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Market Rout Was Needed to Tame Euphoria, Says FTX CEO

2 mins
Updated by Ryan James
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In Brief

  • FTX boss is optimistic that, barring any exogenous disturbances, the crypto market rout will be over soon.
  • He believes that trust is crucial when choosing which companies to invest in.
  • He is noncommittal on Ethereum's future, but sees regulation as a path to bitcoin's recovery.
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FTX CEO Sam Bankman-Fried (SBF) believes the worst of the crypto winter is over as long as no macro shocks ensue.

If the Nasdaq drops 25%, interest rates continue to increase, and a two-and-a-half-year recession occurs, then a bitcoin price of $10K to $15K is a reality, SBF cautioned. If that happens, SBF says, there could be further devastation.

SBF’s FTX has weathered the better part of a somewhat chilly winter that has left some companies out in the cold and exposed. Voyager Digital, Celsius, Babel Finance, and Three Arrows Capital have all experienced a shock freeze that has left some investors desperate to recover deposited funds.

Market rout not over, says SBF

Bankman-Fried believes that a small part of the cryptocurrency market rout has yet to occur and that it will be manageable. The rout began after the collapse of the algorithmically-backed TerraUSD stablecoin, a type of cryptocurrency pegged to a fiat currency using reserves or algorithmic means.

The founder of Frax, a stablecoin partially collateral-backed and partially algorithmic, believes that the collapse of another stablecoin is unlikely in the current crypto winter. By holding exogenous assets as collateral, this is “literally impossible,” Sam Kazemian told Be[In]Crypto in an exclusive interview.

SBF said that the winter was necessary to sift out those investing in crypto without deliberately considering an asset’s actual value. He says that kind of “ungrounded” thinking only works during periods of euphoria in the market.

SBF has poured money into ailing cryptocurrency firms in what he says is a bid to protect customer assets and prevent the adverse effects of interconnected lending from spreading. Additionally, he said, FTX considered closing deals that were not catastrophic but not optimal either. This spending spree by FTX drew comparisons to the roles played by banks like JPMorgan Chase, which acted as a lender of last resort to banks during the 2008 financial crisis.

One of the deals FTX and SBF saw as favorable was BlockFi, to which it extended a $400 million credit line as the lender struggled to meet liquidity demands. It has an option to buy the company for $240 million.

In May, SBF bought a 7.6% stake in Robinhood Markets as the brokerage’s share price took a beating in the spring. In addition, he loaned crypto lender Voyager Digital $200 million and 15,000 bitcoins. The company used $75 million, then filed for bankruptcy in May 2022.

He said that the lack of trust between cooperating companies makes any business between them costly, which he wished he knew more about before venturing out on his own.

Bitcoin going to $100K is pushing it

Speaking about Ethereum, SBF shied away from making any price predictions associated with the upcoming merge. Vitalik Buterin said that he doesn’t anticipate any proof-of-work forks to disrupt the merge that would see Ethereum’s consensus layer change to proof-of-stake. He added that he hopes people don’t lose money.

Regarding bitcoin, SBF’s sentiments are cautiously optimistic. He believes that the environment of greater regulatory transparency accompanied by a recovery in price will aid bitcoin’s ascent to greater heights. However, $100k may be a bridge too far.

At press time, bitcoin was $23,172.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...