2022 has been a tough year for cryptocurrency, and November was especially tough for investors and traders.
While incredibly painful for many, the explosion of FTX and the contagion that threatens to drag down other centralized cryptocurrencies with it could be positive in the long run.
Let me explain.
What people learned, albeit in the hardest possible way, was that the exchanges used fractional reserve banks to finance their speculative, leveraged investments in exchange for providing users with a “guaranteed” return.
Anywhere on Cryptocurrency Twitter, “If you don’t know where the income is coming from, you are the income!” has an expression. floating around.
This was true for decentralized finance (DeFi) and it is also true for centralized cryptocurrencies and platforms.
Who would have known that a few untimely bank transactions would bring down the entire house of cards, proving that many are completely unable to fulfill users’ withdrawal requests, even though exchanges seem to have high returns and tons of tokens on their books?
They took your coins and pawned them to fund highly speculative bets.
They lock your coins in centralized DeFi platforms to generate income, some of which they promise to share with you.
When customers and platform users wanted to access their funds, they placed their user funds along with their reserves into stablecoins, Bitcoin (BTC) and Ether (ETH), illiquid assets that are difficult to convert.
Not your keys, not your coins.
Never has this statement been more true.
Let’s explore a few things that happened in the cryptocurrency market this week.
Investors have withdrawn a record number of coins from exchanges
As Cointelegraph reported earlier this week, cryptocurrency investors panicked and withdrew record amounts of Bitcoin, Ether, and stablecoins from exchanges.
Separate reports have shown a sharp rise in hardware wallet sales as investors realize the importance of keeping their portfolios to themselves.
If the number of bankruptcies and “temporary suspension of deposits and withdrawals” messages continue to appear over the next few weeks, this trend of coins leaving exchanges and entering hardware wallets is likely to continue.
with #Bitcoin just going beyond the stocks, we now have a ~5 year high in Sovereign Supply which is 87.7% of the total supply.
All $BTC Listed since January 2018, it has now been withdrawn.
— _Checkɱate ⚡☢️️ (@_Checkmatey_) November 18, 2022
DEXs and DeFi have seen a surge in inflows, perhaps a sign of things to come
Cointelegraph also reported a surge in decentralized exchange (DEX) activity and inflows into DeFi at the same time as record exits from exchanges. After the events of the last two weeks, trust in centralized exchanges and crypto companies may be shattered, and the current and next wave of crypto investors may embrace more Web3-oriented DEX and DeFi protocols.
Of course, DeFi and DEXs need a more transparent framework and processes to ensure that user funds are safe and “properly” used.
Related: DeFi platforms see gains amid FTX collapse and CEX exit
A steady stream of bad news can present a wonderful opportunity
Currently, the price of Ether looks a bit soft from a technical analysis, and the recent news about the FTX thief holding the 31st largest Ether spot position, plus concerns about censorship, centralization, the United States Office of Foreign Assets Control, this “whale ” ” and FTX and other Ethereum-based protocols with exposure to Alameda or proximity to bankruptcy may incite some FUD affecting the price action of the altcoin.
Top 10 addresses with the largest ETH holdings:
– 6 are wallets linked to CEX
– Jump Trading is third with just over 2 million ETH
– @arbitrum Bridge with ~750K ETH
– ETH Staking & WETH contract has more than 19 million ETH
Hoping to see less CEX listed after a year pic.twitter.com/S1HHi5swnN
— Martin Lee | Nansen (@themlpx) November 18, 2022
Uncertainty about when the Shanghai upgrade will take effect and concerns about when invested coins can be withdrawn are also interesting conversations that could change the short-term sentiment towards Ether.
The thesis is quite simple. ETH held its support around $1,200-$1,300 pretty well throughout the previous months of the bear market, but will the aforementioned potential issues lead to a retest of the level?
Stackers are inherently long and take profits, so at this point it may be rewarding to open a low-level short position by taking profit orders of $700-$600.
This newsletter is written by Big Smokey, author of The Humble Pontificator Substack and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will write market insights, trends, analysis and early research on potential emerging trends in the cryptocurrency market.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading action involves risk, you should do your own research when making a decision.