Steemit Crypto Academy Contest / S6W2- Centralized Cryptocurrency Exchange Platforms and Its Risks
Hello everybody.
Welcome to this post. I hope thay all of you will be good and happy and enjoying your precious health with the grace and blessings of Almighty Allah. Today, I am going to participate in the week 2 contest of the SteemitCryptoAcademy and the topic of discussion is Centralized Cryptocurrency Exchange Platforms and Its Risks. So, stay tuned with me.
How do you agree with this saying “Users may be surprised to learn that in a bankruptcy scenario, they may not consider the cryptocurrencies and funds deposited in their accounts as their own”?
Yes, this saying is completely true. Centralized Exchange Platforms are actually those cryptocurrency exchanges where the assets of a user are not in his own hand as their are not private keys to assure the authority of the funds. The management of the centralized company use your funds in their needs without any hesitation because they are under their control.
Coming towards the term 'Bankruptcy'. This is a term which is used in our daily lives whenever an individual has borrowed much funds from the bank that he would not be able to return them in the particular timeframe. So in that case, the assets that are present in his account are freezed and no longer used in the period of bankruptcy. In the centralized cryptocurrency exchanges, such situation can also happen which can lead to the freeze or the seize of the funds that are present in their accounts.
Let me explain the scenery of the bankruptcy in the centralized exchanges. We all know that we can use the margin trading features of the centralized exchanges in order to take loans by from the exchange by setting leverages so that we could make large trades and similarly the huge profits. But if the price goes against over predictions, there could be a very high risk of liquidation of funds. This liquidation is actually a form of the bankruptcy in the centralized exchange platforms.
The bankruptcy could also be happen when different companies take loan from the exchanges and they are not able to return those assets back. So, all the assets that are present in those companies are considered as seized and no longer used in flow. In the situation of a bankruptcy, the assets that are present in the accounts are not longer available for trading or any other purposes.
So, from the above discussion, it is clear that the centralized exchanges are not much secure than the decentralized ones because the assets are not in the hands of the users their own and they could lead to the liquidation or bankruptcy of the funds that are available in their accounts. Take this thing also into account that the assets that are present in the bankrupted crypto exchanges are also seized or freezed in the situation of bankruptcy.
Explain, from your point of view, why did the FTX platform go bankrupt? how did you find it? What are the other consequences of this accident?
FTX is a centralized cryptocurrency exchange that is always present in the top cryptocurrency exchanges in the world. Recently, this large exchange has been declared as bankrupted and all the assets or holdings that are present in this centralized exchange went to the phase that they are not longer under the use of the customers or the company its own.
Their could be a number of reasons behind the bankruptcy of the FTX exchange platform. One of the major reason behind this happening is that this exchange is very popular in allowing the users to set very high leverages that are always risky. So, this thing became the reason of the bankruptcy of FTX when they were over-leveraged that they could not be able to bear those high leverages.
Another reason behind the bankruptcy of the FTX exchange is the fact that this exchange has borrowed too much money that could never be able to pay back all the money that they have just borrowed from the other platforms like Binance. This thing can also lead to the bankruptcy of the FTX exchange.
According to my own opinion, another reason behind this bankruptcy could be the fact that this exchange also allow the users to do margin trades on their own token which is known as FTT. When their are the large losses in the high leveraged trades of the FTT token, the price started going down and this created a fearful situation among the users who hold it. So, the selling pressure became high and the price kept on going low which led to the huge loses for the FTX platform.
In short, we can say that the most important reason behind the bankruptcy of the FTX exchange is that the company could not be able to manage the money that they had. This mismanagement of the assets have led to this huge lose for the platform and they went bankrupted.
Actually, I was making a trade in the Binance exchange over the Bitcoin. Suddenly, the price started dropping and I became worried of that. When I opened the Twitter, there were thousands of memes and news related to the huge loses of the FTX exchange. Then, I do my own research through various sources and at last I found that the FTX exchange has been bankrupted. This news was sad for me but not too much shocking for me as I never used the FTX exchange.
