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SBF looks back at two crashes in crypto history: Coinbase, FTX, and the future of the crypto world

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People don't set up businesses to survive Bitcoin's "zero", so where's the balance? What is the company's plan?

SBF looks at two crashes in crypto history: Coinbase, FTX, and the future of the crypto world

Originally written by SBF, founder of FTX

Just over a year ago, the crypto world had its worst day!

The price of bitcoin fell from $8,000 to $3,500, plunging about $4,500 before stabilising above $5,000.

The industry is almost over, maybe.

Why is that?

When people make business decisions, they need the ability to recover. No one wants to have their company liquidated. But if the price of bitcoin does go to zero, many crypto companies will be in trouble.

The bulls have disappeared, for example, many miners.

Why is that? Well, they have future earnings (BTC), assets (BTC in most cases), and expenses (negative USD/RMB etc.).

Clearly, there are still many wavering traders. And other companies you might not have guessed.

People don't build businesses to survive a Bitcoin "zero," which of course isn't going to happen. So where is the balance? What is the company's plan?

Well, practically speaking, about 20% of the companies mentioned, "If the price of Bitcoin is greater than $4,000, we're fine."

At the time, the price of Bitcoin was $8,000, and it had not yet fallen below $4,000. Then, on March 12, Bitcoin fell below $4,000 due to a massive liquidation. About $100 billion in market value disappeared overnight. Some companies are doing this all of a sudden...... Finished.

This sucks.

There is also lending (on and off the exchange floor), corporate relationships, income and cash flow...... If 20 per cent of companies have non-performing loans (as they did in 2008), then the other 10 per cent are likely to have some of the same problems. Then there will be more people who will not be able to reap the benefits due to the decline of this 30% of companies and crypto assets.

Stops turn into massive liquidations, and over the longer term, ripples set off waves as the industry changes.

The FTX saw its highest trading volume ever that day, about $5 billion. We didn't celebrate. It looked like we were bringing champagne to a funeral.

Anyway, the crypto world is back and all is well. Then, a year later, the same slump happened again this weekend. The price of bitcoin went down by $12,000, and nearly $500 billion of the global crypto market was wiped out.

The crash was three times the size of last year's, with about $10 billion being cleared and hundreds of billions of dollars in trading. Last time it was very dangerous, almost at the end of the crypto world. This time... More or less everything is OK.

Why is that?

This is partly because prices have fallen by a relatively low percentage. But it's also partly because:

* In the crypto world, no one is trying to start a company that will go out of business if BTC drops to $50,000.

Whatever your long-term view of the market, a return to $50,000 is entirely possible. We were in this position a few weeks ago. Even those who are "irresponsibly bullish" usually gain more when BTC goes up to $50,000 than they lose when BTC goes down to $50,000.

Although the market value has fallen, the industry is still doing business and no one is too worried. And, partly for that reason, the price of Bitcoin has risen by half since its nadir. The reckoning is over.

The FTX broke records again today, with trading reaching $30 billion.

Do you see the daily volume on the chart around March 12? What is that, ant volume?)

But this time, we can take a step back and think, because the industry (and the world, too!) isn't in a big way yet.

So does the FTX. Last year the FTX, like most exchanges, suffered major outages. Starting on March 12th last year, it took FTX several weeks to clear the backlog.But this time around, FTX has had no downtime at all, and thanks to recent improvements, FTX's latency is at an all-time low.

Overall, the industry is handling it better, and FTX in particular has seen significant growth over the past year.

Trading volume on the FTX has risen by 8,000% in the past year, the fastest of any major exchange. Even since the end of 2020, FTX has seen the fastest growth.

The correlation between cash exchanges and net inflows/purchases of crypto assets is "extremely high". Both Coinbase and Kraken are good choices when it comes to using dollars to buy bitcoin. But when people trade back and forth, derivatives exchanges are a better place to be.

Both Coinbase and Kraken had "fantastic" Q1 performances: unprecedented inflows. So does that mean the second quarter is going to be bad?

Not really - their volumes will probably be flat from the first quarter, or down slightly. But other trading platforms will go up a lot; That's about 1.5-2 times what it was in April!

. So what happens next?

I didn't know!

It depends on what the crypto world and exchanges look like in the future. Are they the main mechanism for people to convert fiat money into bitcoin? Or trading, risk, increment, capital of the core trading platform? We will also share more details when the financial information comes out.

The FTX's turnover rate rose by another single digit in April. My guess is that Binance will go up a lot as well. There are also exchanges that are attacking local platforms (e.g. Upbit and Bithumb in South Korea).

Finally, I posted a cryptic chart earlier, and most of the guesses were "Dogecoin volume". That's not entirely true, but it's not a coincidence either. Doge is indeed the biggest mover in the history of this chart.

Finally, there is a small interlude.

FTX has grown a lot! It now trades about $20 billion a day, more than three times as much as Coinbase. FTX's users are also growing, up about 3,500% since 2019, but still less than 2% of Coinbase's.