The crypto market still bears the scars of FTX's collapse

By Hannah Lang and Elizabeth Howcroft

(Reuters) - The global cryptocurrency market remains badly scarred following the tumultuous collapse of crypto exchange FTX and other big players last year, with crypto prices, volumes and venture capital investment well below their 2021 peaks.

Sam Bankman-Fried, the former CEO of FTX, stands trial in New York on Tuesday, charged with seven counts of fraud and conspiracy stemming from the exchange's abrupt collapse in November 2022. He has pleaded not guilty.

FTX was one in a series of industry meltdowns that sent bitcoin crashing to its lowest price since 2020. While bitcoin and other major tokens have partially recovered, the sector remains far from the fever pitch it hit in late 2021.

Here are five charts that show how the crypto landscape has changed.

BITCOIN BLUES

Bitcoin, by far the biggest cryptocurrency and the chief barometer for crypto market sentiment, has bounced back about 37% since Nov. 1.

The cryptocurrency was riding high in 2021, hitting a record $69,000 in November that year. But as central banks began to hike rates in early 2022, riskier assets like cryptocurrencies began to feel the pain as investors sought better returns elsewhere.

Bitcoin lost more than 65% of its value last year, pummeled by the collapse of stablecoin terraUSD, which led Singapore hedge fund Three Arrows Capital to file for bankruptcy and caused wider havoc in crypto markets.

Several other companies also collapsed, but the fall of FTX pushed bitcoin under $16,000 in November last year. Bitcoin took another hit earlier this year when Silvergate Bank, a popular U.S. partner for crypto companies, said it would shut down.

Still, bitcoin has regained almost three-quarters of its value this year on interest from major financial firms including BlackRock and hopes that interest rate hikes are ending. It was trading on Monday at around $28,089.

"The FTX debacle came at the end of an annus horriblis that had already seen a tech sector collapse, sharply higher interest rates and self-inflicted industry wounds," said Ben Laidler, global markets strategist at eToro.

CRUMBLING MARKET CAP

After peaking at $3 trillion in November 2021, the value of the overall crypto market plummeted through 2022, hitting a two-year low of $796 billion as FTX imploded. It has since clawed back some ground, hovering above $1 trillion most of this year.

"The issues with FTX have undoubtedly hit confidence in the crypto ecosystem at large," said Usman Ahmad, CEO of Zodia Markets, the crypto exchange of global bank Standard Chartered.

STABILIZING BITCOIN?

Known for its volatility, bitcoin has gained some stability this year.

Yet the relative calm in crypto markets is not necessarily a good thing, said some market participants, noting that many investors are attracted to crypto precisely because of its volatility, which offers opportunities to make quick profits.

"We expect low to medium volatility over the near-term," said Anders Kvamme Jensen, founder of crypto firm AKJ.

VC CRYPTO BETS TUMBLE

Venture capital (VC) investments flooded into crypto during its boom year of 2021, and even through 2022. But such bets have slowed considerably this year, after many firms were burnt by the market meltdown.

U.S. VC crypto investments totaled $6.12 billion in the first quarter of 2022, but slumped to just $870 million in the same quarter this year, according to data firm PitchBook.

"This slowdown wasn't primarily due to the failure of FTX but was already underway with the collapse of the [terraUSD] ecosystem earlier in the year," said Robert Le, senior crypto analyst at Pitchbook.

"Venture investors are now proceeding with caution," he added.

VANISHING VOLUMES

Since FTX failed, crypto trading volumes have collapsed, causing traders that had been attracted to the market's strong liquidity to pause buying and selling tokens, or exit the market altogether.

In September 2023, total monthly volumes across spot and derivative markets fell to $1.4 trillion, down more than 60% from September 2022, according to London-based researcher CCData. Spot markets bore the brunt, with volumes down more than 70% at $272 billion.

Derivative volumes, meanwhile, have fallen by 60% to $1.1 trillion in the 12 months since September 2022.

"The exit of some large market makers post-FTX significantly reduced liquidity which has led to both low trading volumes and low volatility," said Noelle Acheson, an economist who closely follows crypto.

(Reporting by Hannah Lang in Washington and Elizabeth Howcroft in London; Additional reporting by Tom Wilson in London; Editing by Michelle Price and Andrea Ricci)