Moneycontrol Pro Panorama | FTX bankruptcy — Investors show symptoms of fear psychosis

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The collapse of FTX, a crash in digital cryptocurrencies and fresh doses of daily negative news are spreading fears of a crypto contagion in financial markets. And, the fear is real as one of the world’s largest exchanges, FTX, has filed for bankruptcy. Not surprisingly, cryptocurrencies have tumbled. The value erosion so far in 2022 is estimated at $1.4 billion. There’s speculation over other big crypto names going under too unless they are able to raise millions of dollars to support redemptions.

Worse, FTX owes its top 50 creditors -- the list is not disclosed -- around $3.1 billion, according to media reports. Apart from the billions of dollars at stake, it has precipitated issues such as lack of transparency, trust and challenges in regulation.

As critics sit back and watch the debacle playing out, those who fell for the bait of rapid, sky-high returns can bid goodbye to their monies. Having seen their crypto holdings erode in value, investors who have burnt their fingers could become wary of investing in riskier asset classes, including equities.

In a 30-page bankruptcy filing, the newly appointed acting CEO, John J. Ray III, who also oversaw the Enron bankruptcy expressed his shock at the extent of problem in FTX. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is