As per Bloomberg, crypto daily trading volumes dropped by 50% following FTX's collapse.
The repercussions from SBF's once $32 billion empire FTX is putting a dent in market sentiment.
Insider spoke with four crypto experts about the future of the sector.
Digital asset empire founded by Sam Bankman-Fried, cryptocurrency trading volumes fell by 50%.
The daily average trading volumes on centralized exchanges fell from $26.7 billion to $13.1 billion in just one month, as per a Bloomberg report. Platforms such as Coinbase, Binance, Kraken, OKX, and Bitfinex are a few examples.
The drop in trading volumes comes at a crucial moment in the industry's prolonged and brutal bear market. As per reports, the cryptocurrency market cap has lost about three-fourths of its value since last year, with bitcoin and ethereum down 75% from record highs in November 2021.
Following FTX's demise, user trust in exchanges is also being questioned. "The FTX crash brings us back to reality," said Shaban Shaame, founder and CEO of blockchain game startup EverDreamSoft. "Cryptocurrency is a very new industry. It's the [Wild] West, where anything is possible but also full of evil individuals and a lack of regulations."
FTX lost $8 billion in customer deposits after a Coindesk analysis revealed that the exchange's native token FTT was used to prop up SBF's sister trading firm Alameda Research. The trading titan's balance sheet, which once included $14.6 billion in assets, was mostly made up of a cryptocurrency issued by its sister company — not an independent asset like fiat currency.
This set off the alarm. Swarms of investors fled the exchange and liquidated their FTT holdings all at once, resulting in the bankruptcy of FTX and 130 other related firms last month.
Investors may continue to desert other centralized exchanges, according to Shaame, and park their assets in non-custodial wallets, or ones that allow users to control their funds independently of exchanges.
Regardless, the sector will go down one of two possible roads, he noted.
"Either it will be extensively regulated like the old finance business or it will be more decentralized. Exchanges are like the banks of the old world, people are trusting them with their money and no one audits them, "Shaame stated. "A trustless solution, such as decentralized exchanges, exists, but it is insufficiently mature to serve all use cases."
Shaame added: "The decline in trade demonstrates that individuals are becoming aware of the mantra 'not your key, not your currency' and moving to non-custodial exchanges."
FTX contagion might also filter out bad industry participants in the future, another blockchain gaming exec thinks, setting up the sector for success in the next market cycle.
"Many bull market retail investors have exited the market, resulting in significantly lower trading volumes," said Andreas Christensen, founder of blockchain gaming startup SuperOne. "Investors' fear will endure until the next boom when demand for high-quality, transparent, and compliant operators will skyrocket."
Christensen added: "In such a weak bear market, a massive illegal conduct like SBF committed with FTX will have a serious impact on market sentiment and trade volumes."
According to Phil Wirtjes, head of a strategy at digital asset trading platform Enclave Markets, given the current upheaval, investors are "risk averse" while they assess how far contagion may extend.
"Credit lines drying up and lack of faith in centralized venues are driving weaker liquidity, but we wouldn't be shocked to see volumes go up once certainty is returned into markets," Wirtjes added.
Lastly, institutional and retail investor sentiment will continue to suffer as a result of the FTX debacle, calling the industry's credibility into question, according to a leading economist at BTCM.
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