Why Bitcoin and Ethereum Prices Are Plunging After Binance Announced It Would Acquire FTX| NextAdvisor with TIME

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The crypto market is having a very bad week.

This week’s crash brings a sudden reversal after weeks of relative stability for bitcoin and ethereum prices. Both tokens are now down over 20% over the past week, fueled by new investor skepticism and sour sentiment in the immediate aftermath of Binance’s announcement that it would buy its rival FTX, after concerns were raised about FTX’s liquidity. (Spoiler alert: Binance decided not to purchase FTX after all.)

In light of all the news, bitcoin the price continued to fall, dipping below $16,000 for the first time in two years on Wednesday afternoon. Ethereal is experiencing a similar downturn, dipping below $1,200 for the first time since the crypto crash over the summer. The token continues to slide, getting dangerously close to falling below $1,100, as of Wednesday afternoon.

While bitcoin and ethereum prices have remained low compared to last year, both tokens have been relatively constant, even in the face of Federal Reserve rate hikes, falling foreign currencies, the ongoing war in Ukraine, and stock market crashes.

“For a long time, bitcoin has been aligned with increased risk appetite in the markets, but needless to say, Tuesday was not one of those days,” said Craig Erlam, senior market analyst at Oanda. “Cryptocurrencies have been hit at the start of the week with bitcoin falling nearly 20% in two days at one stage amid concerns over FTX and the implications for the FTT token.”

So why are cryptocurrencies stagnating after nearly a month of stability? Let’s delve into.

Why do cryptocurrencies crash?

The block is likely due to the drama unfolding at FTX, a popular crypto exchange. As a result of a major liquidity crisis at FTX, Binance CEO Changpeng Zhao announced that Binance would be acquiring FTX. Binance is the largest centralized crypto exchange in the world, and FTX was one of its biggest competitors. But shortly after submitting the deal, Binance Announced on Wednesday afternoon that it would scrap its plans and not acquire FTX, causing further market turmoil.

“As a result of corporate due diligence, as well as recent news reports of mishandling of customer funds and alleged investigations by the US agency, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said on Twitter.

Many investors have been discouraged after the news of the collapse of FTX. The founder of the popular exchange, Sam Bankman-Fried, previously hailed as a “white knight” of the cryptocurrency industry, has now lost more than 94% of his wealth in a single day. according to Bloomberg.

“Today is a bad day for crypto,” says Edward Moya, senior market analyst at Oanda. “Binance had to step in to save cryptocurrency exchange FTX from Sam Bankman-Fried. [He] He has been the white knight during this crypto winter and a liquidity crisis from him has caused a wave of unease throughout the cryptoverse.”

Terms of the deal have yet to be announced, but investors are already wary of the kind of attention this will attract from regulators. The SEC will reportedly expand its investigation into FTX by focusing on possible violations of securities law, according to the Wall Street Journal.

Furthermore, the rapid fall of one of the world’s largest and fastest growing cryptocurrency exchanges in a matter of days (when there seemed to be no warning signs) is instilling further skepticism in a market already battered during a year of economic turbulence.

What does this mean for crypto investors?

The FTX crash highlights the risks of investing in the crypto market. One day you are browsing, the next you are running to get your money in a classic bank run. Crypto is not federally insured through FDIC insurance and like many other exchanges, FTX Insurance Policies it only covers some criminal events, including theft and fraud. That means there is no insurance coverage just because the exchange is down.

If you’re not an FTX client, but hold crypto elsewhere, experts recommend you stick with it. If you have invested in cryptocurrencies for the long term using a buy and hold strategy, expect prices to fluctuate and large drops are not a cause for concern. Now is a good time to read up on your exchange or wallet insurance policy and based on what you find, you may want to consider moving your crypto to a personal wallet. There is one operator that includes direct-to-consumer offers: breach insurance. Breach’s “Crypto Shield” is the first regulated insurance product for crypto investors.

Experts recommend keeping your cryptocurrency investments in less than 5% of your portfolio and invest only what you agree to lose, as long as your crypto investments don’t get in the way of your other financial goals. always prioritize saving for an emergencypaying high interest debtand contributing to a traditional retirement plan before investing in cryptocurrencies. If you’re in a good place financially and ready to enter the market, experts say you may now be a good time to buy bitcoin or ethereum while prices are low, keeping in mind that prices could fall further.