FTX Collapse Turns Spotlight on CryptocurrenciesFTXCollapseTurnsSpotlightonCryptocurrencies

The sudden collapse of FTX, one of the world’s largest crypto exchanges, has rippled through the world of digital currencies. Once valued at $32 billion, FTX filed for bankruptcy protection and founder Sam Bankman-Fried resigned as its CEO last Friday, after reports alleged that the company had loaned billions of dollars in customer funds to Alameda Research, a trading firm co-founded by Bankman-Fried. The revelation prompted Binance, a rival crypto exchange, to announce a planned sale of its holdings of FTT, FTX’s native token, fueling a flurry of withdrawal requests from customers and causing FTT prices to tumble. Bitcoin and other cryptocurrencies also fell as investors braced for possible contagion. In signs of the growing fallout, crypto broker Genesis suspended redemptions and new loan originations on Wednesday, and the House Financial Services Committee revealed plans to hold a hearing on FTX in December.

Michael Barr, the Fed’s vice chair for supervision, said recent events in crypto markets “have highlighted the risks to investors and consumers associated with new and novel asset classes and activities when not accompanied by strong guardrails.”

PGIM’s Megatrends research on cryptocurrencies finds no compelling case for digital coins to comprise a meaningful share of an institutional portfolio. However, the broader ecosystem supporting cryptocurrencies, including blockchain technologies, provides long-term investors with attractive opportunities to evaluate.