Last year was a disaster year for the crypto industry. In May, the Terra (LUNA) ecosystem collapsed, and half a year later it was FTX’s turn. A report of the Bank of International Settlements (BIS) takes a good look at these two events. Nevertheless, the crypto scandals seemed to have had no effect on traditional financial markets.
A disaster year for crypto
In May 2022, Terra collapsed like a house of cards. The algorithm behind the terrausd (UST) stablecoin broke down, and its $40 billion market cap ecosystem went up in smoke. In the weeks that followed, the event rumbled on and $450 billion in liquidity left the crypto sector.
Six months later, in November, one of the largest and most famous crypto exchanges collapsed: FTX. The exchange turned out to have cheated with users’ funds and the crypto world was in shock. No less than $ 200 billion disappeared from the sector in the following weeks.
According to the BIS, mainly large crypto owners, or whales, sold their tokens in the aftermath of these two scandals. Smaller crypto owners bought the dip.
Traditional financial systems not affected
What is striking is that despite their huge impact on the crypto world, these events are not clear spillover had an effect. The larger financial system seemed unaffected by the blows that fell on the crypto markets.
“Our analysis also suggests that the crypto sector’s free fall had no impact on the wider financial system. But if crypto were more intertwined with the economy and traditional financial systems, the effect of the crypto crash would have been much greater.”
According to the BIS report. Thus, the lack of adoption of crypto in today’s global economy is why the impacts of Terra and FTX have remained fairly isolated. If crypto and financial markets were more intertwined, this might have had far-reaching consequences.