What Now for Bitcoin After the FTX Debacle?

When I started on the first version of this column a week or so ago, it began with the sentence: “And then bitcoin shrugged…” 

My original column idea was that in the face of yet another 0.75 percentage point interest rate hike by the Federal Reserve, the granddaddy of crypto all but kicked back, grabbed a Mai Tai, and fell asleep in the hammock as stocks and bonds sold off.  

Basically, bitcoin shrugged off the Fed rate hike since its price barely moved…which is nascent proof that bitcoin is A) disengaging from movements in the stock and bond market, and B) bitcoin is predicting an end to the Fed’s rate-hike exuberance. 

But I had to throw that column out the window because along came a bushy haired 30-year-old—his head filled with dreams of fraud—to upend bitcoin’s hammock and pretty much the entirety of the crypto market. 

If you’ve seen any financial news of late, you’ll know I’m talking about the story of Sam Bankman-Fried, commonly known as SBF, and the crypto-exchange he founded, FTX. 

FTX had quickly risen to become the #2 crypto-exchange in the world. But recently rumors began to swirl that all was not right with the exchange. Concerns emerged about the company’s liquidity and that it was lending consumer funds to its affiliated crypto-trading fund, Alameda Research. This prompted the world’s No. 1 crypto exchange, Binance, to sell a large position it held in FTX’s in-house cryptocurrency called FTT, which prompted a run on FTT. Consumers then rushed to withdraw funds from FTX and the exchange was forced to file for bankruptcy.  

But this column is about bitcoin, so let’s return to our storyline. 

What happened with FTX/SBF was a shock to the cryptoconomy. It’s a black swan. Totally unexpected, given the stature of Bankman-Fried and the FTX exchange across the global crypto ecosystem. That said, it had nothing to do with bitcoin (or Ethereum…or a broad range of other cryptocurrencies). 

The aftermath—robust legislation that’s sure to emerge quite soon—is actually a silver lining for crypto. The industry has a Wild West aura, as FTX/SBF have proven. Legislation, however, will temper that dramatically as exchanges, cryptocurrencies, and crypto-based projects come to heel under new rules aimed at protecting investors and halting these kinds of frauds. 

And that’s really good news. 

Because it will tell the masses that the waters are a lot safer. And once the waters are safer and mass adoption ramps up, the first place that investors will go is bitcoin because of its status as the Big Kahuna in the cryptosphere. 

That’s one of the reasons I’ve been in bitcoin accumulation mode recently, and the FTX debacle has simply made my entry prices cheaper. Not that I’m happy, but I am at least OK with that impact because I’m playing the long-game here. 

Now, as I always say, crypto is a risky space. I never invest more than I can afford to lose…and no one else should either. 

But the way I see this, we’re at a point where the risk-reward ratio leans heavily toward reward because so much risk has drained out of bitcoin in the past year. That’s not to say prices can’t weaken. Sure, they can. But given the ramping interest in crypto among global governments, major global banks, and major global corporations, I have no concern about bitcoin’s future. 

Events like FTX annoy the hell out of me, for sure. I hope SBF and everyone who was part of FTX steps barefooted on a Lego every day for the rest of their lives. 

But black swans drop to earth, and in time they fade away. For a short period of time in the early days, lawmakers and industry players scream and holler, and investors, as always, suffer the blows.  

Yet, normalcy always returns. Low prices become all-time highs. And those who looked past the disaster du jour will pocket huge gains. 

So, I’m going back to that original sentence I planned to write: “And then bitcoin shrugged.” 

While that was originally tied to the Federal Reserve, it equally fits the tenor of this moment. Bitcoin will ultimately shrug off FTX and SBF. It may be hard to see it in the moment, but this is another pothole on the road to six- and then seven-figures.