Cryptocurrency—and specifically Bitcoin—is having another meltdown. What’s going on? This Q&A may help to make sense of the chaos.

What’s the story?

The latest turmoil has been triggered by the near-collapse of exchange FTX, founded by industry figurehead and billionaire tech investor Samuel Bankman-Fried (SBF). FTX suffered billions of withdrawals, sparking rumours of its imminent demise. Binance, the world’s largest exchange, looked set to rescue FTX—but has swiftly confirmed it wouldn’t after looking at FTX’s books. That's due diligence for you.

Is this just a fallout between Crypto Bros?

Binance chief executive Changpeng "CZ" Zhao didn’t just rule out buying FTX, he actively criticised how FTX had used customer funds. This is a common theme in this year’s crypto collapses and is likely to keep cropping up as more scandals emerge.

Will there be a regulatory backlash?

Inevitably, the US Securities and Exchange Commission—which regulates non-crypto markets—is looking into the case. It has its hands full with existing cases though.

Is there any precedent for FTX’s implosion?

Sadly for retail investors, yes. Network Celsius is still going through the bankruptcy process, which means customers still don’t know the fate of their money (cash and coins). This case highlighted the problems of keeping customer money separate from company money.

What does it mean for Bitcoin prices?

Bitcoin has now fallen as much as 22% in the last five days, briefly dipping beneath $16,000. BTC broke below $20,000 in June, a key technical level, but had managed to hold above that until this week. Year-to-date, Bitcoin is down 65%, meaning all the gains of the last two years are gone.

What does it mean for "mainstream" crypto?

Shares in Coinbase, the largest listed exchange, have cratered. They have fallen 22% in the last five days and are off 81% this year. A reminder: Coinbase's IPO price was $250, and it's now at $45.

Is there a risk of contagion to other markets?

At the moment, no. Global markets are actually attempting a mini-recovery after a bruising year. The S&P 500 is up nearly 4% over the month after a 20% fall this year. What the crypto drama does, though, is show once more the volatility that comes with risky assets.

What about the VC industry?

Venture capital firms have been investing heavily in crypto ventures in recent years. Sequoia Capital is the latest VC firm to get burned—it has just written off its stake in FTX to $0. Crypto investments are a spider’s web involving "conventional" capital, risky assets, and reputable firms.