Report: The Damage Caused By FTX Was Worse Than Initially Thought

No doubt the FTX debacle and the arrest of its founder and chief executive Sam Bankman-Fried will go down as some of the biggest problems to ever strike the crypto space, but according to a new report, it appears the damage caused by FTX and its irresponsible (and selfish) employees may have been even greater than what analysts initially thought.

The Trouble Surrounding FTX Might Have Done More Damage

The document in question suggests that as much as $200 billion was wiped off the crypto slate due to the issues surrounding FTX. In addition, losses weren’t felt equally by investors, and those involved in the platform experienced varying levels of pain and financial destruction.

The report shows retail investors as being hit the hardest. This data stems from the Bank for International Settlements (BIS), and most customers hailed from regions like India, Pakistan, Thailand, Brazil, and Turkey.

From this end, it’s estimated that about 80 percent of these retail investors would have lost even more money if they had used an FTX digital trading app, which several did. This ultimately put them at more risk due to the space’s ongoing volatility. The document says:

The median investor would have lost $431 by December 2022, corresponding to almost half of their total $900 in funds invested since downloading the app. Notably, this share is even higher in several emerging market economies like Brazil, India, Pakistan, Thailand, and Turkey. If investors continued to invest at a monthly frequency, over four fifths of users would have lost money.

BIS says that many of the investors that began using the app likely purchased as much as $100 in BTC each on the same days that the apps were downloaded. From there, it’s also believed that they engaged in regular, monthly trades of equal or greater amounts. The report says:

These patterns highlight the need for better investor protection in the crypto space.

The good news is that while crypto has no doubt been affected by the horrors of FTX, the traditional financial space wasn’t. However, BIS says that if crypto regulations are not set in stone, those that want to see cryptocurrencies and the standard monetary arena mix will likely see all money hurt in the future should situations like those surrounding FTX arise again.

BIS: Crypto Needs to Be Regulated

The document reads:

Our analysis also suggests that the steep decline in the size of the crypto sector has not had repercussions for the wider financial system so far. However, if crypto were more intertwined with the real economy and the traditional financial system, the aggregate impact of a shock in the crypto world could have been much larger.

FTX was considered the golden child of the digital currency industry and was one of the top five crypto exchanges in the world before collapsing last November.

Tags: BIS, crypto, FTX

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