Their is a large impact of the bankruptcy of the FTX exchange on the working of the cryptocurrency space. There was a huge decline in the prices of all major cryptocurrencies and especially Bitcoin and related altcoins. It was the most rated headline in the cryptocurrency world.
This incident has made many effects on the mindset of the investors on the cryptocurrency. We know that there are already many individuals that used to call the cryptocurrency as the fake or unsafe investment. Now, they found this point to make their statements more strong. Also, this incident left a very bad impact on the reputation of all the centralized exchanges.
If you are so pessimistic, what do you think is the worst thing that could happen to cryptocurrency after the FTX incident? And what will be its impact on bitcoin?
Well, talking about the effect of the incidence of FTX exchange on the cryptocurrency world. I would like to say that there are always two types of individuals in the space. The first are those which are always positive about the cryptocurrency and take every incident as the sign of a new bullish trend in the market. I am also one of those people who believe very much on the cryptocurrency's future.
However, their are always the pessimistic people that have low trust on the cryptocurrency. They are those who became afraid of every incident that is happened in the crypto space. These anticrypto people are still busy in claiming this incident as the end of the cryptocurrency and they are claiming that now the market will never goes up and make new highs in the future.
No doubt, the incident of the FTX exchange has a very negative impact on the reputation of the exchange, as well as, the thinking of the investors about the cryptocurrency. Now, the investors have lost their trust on the centralized exchanges and some of them have lost faith on the cryptocurrency as well. And, I think this is the worst thing that the investors are very much confused in investing their money in the cryptocurrency.
There is a great impact of the FTX incident on the price of the most popular and the king of cryptocurrency space, Bitcoin. We have seen a very sudden decline in the price of the Bitcoin after the incident and I think this trend is going to be reverse in the upcoming days.
If I talk about my own opinion, I would like to say that incident of FTX exchange is going to be the reason behind the next bullish trend of the Bitcoin and indirectly the whole cryptocurrency space. No doubt, the Bitcoin has been greatly effected by this incident and made a low that we can consider as the lower low and a sign of the next higher highs in the market very soon.
Could this incident reinforce the view that cryptocurrencies are outdated and unstable because they do not have collateral, unlike state currencies such as the euro or the dollar?
We all know that the cryptocurrency is a decentralized source of payments and the most safe source of investing and holding the assets. But there are also the people who always goes against the cryptocurrency due to no backing up organization behind in. The annoynymus nature of the cryptocurrency has always been a reason behind the lack of acceptance of governments of various states.
The incident of the FTX exchange has is actually a reminder of the fact that the investments in the cryptocurrencies are always very risky due to its volatility. This incident should also make the governments to think about the backing up of the cryptocurrency and regulate it legally so that such incidents could be avoid in future and we could be able to enjoy the useful features of cryptocurrency in an impressive way.
Making thing incident as the evidence of the saying about cryptocurrency that it is outdated is very wrong. The high volatility of the cryptocurrency has always proclaimed by the founders of the cryptocurrency and many times this volatility leads to the huge profits. So, just because of the mismanagement of one exchange, we can never say that the cryptocurrency is going to be outdated.
Do you think that Binance's decision to buy FTX will reassure the previous investors of this platform, and what is the future of the FTT cryptocurrency?
Recently, there is a news revolving about the announcement of Binance exchange to buy the FTX exchange and invest a part of their reserves in that exchange. This news is going to be very helpful for all of the crypto traders. We all know that the Binance exchange is the most popular and the most successful centralized exchange of the time. So, it would be a great move to buy the FTX exchange.
The FTX buying news is a very positive sign for the betterment of the FTX users as the most successful and trustworthy exchange is going to invest in the FTX exchange and it will surely improve the situations regarding the bankruptcy of the FTX exchange. We know that the Binance mainly focuses on the spot trading but the FTX is popular for its margin trading features.
So, the collaboration of both these exchanges at the same time would surely be very helpful for the maintenance of the current situation of the market. If it happens, both of the companies are in advantage as the FTX will get helped in recovering their place and Binance will get more potential in the margin trading as well.
