3 - 5 minute read
The year 2022 has been a tumultuous one for the cryptocurrency market, with several major events shaking investor confidence. The most significant of these was the collapse of the Terra Luna network, which resulted in a $60 billion loss for investors. This was followed by the failure of the FTX exchange and its sister company, Alameda Research, which is estimated to have resulted in a loss of around $8 billion for customers.
As a result of these events, the total market capitalization of the cryptocurrency market has fallen from around $2.4 trillion in January to just $850 billion at the time of writing. This decline has attracted the attention of so-called “whales” – investors with 100 or more bitcoin – who have been accumulating around $726 million worth of the cryptocurrency over a nine-day period in December.
In the wake of these events, many cryptocurrency investors have moved towards self-custody solutions, using hardware wallets like Ledger or Trezor, or software wallets such as MetaMask and TrustWallet. This shift is a response to the realization that exchange security may not always be reliable, as demonstrated by the FTX collapse.
FTX, like the now-defunct Mt. Gox exchange, was a centralized platform run by a small group of individuals who failed to implement the necessary systems and controls to protect customer assets. As a result, customer assets were co-mingled with those of Alameda Trading and used for insider loans and investments, with no clear explanation of the purpose of these transactions. There was also a lack of independent oversight and management had unrestricted access to customer assets and private keys, leading to a situation described by the new CEO of FTX as “old-fashioned embezzlement”.
The collapse of FTX and the wider turmoil in the cryptocurrency market have also had an impact on XRP, the digital asset issued by Ripple Labs. XRP has been embroiled in a legal battle with the US Securities and Exchange Commission (SEC), which alleges that the asset is an unregistered security and that Ripple Labs engaged in the sale of unregistered securities.
The case is ongoing, but the uncertainty surrounding XRP’s status has had a negative impact on the asset’s price and liquidity. In addition, several major exchanges, including Coinbase and Binance, have suspended XRP trading or delisted the asset in response to the SEC’s lawsuit.
In light of these developments, it is important for investors to approach the cryptocurrency market with caution. While there are certainly opportunities to be found, it is important to thoroughly research any potential investments and to be aware of the risks involved. This includes not only the potential for financial loss, but also the legal and regulatory risks associated with certain assets. In the case of XRP, it is essential to carefully consider the ongoing legal proceedings and the potential impact on the asset’s future.
