Crypto Contagion: What Is It And How Did It Spread After FTX Collapse
In the world of cryptocurrency, it is important to stay up-to-date with the latest news and developments. With the recent collapse of FTX, a popular exchange, many investors are asking questions about what this means for their portfolios. In this article, we explore Crypto Contagion - what it is and how it's spreading after FTX's collapse.
What is Crypto Contagion?
Crypto contagion is the name given to the domino effect that can happen when one cryptocurrency exchange collapses. The term was first used in 2018 when a number of smaller exchanges shut down after being unable to cope with the influx of new users and investors during the Bitcoin bull run.
The most recent example of crypto contagion occurred in May 2019, when the world's fourth largest cryptocurrency exchange, Binance, was hacked for 7,000 BTC (worth around $40 million at the time). The hack caused a ripple effect throughout the industry, with many other exchanges and services halting withdrawals and deposits as a precautionary measure.
This is because investors often sell off their assets in times of market uncertainty.
Crypto contagion can have a serious impact on the cryptocurrency industry and its participants. That's why it's important for investors to be aware of the risks involved and to exercise caution when trading or investing in digital assets.
Why Did It Spread After FTX Collapse?
When FTX collapsed, the crypto markets went into a tailspin. The price of Bitcoin (BTC) plunged by over 10%, taking the entire market with it.
But why did this happen?
There are a few theories:
Theory 1: The FTX Collapse Triggered a cascade of stops
When FTX collapsed, it triggered a wave of stop-loss orders that further drove down prices. This theory makes sense because we saw a similar event happen during the Mt. Gox collapse in 2014.
Theory 2: The FTX Collapse Made Investors Panic
When FTX collapsed, it spooked investors and caused them to sell their holdings en masse. This theory is supported by the fact that we saw heavy selling pressure after the collapse.
Theory 3: The FTX Collapse Caused a Liquidity Crisis
When FTX collapsed, it created a liquidity crisis in the market. This theory is supported by the fact that we saw spreads widen and trading volumes dry up after the collapse.
How to Avoid the Spread of Crypto Contagion
As the world moves increasingly towards a digital future, it's important to be aware of the potential risks that come with new technology. One such risk is known as crypto contagion, which refers to the spread of financial instability through the use of digital currencies.
Crypto contagion first made headlines in March of 2020 when the popular cryptocurrency exchange FTX collapsed. The collapse of FTX caused a domino effect that led to the downfall of other exchanges and left investors scrambling to recoup their losses.
So how can you avoid being caught up in a crypto contagion? The best way to protect yourself is to diversify your investment portfolio and not put all your eggs in one basket. That way, if one market crashes, you won't lose everything.
It's also important to keep an eye on the news and stay up-to-date on what's happening in the world of cryptocurrency. By being informed, you'll be able to make better decisions about where to invest your money.
If you do find yourself caught in the middle of a crypto contagion, don't panic. Stay calm and follow the advice of financial experts. With careful planning and a bit of luck, you should be able to weather the storm and come out unscathed.
Conclusion
The crypto contagion has had an immense impact on the cryptocurrency markets, with some cryptocurrencies being affected more than others. It is important to understand that this phenomenon can happen again in the future and affect other assets as well. As such, investors must stay vigilant and do their due diligence before investing in any asset. With a bit of research, it's possible to identify which cryptos are most vulnerable to crypto contagion and take appropriate steps to protect yourself from its effects.