Why Bitcoin, Ethereum, and Most Cryptocurrencies Dropped on Friday Morning

What happened

The week has been dominated by crypto exchange FTX’s rapid decline, and the week is ending with the biggest news of all. FTX Group has filed for Chapter 11 bankruptcy in the U.S., and that puts “approximately 130 additional affiliated companies” into the proceedings. This includes FTX.com and FTX US, which are separate entities.

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The impact on cryptocurrencies has been widespread. At 11:30 a.m. ET, Bitcoin (BTC -8.12%) is down 3.8% in the last 24 hours, Ethereum (ETH -6.57%) is down 4.9%, and Dogecoin (DOGE -10.46%) has fallen 8.8%. These are actually some of the best performers; tokens like ApeCoin (APE -15.60%) and FTX Token (FTT -31.17%) are down 12.1% and 26.4%, respectively.

So what

Investors are worried about two major impacts. The first is that some of FTX Group’s subsidiaries, like Alameda Research, will be liquidating assets, and that will likely push prices lower. That’s been happening all week, but it could continue for months as the companies are restructured.

Another big impact is customer funds potentially being frozen in FTX. Chapter 11 will restructure, rather than liquidate, the company, but we have seen with bankruptcies over the summer that customer funds can take months or even years to be paid back and may never be paid back in full.

A broad question this brings up is where there’s contagion, or risks tied to FTX, that we don’t yet know about. There could be other firms that face liquidity crunches or a lack of funding because of FTX’s downfall.

When a large financial institution like this falls, the market is often quick to sell and get answers to fundamental questions later. This time around, what we don’t have an answer to is whether this is a fundamentally devastating blow to the crypto industry. FTX was trusted by many individuals and institutions, including developers, so its downfall may lead many to leave the industry.