Bitcoin slumps as FTX meltdown triggers fears of contagion

The collapse of FTX Trading earlier this month has weighed heavily on the price of bitcoin, the world’s most popular cryptocurrency.

Bitcoin fell to a two-year low of $15,480 early Tuesday and has tumbled nearly 18% in November. Beyond the sudden collapse of FTX, one of the world’s biggest crypto exchanges, analysts warn of a possible domino effect that could knock over other major players in the sector. 

Voyager Digital and Celsius Network have already filed for bankruptcy this year. Another prominent crypto lender, Genesis, has been forced to rebut reports that it is at imminent risk of going bust. The chaos has reignited calls in Washington for tighter government regulation of the crypto market, further shadowing investor sentiment. 

“The landscape is not getting any better for cryptos as we continue to learn more about the fallout from the FTX collapse,” Craig Erlam, senior market analyst at Oanda, said in a research note. He thinks bitcoin’s value is likely to continue sliding, perhaps to as low as $10,000.

“Another sharp drop looks very possible as sentiment in the space has been shredded,” Erlam wrote. “It could take some time for that to be repaired, and the uncertainty that the FTX scandal has created is an enormous headwind for cryptos in the near term.”

Because bitcoin is a bellwether for other cryptocurrencies, its fall would likely pull down the price of other tokens.

Bitcoin has fallen 13% over the last seven days, driven by “FTX-related market activity,” Vetle Lunde, a senior analyst at Arcane Research, said in a report Tuesday. 

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Its price will likely stabilize over the next few days because U.S. financial markets will close over the Thanksgiving holiday and investors will halt their trading, he noted.

Bitcoin and other digital currencies were already suffering steep declines before FTX failed. The total value of cryptocurrencies has already fallen $1.2 trillion this year, according to CoinMarketCap. 

FTX’s bankruptcy case kicked off Tuesday in what experts said should be a lengthy restructuring. The accounting firm FTX hired to help with the case asked a bankruptcy judge last weekend for extra time to file more documents. FTX owes its creditors at least $3.1 billion, according to court documents. 

Problems facing FTX came to light earlier this month when former CEO Sam Bankman-Fried told a group of investors the company needed about $8 billion to back up its users’ crypto assets. The company experienced crypto’s version of a bank run earlier this month when users withdrew about $5 billion in a single day amid rising concerns over FTX’s solvency.