What Cathie Wood and Her Team Think About Crypto Right Now | The Motley Fool

As if this year couldn’t have been worse for crypto, November brought a new wave of scandals that further undermined investor confidence, which was already remarkably low. Fortunately, renowned investor Cathy Wood and his team at Ark Invest have released their monthly market update to help give investors a bit more insight into current market dynamics and what to expect, if any. Here’s what the November update had to say.

The bad

The most recent crypto debacle involved one of the most popular exchanges in the world, FTX. In Ark’s opinion, the FTX bankruptcy is one of the most damaging events in crypto history, probably worse than the 2014 Mount Gox hack that resulted in the loss of over 700,000 bitcoins. At the time, this represented around 7% of all bitcoins in circulation.

Rather than a hack, the FTX debacle was the result of an inside job. As more and more evidence has emerged, all signs point to former CEO Sam Bankman-Fried as the source of the problem. Bankman-Fried is believed to have improperly transferred around $4 billion in client funds to pay off debts from his other trading company, Alameda Research.

It’s getting worse. Mounting evidence suggests that Bankman-Fried even withdrew $1 billion in corporate funds to purchase personal assets.

Ark thinks the FTX implosion could set back the adoption of institutional crypto by years and set a precedent for regulators imposing excessive laws that do more harm to the industry than good.

But before regulators arrive on the scene, more damage may lie ahead. The list of companies exposed to FTX is worrying to say the least. One way or another, and to varying degrees, well-known entities such as Binance, BlockFi, Three Arrows Capital, Genesis Capital, CoinDesk, Coinbase, and Grayscale end up in this current mess. The risk of a new contagion is certainly possible.

Good

Surprisingly, from all of this, Ark sees a silver lining. Despite increasing selling pressures across the market, bad actors are being purged. As this process continues, it should provide more needed transparency and resilience. In an effort to meet investor demands, Binance, the world’s largest crypto exchange, has agreed to implement a “proof of reserves” which aims to prove that the exchange is not over-leveraged and maintains a balance sheet. healthy.

Due to the nature of FTX’s bankruptcy, data shows that more and more crypto investors are fleeing centralized exchanges and using decentralized exchanges. Ark has analyzed trading volume on centralized and decentralized exchanges over the past few months and found that since the FTX implosion, volume on decentralized exchanges has increased by 40%. This could be considered a promising development, as it proves that the decentralized nature of blockchains is resistant to bad practices and can work without the need for a centralized entity.

Finally, Ark assessed the current position of one of his favorite cryptocurrencies, Bitcoin (BTC 0.01%). In the report, analysts found that some Bitcoin metrics, not just its price, are as low as they have ever been and signal that one of the biggest capitulation events is underway. These include statistics such as the realized profit/realized loss ratio. This shows that the average price at which bitcoin is bought and sold has recently hit an all-time low.

The best

However, despite some concerning statistics, macro trends indicate that long-term adoption remains strong. Ark generally uses Bitcoin to gauge current trends in the industry, as it is the most valuable cryptocurrency. Ark found that the number of active bitcoin owners, defined as an individual or organization managing the same set of addresses sending and receiving funds, has maintained its overall growth trend line even though current market conditions appear poor. .

It is these long-term trends that underpin Ark’s view that decentralization will win. This period in crypto history will likely fall into infamy, but it could serve as a fork in the road where more responsible practices are put in place and a greater push for decentralization is encouraged. Extremely decentralized and transparent blockchains such as Bitcoin are likely to remain resilient regardless of market conditions, which is one of the main reasons why Ark believes Bitcoin is in a class of its own and worthy of an investment in long term.

RJ Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.