When FTX, the crypto exchange founded by Sam Bankman-Fried, popularly known as SBF, saw around $6 billion of withdrawals in the 72 hours before November 8, many in the sector knew there was more to come.
However, SBF addressed the incident in a series of tweets on November 10 that began with an apology: “I’m sorry. The major issue is that. I made a mistake and ought to have performed better.
He confirmed that Alameda will cease trading and that FTX International was indeed collapsing but that FTX US is still “100% liquid.”
This event, which has been described as “the most consequential failure the crypto world has seen since Mt. Gox disappeared overnight in 2014,” has led to a cascade of events in the crypto sector. Bitcoin’s price dropped to $16,000 almost immediately, the lowest level in the previous two years. Other coins, including Solana and Ether, fell sharply, and Tether, a stablecoin, lost its dollar peg.
Over the past few days, this event has increased the use of the terms — Black Swan Event, Lehman Moment and FUD. What exactly do these terms mean?
A Black Swan Event
Put simply, a black swan is a sudden, unforeseen occurrence that should normally be “impossible” but has happened with very negative effects. Black swan occurrences are distinguished by their great uniqueness and significant repercussions.
While they are almost impossible to predict, once they happen, telling signs emanate to prove that they were actually obvious in retrospect.
Formalized by statistician and trader, Nassim Nicholas Taleb in his book, The Black Swan: The Impact Of The Highly Improbable, the term ‘black swan event’ derives its basis from a Latin phrase used in the second century by the Roman poet Juvenal to describe something as “a rare bird in the lands and very much like a black swan.” This was because, at the time, it was thought that black swans did not exist.
Before its collapse, FTX had over one million users and was the third-largest crypto exchange by volume, making its collapse quite improbable to predict. Yet, as with black swan events, unfolding events now serve to prove that the company’s bankruptcy should have been predicted.
A Lehman Moment
In general terms, a Lehman Moment is the moment when a company’s or country’s failure affects everyone else.
The term got its origin in September 2008 when the then eighth-largest investment bank in the United States, Lehman Brothers’ losses from its gamble on the American subprime mortgage market became intolerable. The investment bank filed for the largest corporate bankruptcy in history, and fear quickly swept across the entire American financial system.
Pressure worsened when in order to stabilize the banking sector, the federal government intervened with a $700 billion rescue package and merger arrangements all to no avail. The consequences of this event went beyond the United States and culminated in the 2008 Great Recession, the worst global financial crisis since the Great Depression.
Given the possibility of contagion, the financial system’s interdependence makes the FTX collapse a potential Lehman moment for the cryptocurrency industry. Regulators now have enough information to begin strictly regulating the cryptocurrency business thanks to FTX’s bankruptcy and the effect it had on consumer deposits.
FUD
FUD is an acronym for ‘fear, uncertainty, and doubt.’ The phrase “fear, uncertainty, and deception” (FUD) was first used to refer to a deceptive marketing strategy that distorts public perception of a rival company, service, or technology by disseminating false information intended to cause consumers to feel unfavorable about it, eventually undermining its credibility.
However, FUD is a term used frequently in the cryptocurrency industry to refer to the anxiety and hesitancy caused by unfavorable news or an overall worsening economic attitude that might influence people’s trading decisions. In the cryptocurrency industry, FUD is used frequently to refer to the anxiety and hesitancy caused by unfavorable news or a general downturn in market sentiment that may have an impact on traders’ actions. FUD can raise questions about a certain asset’s or a market’s sustainability and viability.
FUD is something you can’t totally avoid, but it’s crucial to keep in mind that it’s frequently motivated by feelings rather than by solid research and analysis. Instead of using logic, it acts in the world of emotions. If ever you are confronted by it, take a moment to relax if you’re stressed or feeling overwhelmed, then return to it later.
Popular crypto exchange, Binance recommends that the best way to combat this feeling is to DYOR, Do Your Own Research. This ensures that everything you are doing is the outcome of your own thought process. It also keeps you as well-informed as you can be about the market’s situation and associated hazards.
At Uhuruverse Labs, we’ve embarked on an educational campaign on an educational campaign to sensitize as many people as possible across the African continent and beyond about this revolutionary technology. The Afrocentric startup places a huge emphasis on technology education and on spreading the Web3 gospel. Everyone can and should know about this world-changing technology.
Every week, on our Instagram and Twitter channels, we post easy-to-understand explanations on various terms related to Web3.0 as we look forward to a future that is decentralized. Follow us now and let’s begin the future!
