Impact of FTX Collapse on Bitcoin Prices: An Analysis of Q4 2022

Bitcoin’s Rollercoaster Ride: FTX and Beyond

The collapse of the cryptocurrency exchange FTX in late 2022 sent shockwaves through the market, resulting in a predicted 25% drop in Bitcoin’s price. While many may be tempted to pin this on macroeconomic variables, the reality is far more intriguing. A recent report by Messari suggests that the FTX debacle had a much stronger impact on Bitcoin than the typical factors like rate hikes.

A 25% Drop: FTX’s Historical Impact

The aftermath of FTX’s collapse was nothing short of spectacular—if you consider spectacular to mean catastrophic. Bitcoin, dubbed the gold standard of crypto, saw its price tumble as traders scrambled to process the fallout. This decline was largely attributed to a mass sell-off and loss of confidence in centralized exchanges.

Macroeconomic Events Takes a Backseat

The report also shed light on how the changes to the federal funds rate scarcely nudged Bitcoin’s price compared to the FTX incident. Despite various rate hikes, neither a 75 nor a 50 basis-point increase managed to stir the Bitcoin pot significantly. It seems that traders were more focused on the unreliability of exchanges than interest rate adjustments.

Growing Ledger: Increase in Active Wallets

In an unexpected twist, while Bitcoin prices sank, the number of active wallets rose by 2% quarter-over-quarter. Many wallets transitioned from centralized exchanges to self-custodial wallets as users prioritized control over their assets. Nothing says ‘I don’t trust you’ quite like moving your coins into a personal vault.

Inflation’s Surprising Role

A research paper from the Federal Reserve Bank of New York echoed Messari’s findings, concluding that inflation remained the only macroeconomic variable with a notable effect on Bitcoin’s price fluctuations. When it comes to Bitcoin, it appears it has masterfully escaped the tentacles of typical economic influences.

The Future Is Bright?

Despite being trapped in this whirlwind of chaos, Bitcoin started 2023 on a high note, soaking up gains and rising almost a third from the previous year. Analysts suggest that as Bitcoin expands its liquidity, it could become increasingly disconnected from the traditional macro backdrop, hinting at a maturity that may eventually define its role as a monetary asset.