The cryptocurrency sector has encountered a series of significant setbacks throughout its history, resulting in a turbulent landscape and affecting investor sentiment. Recently, industry expert Miles Deutscher took to social media on June 4, 2025, to emphasize some of the most impactful occurrences in the crypto realm, which include the downfall of platforms like Mt. Gox, FTX, LUNA/UST, Three Arrows Capital, Celsius, Voyager, and BlockFi, as well as the notorious scandals involving Pump Fun and Bitconnect. Over more than a decade, these events have collectively caused the loss of billions in investor capital and incited widespread sell-offs in the cryptocurrency markets.
For example, the infamous Mt. Gox hack in February 2014 resulted in the theft of 850,000 BTC, worth around $450 million at that time, leading to a dramatic decrease in Bitcoin’s price from $850 on February 5, 2014, to under $500 by February 25, 2014, according to historical records from CoinMarketCap. Similarly, the collapse of FTX in November 2022 caused Bitcoin to plummet from $21,300 on November 6, 2022, to $15,600 by November 9, 2022, as reported by TradingView, with trading volumes surging to more than $150 billion daily across major platforms such as Binance and Coinbase. The LUNA/UST disaster in May 2022 wiped out $40 billion in market capitalization within days, as LUNA’s price crashed from $80 on May 5, 2022, to below $1 by May 12, 2022. These catastrophic events also reverberated through traditional financial markets, with institutional investors withdrawing risk capital from both cryptocurrency and tech-focused stocks during these tumultuous times, highlighting the close relationship between various risk assets.
From a trading standpoint, these historical downturns provide essential lessons and opportunities for cryptocurrency investors. The Mt. Gox event highlighted the necessity for enhanced security measures on exchanges, prompting many traders to shift towards decentralized wallets and cold storage solutions, while continuing to exert selling pressure as the recovered assets are allocated to creditors even into 2023 and 2024. The FTX crisis, which resulted in the loss of over $8 billion in customer funds, sparked a significant increase in trading for stablecoins like USDT and USDC, with USDT’s daily trading volume reaching $60 billion on November 10, 2022, according to CoinGecko data, as traders sought refuge in safer assets. The collapse of LUNA/UST revealed the vulnerabilities associated with algorithmic stablecoins, directing trading activity towards Bitcoin and Ethereum as more stable alternatives, with Ethereum seeing a daily volume increase of 30% to $25 billion by May 15, 2022. The failures of 3AC, Celsius, Voyager, and BlockFi in mid-2022, which collectively involved losses exceeding $10 billion, uncovered the risks related to excessive leverage and triggered a wave of liquidations across decentralized finance (DeFi) platforms, with Aave and Compound reporting liquidation volumes surpassing $500 million in June 2022. For traders, these incidents indicate the potential to short overvalued tokens during periods of market euphoria and to keep an eye on on-chain indicators such as large wallet outflows, which surged by 200% during the FTX crisis as large holders liquidated their assets, according to reports from Glassnode.
Technically, the ramifications of these events have created lasting effects on market indicators and correlations. During the FTX crisis, Bitcoin’s Relative Strength Index (RSI) plunged to an oversold level of 20 on November 9, 2022, suggesting a potential market bottom, while trading volume for Bitcoin against the USDT on Binance surged to 2.5 million BTC within a single day. The crash of LUNA resulted in Ethereum’s on-chain transaction volume peaking at 1.2 million transactions per day on May 10, 2022, as reported by Etherscan, indicative of panic selling and network congestion. Analysis across markets demonstrates a strong connection between cryptocurrency crashes and downturns in the Nasdaq 100, which fell by 5% from November 6 to November 10, 2022, during the FTX crisis, as risk-averse sentiment dominated. Additionally, institutional fund flows shifted, with the Grayscale Bitcoin Trust (GBTC) experiencing outflows of $200 million in the fourth quarter of 2022, according to their quarterly report, while crypto-related stocks like Coinbase (COIN) saw a 30% decline, from $70 on November 1, 2022, to $49 by November 15, 2022, according to data from Yahoo Finance. These correlations imply that traders can leverage stock market movements as predictive indicators for cryptocurrency volatility, particularly in times of crisis.
Ultimately, the repercussions of these events on the relationships between cryptocurrency and stocks, as well as institutional behaviors, are significant. Each collapse prompted both retail and institutional investors to reevaluate their risk exposure, resulting in a 50% reduction in venture capital investments for crypto startups in 2022 following the FTX incident, as noted by PitchBook. Furthermore, Bitcoin’s correlation coefficient with the S&P 500 reached a peak of 0.6 during the 3AC/Celsius crisis in June 2022, according to CoinMetrics data, underscoring how macroeconomic risk sentiment intertwines these markets. For traders, observing ETF inflows, such as the ProShares Bitcoin Strategy ETF (BITO) experiencing $100 million in outflows in November 2022, offers valuable insights into institutional market sentiment. While these events have been devastating, they also present trading opportunities for those who diligently track volume spikes, shifts in market sentiment, and cross-market trends, providing potential entry points during oversold conditions or shorting prospects amidst widespread failures.
What can traders learn from past crypto collapses like FTX and Mt. Gox?
Traders can glean vital lessons regarding risk management from past cryptocurrency collapses, such as the necessity of diversifying assets across various exchanges and utilizing cold storage solutions for significant amounts of cryptocurrency. Additionally, keeping an eye on on-chain data, including movements by large holders and exchange inflows during times of crisis, can serve as early warning indicators for potential price declines, similar to the observed drop in Bitcoin’s price during the FTX crisis on November 9, 2022.
How do crypto crashes impact traditional stock markets?
Crashes in the cryptocurrency market frequently coincide with declines in risk assets, including technology stocks. For instance, during the FTX fallout, the Nasdaq 100 experienced a 5% drop between November 6 and 10, 2022, reflecting a broader risk-off mentality among investors. This relationship allows traders to hedge their positions by monitoring stock indices as early indicators of potential volatility in the cryptocurrency market.
