Cryptocurrency exchange FTX is on the brink of bankruptcy after speculation about its financial health and handling of customer funds prompted investors to withdraw billions of dollars worth of crypto.

Cryptocurrency exchange FTX is on the brink of bankruptcy after speculation about its financial health and handling of customer funds prompted investors to withdraw billions of dollars worth of crypto. Matt Hougan, chief investment officer at Bitwise Asset Management, joined Cheddar News to break down the timeline of FTX's crisis.

Cryptocurrency Exchange FTX Teeters Near Bankruptcy

Welcome back to closing bell and shatter news everyone our top story for the day. Crypto markets in turmoil, investors in turmoil to some extent. This week after the crypto exchange, F. T. X. Was thrown into a massive crisis started after chang chang's our founder of rival exchange Finance did announce plans to sell about $530 million worth of F. T. X. Utility token F. T. T. As speculation swirled about the company's financial health and its handling of customer funds, investors fearing the worst, withdrew billions of dollars worth of crypto from FT. X. Cents and liquidity that F. T. X. And its founder, Sam Beckman freed simply didn't have. So it's forced into a hastily arranged rescued by finance, then finance abruptly backed out of that deal. So joining me now to break it down is resident crypto expert matt Hogan chief investment officer at bit wise, asset management matt. So good to have your trusted voice on the show today. What exactly happened here? I think you did a great job breaking it down. Kristen a centralized crypto exchange, F. T. X, which primarily served international customers was headquartered in the Bahamas turned out wasn't managing its books properly that we're not exactly clear if it was outright fraud or just gross mismanagement, but when clients demanded their money back that money wasn't there in a liquid fashion to give it to him. So F. T. X. Is in the process of collapsing. This is of course not good news for crypto. This was a large well known exchange. It injects short term volatility, investors will be wondering if there are any other shoes to drop. That's why you're seeing the markets react the way they are long term. I don't know that it changes the treasury of where crypto is going there, even a few silver linings that I think will come down the road. But for right now this is bad news for crypto. People trusted this entity and that trust was not returned to them. And that's why you're seeing the volatility in the market today. So let me ask you this matt, is there a domino effect that could result in the next few days, the next few weeks or even the next few months in relation to FT X's demise. It's a great question. I think there are two things to think about. One is that direct domino effect will the hole that's being created by these losses cause other entities to go bust. Now, a good thing about the crypto market is already gone through a significant de leveraging process a few months ago. So there's less leverage in the system today than there was then. As a result, I'm less worried about this contagion effect than I was at that time. But it's still a risk. The other piece though is that this creates a hangover and the hangover is that investors who were thinking about allocating to the space are now likely to take a pause re evaluate and take their time getting back into it again. I think what that means is that over the next few weeks and maybe the next few months there's added volatility. It may be difficult for crypto to wrap significantly. I think six months or 12 months from now I still continue to believe will be in another major bull market. I think there are too many positive catalysts out there. But this is a major setback and we'll see if those dominoes fall matt. If anyone owns crypto and I know the crypto space is wide, right there all coins, there's the D five space, there's your most well known tokens like Bitcoin and ether. What do investors need to know right now if they do own some of these tokens, I think if you're a short term investor, you should expect volatility. If you're a long term investor. I think this is an interesting opportunity and here's why one of the after effects of this is we're going to see regulators come into the crypto space in a major way the sec, the Cftc Congress, they're not going to sit on their hands and the secret about that is that's going to be good for crypto. Crypto needs increased regulation. Red military clarity will ultimately be. What brings investors back into the space, which lets entrepreneurs build. So for long term investors, this is an opportunity to make sure you have the right size portfolio but probably continue to hold with a view towards that regulated future for short term investors, it's going to be a volatile market for a long period of time. You shouldn't hold more crypto than you can afford to lose and we don't know exactly what the next few days, you know, it's interesting matt because Sam Beckman freed I think kind of was in some terms looked at as this rock star young entrepreneur in the crypto space. Certainly he was the topic of a lot of media stories when we were covering Cryptocurrency in general because he had raised a lot of money right and built a multibillion dollar business. What do investors need to know when it comes to due diligence when putting their money toward the crypto space? Yeah, this is a classic Icarus story. He was on the front page of fortune of forms of other magazines, I would say that celebrity doesn't equal trust. What builds trust in the spaces institutions that have been around for long periods of time. Remember F. T. X has only been around for a few years and institutions that have embraced regulation and you have companies like coin base who have been in the market for 10 years, serving customers well, customers companies like circle, which have been in the market for many years and embraces regulation bit wise, has been serving investors for 20 for since 2017 for more than five years now and is on the positive side of that regulatory spectrum. This is a reminder to investors to choose blue chip partners when you're entering a frontier market like crypto. Again, crypto will move past this. We lived through the explosion of mount docks of three arrows, capital of Celsius Voyager. This is just another example of a greedy executive causing a stain on the industry, hasn't changed what crypto is about, but it is a reminder to investors to only work with well regulated gold plated partners in the space and there are those companies out there. Well, and I think you bring up a good point, right? Because not only was SAM bank man freed on the cover of many news stories, he had big time investors like tom brady Gisele Bundchen Steph curry. We had even seen actually the Miami Heat Stadium or arena rather be turned to an F. T. X. Arena Down there in Miami I believe as well. I do want to talk though about how we get to this better place. Mat again, I've known you in the financial community for years and you are a trusted voice in this space. So 6 to 12 months from now, as you forecast, will be in a bull market, what's it gonna take to get there? Yeah, it's a great question. I think it's going to take new rules from a regulatory perspective, increased regulatory clarity. The passage of time and then ultimately, what catalyze is a new bull market is in crypto is when new applications emerge that people want to use things like defi things like N. F. T. S. Things like stable coins. The reason I'm excited about that is there's a record number of developers building in the space, a record amount of venture capital building in the space. And as you let that incubate for a few months for six months for a year, I think we're going to see an explosion of new crypto applications in this new regulated format. But the milestones to watch are in a month from now. In two months from now. Has there been additional contagion from this failure? If we clear that? That's a positive six months from now, have we made progress on stable coin regulations on the regulations around crypto exchanges? That will be a milestone. And then you'll start to look for those new applications that really capture the excitement of users and that will be the all clear that we're in a new bullish cycle of crypto. I hope we hit those milestones. I think we do. But those are the things that investors should look out for matt, such an honor to have you on the show this afternoon again, thank you for lending your voice to our show. That's Matt Hogan, Chief investment officer at Bit wise asset management