(CapitalWatch, Nov. 23, New York | Opinion) After the industry's latest developments, cryptocurrency might be dead. But it was pretty much on life support, to begin with.
The supposed bastion of integrity and security in the cryptocurrency industry, FTX, came crumbling down faster than the fledgling digital currency sector rose to popularity.
Bitcoin and other forms of cryptocurrency have been around for decades, but until recently they remained a niche interest among tech enthusiasts.
Crypto started gaining traction around the onset of the Covid-19 pandemic. Major companies like Meta (Nasdaq: META) thrust blockchain and Web3 technology into the public eye, and an influx of new retail traders caused by pandemic stimulus checks and online virality created massive buzz around crypto.
Cryptocurrencies were already on the decline before the death blows dealt by a backsliding global economy. The onslaught of controversies and an industry-wide reputation of volatility started chipping away at cryptocurrency's massive popularity.
As dissatisfaction mounted, the economic downturn halted crypto's meteoric trajectory completely.
The cryptocurrency market overall has lost more than $1.4 trillion in value so far in 2022. Bitcoin, the eminent cryptocoin, has lost more than 66% of its value year-to-date. Its closest competitor Ethereum has lost over 70%.
High-profile thefts and scams that were made possible with cryptocurrencies also draw severe criticism of the entire system's security.
The fall of FTX uprooted more skepticism than ever. Bitcoin plunged to a two-year low on Tuesday, but edged up on Wednesday morning.
FTX's demise encapsulates the key problems that had been brewing in the cryptocurrency world. Over the past few weeks, reports in various media revealed tangled up accounting, unruly use of customer funds, missing or stolen assets, and other issues at FTX.
Earlier, Binance CEO Changpeng Zhao backpedaled on the buyout of FTX and said the exchange would be selling all its tokens of FTX's native digital currency.
Binance's decision triggered the exposition of the mismanagement within FTX.
FTX declared bankruptcy in a matter of days. After its initial Chapter 11 filing, the company was also reportedly hit by hackers who made off with at least $477 million in assets.
FTX has since reported in updated filings that it might have over one million creditors, and it already owes over $3 billion to its top 50 creditors alone.
Such volatility has pushed crypto beyond the limit of a risky bet. Although cryptocurrency once seemed to have massive potential, its lack of transparency and the long losing streak has decimated its already shaky reputation.
Less than a month ago, FTX was hailed as cryptocurrency's rock in the storm. Now, its demise might be among the most swift and severe collapses of a company in U.S. history.
Digital currency will almost certainly be a mainstay in the coming years, but a system built by largely clandestine creators with negligible regulatory obligations is practically doomed.
Considering the fraught state of crypto, and the fact that it's never been stable, to begin with, there's not much of a reason to take an immeasurable risk for a minuscule chance of reward.