3 reasons why the FTX fiasco is bullish for Bitcoin

The "Bitcoin-is-dead" pack is backmost and astatine it again. The autumn of the FTX cryptocurrency speech has resurrected these infamous critics that are erstwhile again blaming a robbery connected the wealth that was stolen, and not the robber.

"We request regulation! Why did the authorities let this to happen?" they scream.  

For instance, Chetan Bhagat, a renowned writer from India, wrote a elaborate "crypto" obituary, comparing the cryptocurrency assemblage to communism that promised decentralization but ended up with authoritarianism.

Perhaps unsurprisingly, his file conveniently utilized a melting Bitcoin (BTC) logo arsenic its featured image.

— Chetan Bhagat (@chetan_bhagat) November 15, 2022

Bhagat should person picked a much close representation for his op-ed (melting FTX (FTT) Token?), peculiarly aft looking astatine Bitcoin's decade-plus past that has seen it surviving adjacent nationwide bans. This includes 465 466 obituaries since its debut successful 2009 erstwhile it traded for a fewer cents.

Bitcoin show since debut. Source: TradingView

The FTX/Alameda's illness is akin to erstwhile bearish trigger events like Mt. Gox successful 2014. Therefore, this nonaccomplishment of centralization volition erstwhile again underline what makes Bitcoin special, and wherefore FTX is the other of Bitcoin and decentralization. 

Moreover, the incidental should besides boost maturation and improvement of in, non-custodial exchanges for Bitcoin that volition assistance trim dependency connected trust. 

FTX whitethorn person had zero Bitcoin successful custody

Traders responded to FTX's shocking illness by pulling their BTC from custodial exchanges. Notably, the full magnitude of Bitcoin held by each exchanges dropped to 2.07 cardinal BTC connected Nov. 17 from 2.29 cardinal BTC astatine the opening of the month.

United States-based exchanges saw the biggest outflows, successful particular, with users withdrawing implicit $1.5 cardinal successful BTC successful the past week alone. 

Bitcoin reserves crossed each exchanges. Source: CryptoQuant

On Nov. 9, FTX halted withdrawals of each cryptocurrencies, including Bitcoin, raising suspicions that the speech did not person capable reserves to conscionable the demand.

That was further evident successful a leaked FTX equilibrium sheet that showed the speech having zero Bitcoin against its $1.4 cardinal liabilities successful BTC. In different words, FTX enabled fractional-reserve Bitcoin trading. 

"This is, connected the 1 hand, atrocious for you arsenic you volition lone find retired if they person been swimming bare erstwhile the speech implodes, accompanied by you losing each your funds," Jan Wüstenfeld, writes autarkic marketplace analyst. He adds:

"On the different hand, this artificially increases the bitcoin proviso successful the short-run, suppressing the terms and preventing existent terms find [...] Yes, I cognize these are not existent bitcoin, but arsenic agelong arsenic the exchanges issuing fake paper, Bitcoin remains operational, the effect is there."

Thus, FTX's little-to-negligible vulnerability to Bitcoin perchance reduces Its likelihood of selling immoderate remaining funds to rise liquidity. 

The incidental is besides apt to nutrient a caller cohort of Bitcoin hodlers by forcing radical to not support their funds connected risky exchanges and signifier self-custody. While a decreasing magnitude of BTC connected exchanges means less coins disposable to sell.

Sam Bankman-Fried was anti-Bitcoin

FTX laminitis Sam Bankman-Fried (SBF) was the Democrats' 2nd biggest donor aft George Soros for the midterm elections, giving astir $45 cardinal to lobby for crypto regulations that would allegedly payment his firm.

Related: US crypto exchanges pb Bitcoin exodus: Over $1.5B successful BTC withdrawn successful 1 week

But speculations are ample that SBF attempted to tarnish Bitcoin's maturation done the U.S. lawmakers,  arsenic good arsenic quality articles, wherever helium downplayed Bitcoin arsenic an businesslike outgo system.

— Bitcoms (@bitcoms) November 15, 2022

Other commentators person besides pointed retired a transportation betwixt SBF and anti-crypto U.S. Senator Elizabeth Warren, noting the former's father, Joseph Bankman, helped the person draught taxation authorities successful 2016. 

— Ryan Shea (@ryaneshea) November 15, 2022

SBF's power among U.S. lawmakers is present gone with him facing potential transgression charges for illegally utilizing lawsuit funds for FTX trades. 

Press "F" to flush 

Past cryptocurrency marketplace downturns person roots successful the failure of centralized players arsenic good arsenic "altcoins" that yet ended up being a money-grab. 

FTX's token FTT is just the latest example. Other failed projects that triggered a marketplace downturn conscionable this twelvemonth see the Defi lending level Celsius Network (CEL) and Terra (LUNA). 

— Nayib Bukele (@nayibbukele) November 14, 2022

Created and operated by centralized entities, the proviso of these tokens, and truthful price, becomes susceptible to manipulation: undisclosed pre-mine allocations, insider VC deals, tiny interval vs. full supply, you sanction it.

It is vulnerability to specified (crap) tokens, peculiarly successful the signifier of collateral, that yet drove crypto hedge funds Three Arrow Capital, FTX's sister steadfast Alameda Research, and many others to the ground.

"In our view, the bubble successful crypto that popped this twelvemonth was successful the ambiance of tokens being created conscionable for speculative purposes," noted BOOX Research, adding:

"While we tin statement which cryptos are 'bad wealth driving retired the good', FTT and LUNA are conscionable 2 examples everyone tin hold should not person existed."

Therefore, a marketplace flush of altcoins that should not person ever existed, FTT included, whitethorn further fortify investors' spot successful Bitcoin. Early information is showing the same, with CoinShares reporting an inflow uptick into Bitcoin-based concern funds. 

Notably, Bitcoin-based concern vehicles attracted $18.8 cardinal to their coffers successful the week ending Nov. 11, bringing its year-to-date inflows to $316.50 million.

Flow by asset. Source: Bloomberg/CoinShares

"The inflows began aboriginal successful the week connected the backmost of utmost terms weakness prompted by the FTX/Alameda collapse," noted James Butterfill, caput of probe astatine CoinShares, adding:

"It suggests that investors spot this terms weakness arsenic an opportunity, differentiating betwixt 'trusted' 3rd parties and an inherently trustless system."

Meanwhile, Bitcoin is not witnessing a illness successful request successful the existent carnivore marketplace compared to 2018, on-chain information reveals.

The fig of non-zero Bitcoin addresses has continued to ascent contempt the terms downtrend, hitting a grounds precocious of 43.14 cardinal arsenic of Nov. 16.

Bitcoin addresses number with a non-zero BTC balance. Source: Glassnode

In comparison, the 2018 carnivore marketplace saw a important driblet successful the fig of non-zero Bitcoin addresses, suggesting traders person go comparatively much assured astir a terms recovery, particularly arsenic the FTX domino effect clears retired the dormant wood.

The views and opinions expressed present are solely those of the writer and bash not needfully bespeak the views of Cointelegraph.com. Every concern and trading determination involves risk, you should behaviour your ain probe erstwhile making a decision.