Recently, the cryptocurrency market has exhibited a high level of optimism. Bitcoin (BTC) and altcoins have demonstrated strong performance, leading some analysts to posit that the market may have reached a turning point. Among the various tokens experiencing gains, one has particularly stood out: FTT, the token of failed cryptocurrency exchange FTX.
FTT has shown significant growth with a 170% increase since the start of 2023. This is a marked contrast to the 28% growth seen in Bitcoin (BTC) over the same period. The substantial increase in FTT's value is noteworthy, particularly given its poor performance in 2022.
Despite the overall cryptocurrency market experiencing a correction, FTT has seen particularly significant volatility. The token began last year at a value of $44 and ended it trading at $0.84. This represents a steep decline, with a 77% drop in market capitalization observed within a single two-day period of Nov. 7 and 8.
This significant drop in value occurred shortly after the confirmation of rumors surrounding FTX's financial insolvency. The cryptocurrency trading platform was found to have been using its customers' assets to transfer to Alameda Research, leading to a lack of liquidity and ultimately resulting in a bankruptcy filing.
However, the situation appears to have undergone a shift in 2023, as the token has experienced a substantial increase in value. This raises questions for investors: what could have led to this sudden growth in FTT? How has an altcoin with no underlying fundamentals and a connection to one of the biggest scandals in cryptocurrency history managed to outperform even Bitcoin?
Reasons for rise of FTT
One potential explanation for the token's strong performance is that FTX and its CEO, Sam Bankman-Fried (SBF), are no longer drawing as much attention on the crypto market. The downfall of what was once the second largest crypto exchange is no longer making headlines, and in the fast-paced blockchain industry, the bankruptcy of an exchange is not an uncommon occurrence.
A notable example of this phenomenon is Mt.Gox, one of the first and largest Bitcoin exchanges in the world. Established in 2010, Mt.Gox quickly rose to become the leading trading platform for Bitcoin, accounting for as much as 70% of global transactions in 2013. However, the exchange filed for bankruptcy in 2014 after a hack resulted in the loss of 850,000 Bitcoins, worth around $450 million at the time. The exchange declared bankruptcy and was subsequently liquidated.
It is worth noting that while the amount lost in the Mt.Gox incident is less than what FTX owes its creditors, it was a significant blow at the time, especially considering the relatively small number of people investing in Bitcoin at that point. The Mt.Gox crash could potentially have spelled the end of the Bitcoin market, yet it did not. Following the event, discussion about Mt.Gox gradually subsided as the market moved on, and the same can be expected for the conversation surrounding FTX.
As a result, FUD (fear, uncertainty and doubt) surrounding FTT is no longer as prevalent as it once was. Even Solana (SOL), another altcoin that was negatively impacted by the FTX crash, is no longer feeling the effects of the crash in its market capitalization, and it is once again competing with Polygon (MATIC) for a spot in the top 10.
It is not uncommon for investors to seek out opportunities for speculation and short-term profits in assets that have experienced a significant drop in market capitalization. The large decrease in value of FTT has made it an attractive option for such investors. The altcoin's performance is reminiscent of another token, Terra (LUNA), which faced similar criticisms in 2022 and later became Terra Classic (LUNC).
In May of 2022, LUNA lost almost all of its market capitalization, falling out of the top 10. The altcoin went from a peak of $119.18 in April 2022 to end the year trading at $0.00014. While it was in its downward trajectory, many investors chose to abandon the altcoin, but soon after, the risk/reward ratio became more favorable, and investors were able to take advantage of price fluctuations to make a profit.
Taking all of this into consideration, the recent surge in FTT's value should not be considered a surprise but rather another instance of a familiar pattern on the cryptocurrency market. For investors new to the market, it is important to be aware that while the potential for returns may be high, the risk associated with investing in this type of token is also substantial.