Galaxy Market Commentary:
Digital assets largely rose over October, with bitcoin adding 5.5% and Ether rising 18.4%. However, the bankruptcy of FTX sparked a punishing selloff in November, knocking bitcoin down 21% so far this month, while Ethereum has fallen nearly 26%. October’s economic data continued to suggest inflation remained hot, even as economic activity rebounded. Month-over-month CPI rose 0.4% in September as price increases persisted. Meanwhile, U.S. GDP expanded 2.6% in the third quarter, halting two consecutive quarters of negative growth, and the labor market remained strong, with the unemployment rate remaining below 4%.
Despite October’s gains, investors likely now see the month as the calm before the storm. In early November, FTX, one of the biggest crypto exchanges in the world, ran into a liquidity crisis that culminated with the firm filing for Chapter 11 bankruptcy protection in the U.S. FTX’s sudden failure reverberated throughout the digital asset market. Bitcoin, Ether, and other digital assets precipitously declined, equity investors marked their investments in the exchange to zero, and thousands of FTX clients suddenly lost access to their funds. Although events around FTX are still unfolding, details from its bankruptcy filing show that the company suffered from a lack of governance and oversight.
Now, investors are trying to assess the contagion from FTX’s collapse. So far, a redacted list of FTX’s top 50 creditors has been released, providing little insight. Headlines and rumors about crypto companies impacted by FTX’s will continue to reverberate throughout the market, making conditions volatile.
It’s important to remember that FTX’s collapse wasn’t the result of any issues with crypto itself. Bitcoin is working exactly as advertised. The best DeFi protocols are also working as intended. There are only two paths forward for the industry: 1) Fully decentralized like bitcoin and various DeFi protocols; and 2) Centralized entities operating in a more regulated, transparent fashion. Either path requires more regulatory work. But make no mistake, the lack of a clear regulatory framework in the U.S., which pushed companies offshore and encouraged opacity, was a major contributor to FTX and the industry’s other blowups in recent months.
We continue to see a bright future for digital assets over the longer term. We saw signs in November that inflation was slowing. A sustained pullback in inflation should allow the Fed and other central banks to ease up on rate hikes, bringing more liquidity into the system. We believe bitcoin and other digital assets will rally higher in that scenario. In addition, while recent events have had a negative effect on market price and sentiment our view is that the market is positioned for growth from a stronger foundation. We expect to see less leverage, better regulation, and more transparency during the next cycle which should create a more stable ecosystem as the market recovers.
Digital assets largely rose over October, with bitcoin adding 5.5% and Ether rising 18.4%. However, the bankruptcy of FTX sparked a punishing selloff in November, knocking bitcoin down 21% so far this month, while Ethereum has fallen nearly 26%. October’s economic data continued to suggest inflation remained hot, even as economic activity rebounded. Month-over-month CPI rose 0.4% in September as price increases persisted. Meanwhile, U.S. GDP expanded 2.6% in the third quarter, halting two consecutive quarters of negative growth, and the labor market remained strong, with the unemployment rate remaining below 4%.
Despite October’s gains, investors likely now see the month as the calm before the storm. In early November, FTX, one of the biggest crypto exchanges in the world, ran into a liquidity crisis that culminated with the firm filing for Chapter 11 bankruptcy protection in the U.S. FTX’s sudden failure reverberated throughout the digital asset market. Bitcoin, Ether, and other digital assets precipitously declined, equity investors marked their investments in the exchange to zero, and thousands of FTX clients suddenly lost access to their funds. Although events around FTX are still unfolding, details from its bankruptcy filing show that the company suffered from a lack of governance and oversight.
Now, investors are trying to assess the contagion from FTX’s collapse. So far, a redacted list of FTX’s top 50 creditors has been released, providing little insight. Headlines and rumors about crypto companies impacted by FTX’s will continue to reverberate throughout the market, making conditions volatile.
It’s important to remember that FTX’s collapse wasn’t the result of any issues with crypto itself. Bitcoin is working exactly as advertised. The best DeFi protocols are also working as intended. There are only two paths forward for the industry: 1) Fully decentralized like bitcoin and various DeFi protocols; and 2) Centralized entities operating in a more regulated, transparent fashion. Either path requires more regulatory work. But make no mistake, the lack of a clear regulatory framework in the U.S., which pushed companies offshore and encouraged opacity, was a major contributor to FTX and the industry’s other blowups in recent months.
We continue to see a bright future for digital assets over the longer term. We saw signs in November that inflation was slowing. A sustained pullback in inflation should allow the Fed and other central banks to ease up on rate hikes, bringing more liquidity into the system. We believe bitcoin and other digital assets will rally higher in that scenario. In addition, while recent events have had a negative effect on market price and sentiment our view is that the market is positioned for growth from a stronger foundation. We expect to see less leverage, better regulation, and more transparency during the next cycle which should create a more stable ecosystem as the market recovers.