The Crypto Bubble Is Bursting: A Look Back and Forward2-min read

Sayan Chakraborty

Sayan Chakraborty |  Updated on 11/1/2023

Sam Bankman-Fried is reportedly about to enter a no-guilty plea in the FTX fraud case, following mounting legal fees and the grim prospects of a harsh sentencing at the trial stage. The fallout emerging from the scandal continues to bear near-irreparable damage onto the crypto world, at least for the immediate future. Bitcoin (BTC) has drastically dropped to approximately $16,500. This is a substantial decline compared to its record high of $66,000 in the past year.

Sam Bankman Fried bankrupt

FTX founder Sam Bankman-Fried is about to enter a no-guilty plea on the 29th of December 2022. Photo credit:

But why such a massive decline?

The precipitous decline in value can be attributed to the hazardous combination of the Binance exchange, the Tether stablecoin, and influential professional traders running sophisticated algorithms. Binance, with its dominant market share of over 50%, sets the price of Bitcoin and other cryptos, while traders must exchange their fiat currency for Tether to purchase cryptocurrencies. The Bitcoin-Tether pair has the most significant trading volume on Binance, so changes in its price dictate the dollar value of Bitcoin. And the success of Bitcoin is intertwined with the health of the broader crypto ecosystem.

The recent turbulence in the cryptocurrency sector can be analogised to the fallout of the dot-com bubble in 2001-2 ,when a sudden cessation of venture capital investment into internet startups occurred as a result of a number of businesses becoming insolvent.

This year, with the bankruptcy of Three Arrows Capital (one of the largest crypto hedge funds), and major crypto-lending companies Celsius and Voyager filing for insolvency, the market has been rocked by a series of unexpected shocks. Exchanges such as FTX, Gemini and Genesis have all prevented customers from withdrawing their funds, while blockchains, NFT marketplaces, data aggregators and analytics companies have all been hit hard. The lack of venture capital has seen a contagion of bankruptcies spread across the sector, and with no sign of the situation improving, many more are expected to follow. With the current climate of uncertainty, it is clear that the crypto industry is facing a tough time, and it remains to be seen if it can recover from the shock.

Amidst these uncertainties, Binance stands as one of the key players in the space. Although the company is non-domiciled and self-regulated, it is still reliant on fees from ordinary investors and the services of market makers to facilitate its operations. Should Binance be able to successfully navigate this tumultuous period, it could potentially emerge as one of the dominant forces in the industry with a near-monopolistic hold on the market.

Steps Forward:

BlackRock headquarters with Larry Fink placard

BlackRock has used automated trading software to become the world’s leading investment firm

As crypto markets become increasingly volatile, investors are warned to proceed with caution, lest they be tempted to re-enter the game only to see their savings wiped out. With the potential for drastic profit and loss, only those with professional experience and expert knowledge have a fighting chance in such a fickle market. Optimistic investors are exploring the use of automated trading bots to ensure their investments remain safe, as well as to recover any losses incurred during trading. The bots can help ensure a safe, measured investment strategy, and aid in long-term investing success in the crypto space.

This is done because – whereas even the most professional hedge funds would be limited to the capabilities of their human staff carrying out trades – legitimate automated trading software would carry transactions at a pace of one trade per 0.01 seconds. This leads to build-up of small amounts of wealth, which – in time – even during a bear market could prove considerable.

This is exactly the technology behind BlackRock’s Aladdin, which has made the company into one of the the world’s leading investment firms, arguably the most influential, given their AUM (amounting to over $10 trillion). Other investment firms have started providing seed funds to tech start-ups specifically to overtake BlackRock automated trading software. Little do retail investors know that this technology is also available to the wider public.