If we talk about the future of the FTT token which is actually the native token of the FTX exchange. I would like to say that there could be two possibilities regarding the future of the FTT token. If the leveraged trading on FTT token will be restricted then there are chances of its recovery and stability. But if there are no proper actions regarding this, then this could be expected that it will be delisted from the exchange due to huge losses. But, both of these things are very much early to say and we cannot make an exact statement at the present time about the future of FTT token. Let's wait and see how it goes.
Conclusions
There are always risks regarding the use of the centralized exchanges and the incident of the bankruptcy of the FTX exchange is an evidence of this saying. There could be multiple reasons behind this bankruptcy and major ones could be the mismanagement of the funds, over-leveraging of the exchange and offering the leveraged trading on FTT token.
There is a very impact of this incident on the overall figure of the cryptocurrency in the minds of the investors. This is the worst thing that happened in this incident that the investors has lost their believe on the cryptocurrency and especially on the centralized exchanges. High volatility of the cryptocurrency has always been a risk for the investors and this incident has proved that high risk.
I would like to invite my dear friends @malikusman1, @sachin08, @simonnwigwe and @cryptobitcoins to take part in this beautiful contest.
My boss himself, I love reading from you, as you always go into full details on the topic of discussion.
The idea that cryptocurrency holdings could be lost in bankruptcy proceedings is troubling enough, but centralized exchanges seem to gain greater heights amidst this setback.
I think the reason why many people are still holding on to centralized exchanges is because they do not know about this potential consequence of using centralized exchanges; however, another explanation could stem from the fact that centralized exchanges offer more convenience than decentralized alternatives.
Very correct here friend. Therefore, when considering filing for bankruptcy, it is important to check with the exchange and determine whether or not the crypto held on their platform would be returned. In some cases, the exchange may require a court order before releasing funds.
Thanks for sharing friend, and goodluck in this contest. #steem-on.
I will appreciate if you equally engage on Mine
Thanks a lot for your valuable addition here. Let's hope for the better times.
Assalamualaikum brother,
Today you're again here with you excellent entry brother I really got too much information from your article.
You're right that Centralized exchanges are risky and FTX incident is a threat message for us to put our assets to Decentralized exchange.
I hope if binance didn't sold the remaining FTT
tokens the price can pump again because The business plan of FTT is almost same to BNB.
Good luck in this contest.
Thanks a lot dear brother for your precious comment here. I sync with you.
What a very nice Post with details explaination. Honestly, to me this year seemed to be the worst year in the crypto industry. But we will all survive it. Best of luck to you.
Thanks a lot dear friend for your precious comment.
Dear @steemdoctor1,
I found your post very good and you have really written very well with your top notch knowledge about the cryptocurrency.
The news of the purchasing of the FTX exchange by the Binance sounds really great but recently they have announced not to do anything for that.
But if it will happen than i don't think that the Binance can be able to cover the loss that is already experienced by the investors of the FTX exchange.
I wish many success for your in this contest.
Thank you very much for your beautiful addition here.
Your post has been successfully curated by our Team 5 via @malikusman1 at 50%. Continue making quality content for more support.
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@steemdoctor1
The great boss himself, I always anticipate visiting your blog like a famous movie series. I must be frank with you. You are very practical, blunt, updated and more than ready to share with cryptocurrency lovers like me the great details of the basis of every thrilling matter as regards the cryptocurrency. I enjoy the fact that you use easy terms not forgetting the basic points on topics you discuss. I appreciate your unrelenting effort towards that respect. This was what caught my attention.
This is actually a deep truth as you have rightly said a merge in this two companies could result in a multi-million dollar firm which would take its place as a leading prospect in the cryptocurrency world. Thanks for such great insight. Success in the contest. #steem-on
Thanks a lot for your precious comment here. It is highly appreciated 👍
You have written well my friend, the move of Binance to buy FTX will indeed go a long way in reassuring previous investors of the exchange and that is because Binance is a trust worthy platform and have also kept a track record since day one. FTT, can be delisted if proper action is not taken. I wish you success in the contest my friend.
Thank you for your beautiful comment.