Crypto Chaos

November 10, 2022

Cryptocurrencies: Daily Update

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If you haven’t already heard, the cryptocurrency industry is in distress once again with what one could only call another black swan event. The second largest exchange in the world, FTX has imploded seemingly overnight and is tanking the rest of the market with it.

The total cryptocurrency market cap is down over $220B (-22.5%) so far this week and there does not appear to be any kind of relief coming in the immediate future.

We can’t tell you anything that the major outlets can’t, but the basic story is that Sam Bankman-Fried’s FTX exchange underwent a bank run on their FTT token after the news broke of massive debts that undermined the basis of FTT’s value. Last week CoinDesk revealed that FTX’s main liquidity provider and Sam Bankman-Fried’s own trading firm Alameda Research held a large portion of its reserves in FTT, leaving both entities susceptible to market volatility.

Once FTX’s exposure to its own token was made public, the billionaire founder and CEO of Binance tweeted that he would be dumping the entirety of Binance’s FTT holdings, once valued at as much as $2.1B. This was the catalyst for all of the mayhem that we’ve seen in crypto so far this week.

The direct fallout of this situation has a few different aspects, but the main points of concern at the moment are what will happen to users that had funds held on FTX, what will happen to FTX moving forward, and what this all means for trading crypto moving forward.

FTX began halting withdrawals as soon as the FTT token started to drop in price, a desperate attempt to dump as much of their own token as possible before everyone else ate up any remaining liquidity in the markets. Although ethically abhorrent, this is a move that we saw take place in both the Celsius and LUNA meltdowns earlier in the year where the captains jumped ship and left all of their users to sink as a last-ditch attempt to salvage their business and any potential value it may still have.

This means that anyone with funds tied up with an FTX account is very unlikely to see them anytime soon, if ever. If you would do have funds with FTX and aren’t sure what your options are, your best bet is to keep up with the exchange on Twitter and hope that they eventually announce some kind of recovery.

Despite early rumors that Binance would save the day by buying out FTX and reconciling all user losses, it has been confirmed that Binance doesn’t want anything to do with them and FTX is likely to become worthless if they aren’t already. It is also very likely that Sam Bankman-Fried and others involved with the bad books at FTX will be charged with fraud at the very least as the whole situation is already being investigated by the SEC and CFTC.

The main trickledown effect of this event is that it has clearly spooked the rest of the market, even those that may have no direct involvement with FTX. Overall sentiment seems to be at an all-time low as FTX was deemed too big to fail and nobody would have ever considered an institution of its size could collapse overnight as smaller ones had earlier in the year.

It is unlikely that we’ll have any kind of clean bottom to cascading prices in the immediate future, especially with traders everywhere pulling their funds from exchanges en masse. The CryptoPulse Quant has exited both of its recent positions and looks likely to remain in cash for the foreseeable future after such a quick drop in prices, and for good reason.

Whether or not you choose to sell all of your crypto holdings, there are a few specific coins that you should absolutely consider selling as soon as possible because of their exposure to FTX if you haven’t already. Buying FTT right now is about the same as buying LUNA, just a pipedream. There is also Solana (SOL) which has already lost over half of its value this week alone having been originally brought to the masses by Sam and FTX. SOL was also one of Alameda’s largest holdings and is actively being dumped on the market by not just them but by all of the chain’s most loyal projects. 

We’re sure to hear plenty more about how this whole situation will unravel in the coming weeks but don’t expect anything positive to come of it. Protect your risk, don’t try to bottom pick, and be careful until the smoke clears.