Cryptocurrency industry leaders are also warning investors against buying the dip.
With cryptocurrency prices so low, it might seem like a good time for first-time buyers to invest, after leading industry figures like Microstrategy’s Michael Saylor and Tesla’s Elon Musk popularized the “buy the crypto” trend. dip” this year.
But the market is experiencing unprecedented turbulence right now after last week’s sudden implosion of FTX, one of the largest cryptocurrency exchanges, and the fall from grace of its founder and former CEO Sam Bankman-Fried, a former hero for cryptocurrency insiders. Combined with a crypto winter that has dragged cryptocurrency prices lower since last spring, the market is filled with uncertainty and low consumer confidence.
For this reason, novice investors without abundant disposable income and who are not prepared to lose money should steer clear of cryptocurrencies at this time. At least, that’s the advice of one of the industry’s most powerful remaining players.
“You shouldn’t invest in cryptocurrencies if you are using money that you need for next week or next month, you should only use discretionary money that you don’t need for a long time,” Changpeng Zhao, CEO of Binance, the largest cryptocurrency exchange cryptocurrency, he said in a Ask me anything session broadcast live on Twitter on Monday.
Zhao warned that the market is in a period of “high volatility and unpredictability” following the FTX crash and the collapse of confidence in cryptocurrencies, making it particularly unfavorable for inexperienced investors or investors lacking ample funds.
“Unless you’re very experienced, very mature, very confident and able to manage risk, I would advise most people to hold off for this amount of time,” he said.
The spectacular crash of FTX has sparked a showdown in the cryptocurrency world. Last week, investors withdrew more than $6 billion worth of Bitcoin and Ether, the two most popular cryptocurrencies, from exchanges following the meltdown, according to blockchain analytics firm CryptoQuant. And to top it all off, between $1 and $2 billion in funds stored with FTX disappeared over the weekend. Reuters reported, an intrusion that may have been the result of a hack.
FTX’s crash is the latest in a string of high-profile crypto failures this year that have also included lending platforms Celsius and Voyager Digital. Overall, the cryptocurrency industry has lost over $2 trillion in value since the cryptocurrency market capitalization hit an all-time high in November 2021.
Cryptocurrencies’ dire straits have encouraged longtime skeptics to vent their frustrations with the technology, including leading US financial regulation advocate Dennis Kelleher and Berkshire Hathaway Vice President Charlie Munger, Warren Buffett’s right-hand man who in he had previously likened cryptocurrency to a “venereal disease.” Critics such as Kelleher and Munger have advised against investing in cryptocurrencies for years, citing its volatility, speculative nature and the opaque tendencies of crypto companies.
During his AMA, Zhao also attempted to distance himself from Binance over allegations of mishandling of client funds that would have made FTX subject to federal investigations by the Department of Justice and the Securities and Exchange Commission. You said that users should continue to trust Binance as the company would “never take users’ resources to give to third parties,” as FTX and Mr. Bankman-Fried have been accused of doing.
“We have no loans. We have no debts. We don’t owe anyone any money. We also did not lend from the platform,” Zhao said.
Despite the recession, Zhao insisted last week that the cryptocurrency market can still “heal itself,” especially with the help of more regulation, a view shared by many other industry leaders.
Monday, Zhao announced tweeted a new “industry recovery fund” on Binance that would help fund and support promising cryptocurrency-related projects that are facing liquidity issues or otherwise affected by the knock-on effects of the FTX crash. “Cryptocurrencies will not disappear. We are still here. Let’s rebuild,” she wrote.
Last week, Zhao and Binance nearly bailed out FTX as it faltered in offering to buy the company. But after reviewing the company’s books and finding financial problems, Binance withdrew its offer. Bankman-Fried later said he assumed Zhao and Binance never actually planned to buy FTX, according to New York Times report released on Monday.
“I shouldn’t be throwing stones at a glass house, so I’m holding back a bit,” Bankman-Fried wrote in a message to employees reported by the Times. “Just to say: they probably never really planned on going through with the deal.”