​“It’s a powerful blow.” How FTX’s collapse affected the duration of the bear market

According to opinion leaders and analysts from the crypto sphere, the implications of the rapid collapse of the FTX exchange have not yet fully manifested themselves. The collapse of cryptocurrency rates, the liquidity crisis of FTX-related crypto companies, and other factors can delay the approach of a growth cycle in the market.

Tesla and SpaceX CEO Elon Musk hinted at a prolonged crypto winter and a long decline in the crypto market. He wrote this under a post by investor Jason Calacanis, who asked what awaits bitcoin in 2023, given that it is currently trading 75,6% below its all-time high of $69 000 recorded in November 2021. Musk believes that bitcoin as an asset will survive, but it will take a long time for the rate to recover.

BTC will make it, but might be a long winter — Elon Musk (@elonmusk) November 14, 2022

The situation around FTX has undermined investor confidence and triggered a liquidity crisis that could well extend the crypto winter to the end of 2023, a new Coinbase report says. The company’s analysts predict the likely consequences of the collapse of the exchange, still recently one of the top three in the market, which includes, among other things, the extension of the bearish period for cryptocurrencies.

According to the study, many FTX institutional investors had funds stuck on the platform after it filed for bankruptcy on November 11. The collapse of FTX also scared away investors and big buyers from the entire cryptocurrency ecosystem as a whole. Coinbase’s analysts also emphasize that the dominance of stablecoins has reached a new high of 18%, concluding that the liquidity crisis could last at least until the end of the year. The figure indicates that market participants are moving out of crypto assets for stablecoins.

“The unfortunate events surrounding FTX have undoubtedly damaged investor confidence in the digital asset class. Remediation will take time, and very likely this could extend crypto winter by several more months, perhaps through the end of 2023 in our view,” from the report by Coinbase.

The collapse of FTX did increase the pressure of bears on the crypto market, which has already taken place, given the winding down of the economic stimulus program in the United States and the radical increase in key rates in the US and Europe, says Nikita Vassev, founder of TerraCrypto. That said, the consequences of the FTX collapse have yet to fully manifest themselves, the expert says, explaining that many lending platforms are just beginning to publicly acknowledge liquidity problems. “In the coming weeks, we will see who will go bankrupt after FTX. The crypto market is a closely interacting system, it will not work to sit on the sidelines,” Vassev predicts.

This situation will not affect global cycles, believes Nikita Zuborev, senior analyst at Bestchange.ru. Even according to the most optimistic predictions a moderately negative trend will continue at least for half a year. The market during this time will be able to absorb the drawdown, which was caused by news around FTX, and will cause various bankruptcies and liquidations in the near future.

“Secondly, it can be seen as a kind of historical parallel. In the past periods of crypto winter there were all sorts of scandals of similar magnitude: Mt.Gox, Bitfinex, BitMEX,” continues Zuborev. According to him, the past problems of major exchanges did not affect the course of standard cycles of the crypto market, and it should not be expected now.

When the bear market ends

According to various estimates, it could happen around 2023, according to Zuborev. The consensus prediction roughly coincides with expectations from the cyclical nature associated with bitcoin halving — tentatively, the reversal may occur in April-June, but rapid growth should not be expected until 2024 when halving itself will happen, the analyst predicts.

Halving is bitcoin’s code embedded cut in half of the reward to miners for a mined block on the blockchain. Initially, miners received 50 BTC, this was reduced to 25 BTC on November 28, 2012, to 12,5 BTC on July 9, 2016, and to 6,25 BTC on May 11, 2020. The next reward reduction to 3,125 BTC is expected ~ in May 2024.

“I still see a new bull cycle in the second half of 2023, six months before the halving, and the main period of the bull cycle will be in the second half of 2024,” Vassev comments. The collapse of FTX only eliminated the possibility of small local periods of growth of the crypto market, which, according to the head of TerraCrypto, was expected in late 2022 or the spring of 2023.

Answering the question of whether the growth of cryptocurrencies in early 2023 should be expected, Zuborev says it is “quite possible.” Thus, the beginning of 2023 may continue similar dynamics with several months of “flat,” but it is likely to happen already after updating the local lows of the current cycle, the analyst believes. “Therefore, retrospectively it will be possible to characterize the beginning of the year as “growth,” but in practice, it will be little noticeable changes. We do not expect an increase in value to at least April levels [$40 000-50 000] before the second half of 2023,” the representative of Bestchange.ru summarizes.

“I wouldn’t expect cryptocurrencies to grow in early 2023, although I don’t rule out such a scenario,” Vassev adds. In his opinion, it is difficult to make predictions in the short term, as there is no clarity on the final impacts of the collapse of FTX. “One thing is clear: it’s a powerful blow,” the expert explains.