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Will crypto recover? 4 Crypto Experts Say What's Next as Volumes Drop

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  • Daily cryptocurrency trading volumes dropped 50% after the FTX collapse, according to data from Bloomberg and Kaiko.
  • The fall of Sam Bankman-Fried’s FTX empire, once worth $32 billion, is weighing on investor sentiment.
  • Insider spoke with four crypto experts about what’s next for the nascent industry.

Cryptocurrency trading volumes are down 50% after the sudden crash of FTX, the $32 billion digital asset empire started by Sam Bankman-Fried.

Average daily trading volumes on centralized exchanges fell from $26.7 billion in the week to Oct. 30 to $13.1 billion in the seven days to Dec. 11, Bloomberg reported on Friday, citing the provider of kaiko data. This includes platforms like Coinbase, Binance, Kraken, OKX and Bitfinex, to name a few.

The drop in trading volumes comes at a crucial time for the sector, which is experiencing a prolonged and brutal bear market. The cryptocurrency’s market cap has dropped nearly three-quarters of its value since last year, according to Messari, with bitcoin and ethereum both down 75% from their November 2021 highs.

User trust in exchanges is also in question after the FTX crash.

“The collapse of FTX brings us back to reality,” Shaban Shaame, founder and CEO of blockchain game developer EverDreamSoft, told Insider. “Cryptocurrency is a young industry. [the Wild] West where anything is possible but also full of bad intentions and lack of rules.”

FTX lost $8 billion in customer deposits after a Coindesk report revealed that the exchange’s native token, FTT, was used to back Alameda Research, Bankman-Fried’s quantitative trading firm. The trading titan’s balance sheet, which once had $14.6 billion in assets, was largely made up of a currency created by its sister company — not an independent asset like fiat currency.

This rang alarm bells. Swarms of investors fled the exchange and liquidated their FTT holdings in one fell swoop, taking FTX and 130 other associated entities to bankruptcy court last month.

Investors can continue to flee other centralized exchanges, says Shaame, and park their assets in non-custodial wallets, or those that allow users to have control of their funds independently of the exchanges.

Regardless, the industry will take one of two different paths, he added.

“Either it will be heavily regulated like the traditional financial sector or it will be more decentralized. Exchanges are like old world banks, people trust them with their money and nobody audits them,” Shaame said. “A trustless solution exists, such as decentralized exchanges, but it’s not mature enough to support all use cases.”

Shaame added: “The drop in trading shows that people are becoming aware of the ‘not your key, not your currency’ mantra and moving towards non-custodial exchanges.”

FTX contagion could also weed out bad players from the industry in the future, predicts another blockchain gaming executive, setting the industry up for success in the next market cycle.

“Many bull market retail investors have exited the market, causing significantly lower trading volumes,” said Andreas Christensen, founder of blockchain game developer SuperOne. “Investors’ FUD will remain until the next upward cycle, which will be massive acceptance for high-quality, transparent and compliant actors.”

Christensen added: “In such a fragile bear market, a major criminal act like the SBF did with the FTX will have a severe impact on market sentiment and trading volumes.”

Phil Wirtjes, head of strategy at digital asset trading platform Enclave Markets, says that given the recent turmoil, it’s not surprising that investors are “risk away” as they assess how far the contagion will spread.

“Credit lines drying up and lack of confidence in centralized locations are causing lower liquidity, but we would not be surprised to see volumes pick up once certainty is reintroduced to markets,” added Wirtjes.

Ultimately, institutional and retail investor sentiment will continue to be affected by the FTX fiasco, calling into question the credibility of the sector, says a leading BTCM economist.

“Institutions like Fidelity and BlackRock are still slowly but steadily pushing their digital asset initiatives, while most traditional institutions are in ‘wait and see’ mode,” said Youwei Yang, chief economist at the publicly traded cryptocurrency miner.

He added: “However, most cryptocurrency veterans are used to this kind of market pullback and reassurance from previous circles and [are] still hanging there.”

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