What the Reaction to the FTX Saga Says About Bitcoin

In May of this year, after bitcoin had dropped from its highs of around $60k to about half that, I wrote an article deriding those who, at that time, were saying that that move signaled the “end of crypto.” I said then that they were wrong, just as they had been wrong when they said the same thing back in 2014 when I started to write here on the subject, when BTC/USD was in the hundreds, and on every occasion after that when BTC/USD dipped. I noted that Bitcoin could and probably would go lower, but the fact that it was responding to fundamental influences such as higher interest rates and lower growth expectations proved that it was a legitimate tradeable asset.

Over the last few weeks, as the FTX saga has unfolded, those same people have come out again, saying that the foolish or possibly criminal actions of one player in the market proved their point. Did they also say that the actions of Lehman Brothers in 2008 proved that the dollar was worthless, or that Enron indicated that all energy futures were going to zero? Of course not. That would be ludicrous, just as it is to say Bitcoin or crypto in general “caused” Sam Bankman-Fried to act as he did. And yet some well-respected people have been doing just that, blaming the actions of an individual and a corporation on the tools they used.

In yesterday’s interview with CNBC’s Andrew Ross Sorkin, SBF came across as more naïve and foolish than evil or corrupt. That could, of course, be a deliberate PR ploy, or it could be true. There is no way of knowing what is really in his heart but whatever it was, the story of somebody fumbling or scheming their way to an epic collapse is a human one, not a Bitcoin-specific one. The modern-day Gordon Gekkos and Jordan Belforts are more nerdy than flashy, but their motivations and mistakes are the same.

So, what does all this say about Bitcoin?

If anything, Bitcoin’s moves in the light of what happened and the contagion that is still unfolding prove the point I made in May: that it is volatile, as young markets tend to be, but that there is an underlying stability to it that is actually quite encouraging.

On this drop, BTC/USD has flirted with the $16k level several times and, this morning, has bounced back above $17k. That indicates that maybe we have found a bottom, at least in the short-term. The timing of the bounce, however, suggests that it is in response to a more dovish tone from Jay Powell in his speech yesterday which, once again, shows that BTC is responding to the kind of fundamentals that influence all risk assets. That may not please some Bitcoin maximalists who believe that it should exist outside of the existing monetary system and not be influenced by anything to do with centralized finance, but it is further proof that Bitcoin is all grown up.

As to where we go from here, the most likely scenario seems to be that the bounce continues, with a retracement back to the psychologically important $20k level very much on the cards. That, however, will depend on mundane, non-crypto things like CPI data and the Fed’s decisions and actions and, for those of us who view crypto as a commodity rather than a weapon with which to attack the financial system, that isn’t a bad thing at all.

* In addition to contributing here, Martin Tillier works as Head of Research at the crypto platformSmartFI.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.