What happened 

The cryptocurrency meltdown has continued in a big way on Wednesday and it may get worse. Yesterday, major crypto exchange FTX ran into insolvency issues and competitor Binance agreed to buy the company. But that has spooked the crypto market and may cause billions of dollars of liquidations as FTX unwinds positions it holds with sister company Alameda Research, which FTX founder Sam Bankman-Fried also owns. 

As of 3:30 p.m. ET, Bitcoin (BTC -4.86%) had fallen 7.8% in the last 24 hours to $16,845, Wrapped Bitcoin (WBTC -4.55%) was down 7.8% to $16,824, and Silvergate Capital (SI 7.32%) had dropped as much as 14.3% but is now down 9.2% on the day. 

So what 

FTX's collapse has had a number of impacts on the crypto market. The first is that unwinding some of these positions will mean selling in an already illiquid crypto market, so values are dropping quickly.

To complicate matters, reporting from CoinDesk and others indicates Binance may actually back out of the proposed agreement to buy FTX. The companies didn't agree to the final terms of a buyout, but rather a letter of intent that allows Binance to look at FTX's books and see if it wants to move forward. It's very possible that Binance backs out if it sees something it doesn't like. This could send the market into further chaos.

Silvergate Capital put out a note that reiterated that it's regulated in the U.S. and has both ample capital and the ability to access "the Federal Home Loan Bank and the Federal Reserve Bank, further strengthening our liquidity position." Investors and traders are looking for any kind of certainty and safety right now, so statements like this are being made across the industry.

Now what 

This is arguably the biggest news item in crypto markets ever and it's not clear what the fallout will be. But I'll note that this summer crypto investors saw the collapse of Three Arrows Capital, Celsius Network, and Voyager and the industry moved on. 

Unwinding leveraged positions can lead to losses and the value of tokens can reset lower as the market finds a balance of buyers and sellers, but the crypto market has found its way much more quickly than traditional banks. 

This may also be an event that forces U.S. regulators and lawmakers to act more quickly, writing rules that create a more solid playing field for investors and developers. That would be welcome news to the industry. 

I don't think the decline in crypto is done, but it's not all bad that leveraged traders are being forced out of the market. FTX was once a big name in crypto; now it may be relegated to a cautionary tale of how celebrity and leverage can lead to disaster in crypto markets.