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Kc  · 09/01/22

The impact of FTX Collapse On Silver Markets

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The last couple of years have shown the true dangers of cryptocurrencies and some other intangible investments. The NFT bubble has pretty much burst, with the first major signs of topping out appearing in the second quarter of 2022. NFT sales fell by more than 90% between September 2021 and May of the following year.

Bitcoin and other crypto coins have seen dramatic rises and drops in value also. From a value of over $65,000 in 2021, bitcoin investors have seen the value drop to under $20,000 at certain times recently. Elon Musk has also almost single-handedly demonstrated how volatile crypto can be.

Musk joked about Dogecoin on Saturday Night Live in May 2021 causing the value to plummet. Yet, in January 2022, Musk announced Tesla would accept Dogecoin, and urged McDonald’s and other vendors to follow suit. The result? A 15% rise in the value of that particular cryptocurrency.

Similarly, after Twitter was taken over by Musk, Dogecoin’s value rose again by 35%. However, Much of the news surrounding crypto has been negative, and this isn’t new. Even back in 2016, crypto was being exposed with the Bitfinex hack of $72 million. And now FTX is in the news following its spectacular crash.

How successful was FTX?

FTX Trading Ltd. was founded in May 2019 by Sam Bankman-Fried and Gary Wang. More regularly referred to as simply FTX, this company rose in prominence extremely quickly. You could expect someone with the name Bankman to be somewhat good with money or trading, and SBF had already proved himself with his first venture; Alameda Research.

Alameda was known for bitcoin arbitrage. This is buying the cryptocurrency on one exchange only to sell it on another to make a profit. Alameda became successful, and SBF was spurred on to create FTX.

From May 2019 to July 2021, FTX grew so much that it became the third-largest crypto exchange in the world. With the promise of high yields, consumers flocked to FTX. Up to 1 million investors were using FTX at its peak, and it is reported that they were valued at $32 billion, but not for long. Then the dangers of investing in crypto really hit the news.

What happened to FTX?

In November 2022, found itself in the position of having to file for bankruptcy. After countless users started withdrawing their funds, FTX started to collapse. The simple reason? FTX didn’t have enough assets to meet customer demand, and as the news spread, more investors tried to make withdrawals.

There have been some serious knock-on effects from the FTX collapse including positives as well as negatives. For instance, FTX helped push up the value of gold, silver, and platinum. But, it harmed other crypto exchanges.

How has FTX’s collapse affected trading in general?

The clearest damage that the FTX collapse did was to scare investors away from cryptocurrencies. The FTX Token or FTT’s value dropped like a stone following the collapse of the exchange, and this affected other altcoins such as Ethereum. Binance considered bailing out FTX to a degree but backed off quickly, and in November 2022, BlockFi filed for bankruptcy.

It was a few weeks after in December that Sam Bankman-Fried was arrested in the Bahamas. It is expected that the fallout from the FTX collapse will affect investments for years to come.

It is thought that many crypto exchanges may not be quite as healthy as previously thought, and this is likely to come out as the ramifications from FTX are felt in the coming months. One positive surrounding FTX’s failure is that there is likely to be more regulation put into place. This should make crypto investing safer and the investors themselves better protected.

One area that is seeing an upturn though is tangible investments. Precious metals have become more appealing after the drop in NFT sales, and the plummeting value of bitcoin.

What does the FTX collapse mean for silver investment?

Gold rose by about 10% while crypto was falling, and FTX’s collapse has seen a significant change to the silver and platinum markets also.

The 4 most traded precious metals are gold, silver, platinum, and palladium. Silver has many uses in many industries, and is found in computers, solar panels, smartphones, and surgical appliances, and proved to be a popular investment in 2022, not least in India.

After there was a drop in the value of silver in 2022, India started importing the metal at record rates. This was fuelled by a lack of silver reserves in the country, but also through a belief that silver would rise in value. Silver is less expensive than gold, and this makes it an appealing investment also.

Although gold, palladium, platinum, and silver trades don’t go hand in hand, it was clear that the FTX fiasco had a marked effect on their values. Along the same timeline, all 4 precious metals saw a rise in value after FTX filed for bankruptcy.

How is silver looking as an investment in 2023?

The internet has made investing and trading simpler than ever, and now millions of individuals are trying day trading, and investing in crypto. Precious metals are also simple to invest in, and there are many websites devoted to them.

A visit to a precious metal retailer such as SD Bullion will give access to gold coins and bars, silver, and platinum. These retailers will often offer other services involving investment and storage for silver.

As far as silver goes as an investment, it should be remembered that it can be volatile. The reason for this is that it is traded much less than gold, and is considered to have less liquidity. Nevertheless, silver has many things to recommend about it right now.

Short-term gains on silver

As the fallout from FTX continues, the value of silver along with other tangible assets may carry on rising. Investment now could see some short-term gains. And yet, if the trust doesn’t return to bitcoin and crypto in general, silver may also be a good investment in the long term.

It is a hedge against inflation

Recent times have seen huge inflation rises across the world. As fiat currencies lose their spending power, assets such as silver are less affected by inflation or interest rates.

Silver works well as part of a portfolio

When placed in a larger basket of assets, silver helps to make a diversified portfolio with less risk attached.

Silver can go towards a retirement fund

When set up correctly, you can add silver to an SDIRA to help with retirement. 1980 and 2011 saw huge surges in the value of silver, and silver reached an 8-year high in 2021. But, the value dropped in 2022 before FTX collapsed. The volatility of silver should be taken into account, but with a shortage of supplies, there is talk that 2023 could be a great year for silver investors.

Summary

There is no doubt that the FTX bankruptcy filing had a hugely negative impact on the crypto world in general, not least on the investors who lost their money. This included not only individuals but financial entities also.

The coming months will see just how much more FTX will affect trades in general. But, it seems that tangible assets will become more favorable, and silver and gold have already been positively affected.


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