by David F Carr, Senior Insights Manager at Similarweb
There are many losers in the story of FTX’s downfall and only a few winners. Even competitors will suffer from the reputational damage the collapse of one of cryptocurrency’s rising stars has done to the industry as a whole.
The growing company seemed like it could do no wrong until it turned out to have done everything wrong, possibly including misuse of client funds. Under founder and now former CEO Sam Bankman-Fried, FTX ran a (relatively successful) Super Bowl ad, courted regulators and Congress, and rode to the rescue of crypto firms like BlockFi when they stumbled earlier this year. Now BlockFi may also file for bankruptcy, according to the Wall Street Journal, part of the crypto contagion spawned by FTX.
Who wins in this story? Well, Coindesk had a great week after breaking the story of improper entanglements between FTX and Alameda Research, its hedge fund affiliate. Exposure of how FTX and Alameda had been loaning each other self-minted money prompted what was essentially a “run on the bank” – even though FTX was not supposed to be a bank and certainly wasn’t regulated like one.
At any rate, traffic to coindesk.com was up about 150% compared to an average week as readers tried to get to trace the origins of the story of FTX’s downfall. Traffic to ftx.com and ftx.us was also up, although probably as a result of customers trying to get their money out.
One other trend we can see from studying search and web traffic is rising interest in putting less trust in centralised exchanges, overall.
Instead of allowing a centralised exchange to take custody of crypto assets, more people may make the effort to learn how to work with decentralised crypto wallets – or even stash their digital money in offline “cold” wallets. Daily visits to the website of ledger.com, one of the leading makers of hardware wallets (which can also function as cold wallets) have tripled in the days following FTX’s adverse publicity, freezing of withdrawals, and subsequent bankruptcy filing.
The argument against cryptocurrency exchanges and corporatised cryptocurrency in general has been heard before after other implosions, such as the halt to withdrawals and subsequent bankruptcy of Celsius, which had ripple effects across the crypto lending sector (see report).
Now as then, believers in the ideals of decentralised finance opine that the problem is trusting what are supposed to be decentralised digital assets to centralised players. Rather than banking crypto with a corporate exchange, they say, participants in the market should take charge of controlling their own coins on their own devices and trading on decentralised exchanges such as Uniswap.
Dealing with a centralised exchange tends to be easier, which has why exchanges such as FTX have facilitated the adoption of crypto among retail investors. The decision to choose a wallet or let the exchange function as your wallet is not necessarily all or nothing. Crypto investors can keep some of their assets in an exchange, some in a convenient mobile wallet, and an untouchable reserve in an offline cold wallet (where the assets can’t be used in transactions such as smart contracts but are better protected against hacking and theft).
Coinbase offers a mobile wallet and FTX had a partnership with Ledger.
In earlier phases of this tough year for cryptocurrency, FTX had projected strength and stability, for example offering to buy out or shore up other stumbling players. For FTX to now be revealed as a house of cards and an operation that (by some accounts) misused customer funds may make more crypto investors inclined to investigate shifting funds to decentralized wallets.
Searching for a crypto wallet
Search volume is up for information on crypto wallets in general, as shown by Similarweb estimates.
All wallets allow users to take greater control over their cryptocurrency assets rather than depositing them in an account with an exchange, acting like a pseudo-bank. Some wallets, like MetaMask, are implemented as browser extensions, while others are offered as mobile apps or dedicated hardware devices. These all offer varying degrees of security, privacy, and reliability, while also requiring the user to take on more responsibility for maintaining the related security keys and access passphrases.
The hardware category of wallets and the more specialised category of cold wallets are seeing a particular surge in interest.
Increase in search for “hardware wallet” and related terms
Increase in search for “cold wallet” and related terms
Traffic to ledger.com, the website of hardware wallet maker Ledger, rose to nearly 300,000 daily views following the FTX news, compared with about 100,000 daily views earlier in the month. Both Ledger and Trezor have reported an uptick in sales.
A big question is whether this trend will be sustained and whether the desire of crypto buyers to achieve greater control will outweigh their desire for the ease of use a centralized exchange can offer.
Will the same consumers who signed up with FTX because they saw its logo on a sports arena be willing to take the leap to learning to use a hardware wallet? Or will they fall back into the habit of wanting to find some centralised entity they can trust with their digital assets, hoping that companies other than FTX will prove to be built of sturdier stuff?