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When investors get spurned by a specific asset class or sector, it’s understandable that they don’t rush back to those areas. Perhaps they take them off their radars altogether.
For those that were around when the internet/tech bubble burst perhaps they remember a family member, friend or colleague that was burned by the likes of eToys or Lucent only to swear off tech stocks in perpetuity. That’s just one example, but it paints the picture of some of the perceived logic stemming from market scorn.
Emphasis on “perceived” because that type of behavior isn’t always practical when it comes to superior long-term returns. The benefit of hindsight confirms as much. Again using the tech bubble as an example, investors that swore off those stocks 25 years ago missed out on rebounds by some of the survivors, including Amazon, eBay and Oracle, among others.
Point is there’s nothing wrong with feeling scorned by a particular corner of the market, but giving those feelings extended life could prove foolhardy. It appears cryptocurrency investors got the message.
FTX Not Chasing Away Crypto Fans
The brief history of the cryptocurrency market is littered with examples that could be interpreted as warning signs – signs reading “abandon hope all ye who enter.”
There was the 2014 collapse of Mt. Gox – once the world’s biggest processor of bitcoin trades –and many more examples over years up to the collapse of cryptocurrency brokerage firm FTX in November 2022. Long story short, the fraud perpetrated at FTX was often compared to that of Enron. That’d be enough to chase anyone out of crypto for good, but that’s not what happening.
John Ray III, an expert in recovering funds from failed companies, is currently controlling FTX and he and his team are in the process of disbursing capital to creditors (former clients). A survey of 1,016 FTX creditors by NFT Evening indicates nearly eight in 10 plan to take that cash and put it to work in crypto. Advisors might take issue with that course of action, but it is a clear endorsement of some investors’ feelings about cryptocurrency.
“The fact that a majority plan to reinvest their repayments demonstrates a broader belief in blockchain technology’s long-term potential. This resilience highlights how market participants view setbacks as temporary, focusing instead on future opportunities,” notes Liam Miller for NFT Evening.
Former FTX Clients Willing to Take Crypto
Perhaps even more notable is the fact that former FTX clients are planning to take on some risk with a portion of their recouped risk. Sure, a strong case can be made that all digital currencies are risky, but there risk gap is wide from say bitcoin or ethereum down to whatever the 50th-largest digital currency is today.
The NFT Evening survey points out that 62% of FTX creditors are planning to invest in solana – the blockchain on which many memecoins trade – while 44% are eyeing solana-based projects and nearly a third will use their recouped capital to invest directly in memecoins.
Bottom line: the FTX calamity would’ve unnerved plenty of investors, chastening them about crypto for good. Clearly, that’s not the case and that could be a positive sign for the crypto’s long-term trajectory.
Related: Financial Infidelity May Be Getting Worse, Not Better