports, the company suddenly had a shortfall of up to 8 billion US dollars. The prospects of a rescue initially seemed good, with rival Binance announcing shortly after the disaster had become public that it wanted to acquire the majority of FTX’s business. Following a comprehensive tax audit, allegations of the possible misuse of customer money and the probability of investigations by the US authorities, though, Binance pulled out.
FTX ultimately had to file for insolvency, and boss Sam Bankman-Fried, who founded the company in 2019, packed his bags. That may not be the end of the story for him, though: insiders suggest that at least a billion dollars of customer money has disappeared from the company. According to Bankman-Fried, a former Wall Street banker, however, there had simply been misunderstandings in postings. While investigations for possible embezzlement are under way in the Bahamas, the world's largest payment processor, Visa, has terminated its collaboration with the insolvent crypto exchange. It could take some time until the whole truth about FTX emerges, and this will in turn further heighten the uncertainty among crypto investors in the near term. What is more, experts do not rule out the possibility that other industry giants are facing similar problems.
Source: Refinitv