Core view: Whether FTX will be the next Three Arrows Capital may be relatively unlikely, but in a bad market environment, in the event of a big short sniper, the market is under the herd effect, the panic intensifies, and digital assets are expected to shrink further significantly ； The FTX is likely to cash out a large amount in the short term due to the protection and capital turnover, which causes weak short-term buying, huge digital asset selling, extremely high market vulnerability, and increased risk of accelerated decline in currency prices. What needs to be more vigilant is that if this spiral falls, the real run risk of FTX will come, and FTX’s capital chain may be unable to be paid due to the shrinkage of digital assets. In addition, from a macro point of view, US stocks and bitcoin are closely linked, and the US mid-term elections and this week’s CPI data are likely to further hit market confidence, which cannot be ruled out as the last straw that crushes the camel’s back. The following article will explore the above points in detail.
A few facts behind the FTX incident that cannot be ignored
The FTX incident has been reported in great detail in the media, and this article is only a brief outline in order to sort out the timeline, and this article focuses on some potential facts and analyzes them.
The FTX incident, first of all, CoinDesk exposed Alameda’s financial data, the market was in an uproar, and panic began to spread. Binance co-founder He Yi tweeted insinuations about the incident, and the market’s speculation about the financial situation of FTX and Alameda intensified. Subsequently, Whale Alert detected that $580 million of FTT was transferred from an unknown wallet to Binance, and CZ said that this was the fact that Binance was liquidating FTT, a “butterfly effect” that caused the market panic to reach a climax and the selling pressure began to occur. Subsequently, the SBF and CZ expressed their intention to go to war after simple expressions of ideas. In response to Coindesk’s report, Alameda CEO Caroline responded that it was not true, saying that its assets of more than $10 billion were not reflected there, and then said that it was willing to buy all of Binance’s FTT for $22.
So what are the notable risks and facts behind this incident?
1. FTX and Alameda have a close relationship, the founders are SBF, FTX after the collapse of LUNA, frequent sales, participate in unsecured loans, purchase bankruptcy liquidation companies, spend money sponsorship, etc., among which the more well-known companies involved in the acquisition include Celsius, Blockfi, Voyager and so on. This is also the point of the irony of a well-known figure on an exchange, and a large amount of money may have been excessive.
2. On September 22, it was reported that crypto exchange FTX was in talks with potential investors to obtain up to $1 billion in new funding, and the source of Coindesk’s earnings report may be related to this. In January, FTX Trading Ltd. announced the completion of a $400 million Series C funding round valued at $32 billion, with participation from SoftBank, Paradigm, Tiger Global and the Ontario Teachers’ Pension Planning Commission. FTX raises frequently, not only to expand its business footprint, but also to make up for the funding gap.
3. According to Binance, the decision to liquidate FTT on Binance is determined by the risk monitoring system. This means that even if FTX says that there is no financial problem, Binance still believes that there is a problem from the perspective of risk control (FTT is currently at a bear market low), although the market does not know where the risk point is, but considering the LUNA thunderstorm event, it has become a panic tendency in the market.
4. Alameda said it was willing to close FTT at $22, and now FTT has fallen below $22, the market’s psychological defense line has broken down, and this panic has begun to spread like dominoes. Regarding this crisis, Xu Xingxing also seemed to smell it, and came out to persuade: “FTX is useless to the entire industry, and I hope that CZ will reach a new agreement with SBF to help FTX recover from the current rumors is the best choice for CZ.”
5. In the face of a large number of user withdrawals, Alameda and FTX began to mobilize a large amount of funds to cope with the run, and sold other crypto assets held for protection, including the sale of assets or also BIT, FTX’s risk has essentially spread to the entire market, if the big bears follow, the possibility of falling into a death spiral is rising. According to Nansen, there were $540 million in deposits of ERC20 tokens (including ETH) on FTX in the past 24 hours, with a total withdrawal of $1.2 billion and a net outflow of $653 million.
6. On-chain data shows that FTX appears to have stopped processing customers’ withdrawal requests. The last transaction of FTX on the Ethereum blockchain took place on November 8 at 18:37 Beijing time. But there are still users waiting in line for their withdrawals. FTX has a similar situation with addresses on the Tron and Solana blockchains.
How FTX events will affect crypto market movements
From the above analysis, we can see that Alameda and FTX have really made great strides in the past year, which has led to their funds beginning to become less abundant, so they frequently use financing to relieve pressure. From the perspective of on-chain data, its assets are generally relatively scattered, so there will be a steady stream of funds withdrawing FTX, which also leads to liquidity problems in the crypto ecosystem. In terms of capital outflows, market panic has spread rapidly, with a net outflow of $653 million. From a price point of view, the FTX incident has spread to the crypto market, and the crypto market has come to a very important threshold.
The reason why this is an important threshold needs to be further talked about in terms of price. As of 17:00 Beijing time on November 8, FTT fell below $22, now quoted at $18.36, if $22 can not stand back, it is easy to cause market confidence to collapse, Alameda CEO Caroline has said to receive the pressure of Binance at this price, if it encounters a short sniper, the run on FTX will undoubtedly intensify, even if traditional banks encounter a crazy run, it will be very unbearable; If FTT continues to collapse, it will further bring down other ecological projects, such as the public chain Solana (SOL), which is vigorously supported by SBF, BitDAO (BIT), which has a token swap agreement with FTX, and Abracadabra Finance (MIM), a decentralized stablecoin project that uses FTT as one of the main collateral assets. Among them, SOL has been positive recently, its cooperation with Google Cloud, NFT launched on Instagram, mobile phone delivery next month, EVM compatible network is about to be launched, etc., but it is still shaky, which shows the weight of market panic. The collapse of the FTX ecological empire will inevitably further affect the entire crypto ecosystem. At present, bitcoin has fallen below the $20,000 psychological mark, Ethereum fell below $1,500, of which bitcoin $20,000 is also a very important psychological and support position, if FTX thunders, bitcoin plunge is not impossible, because the volume of FTX is probably larger than three arrows.
From a macro point of view, the correlation between U.S. stocks and bitcoin is relatively high, overnight U.S. stocks closed higher, bitcoin briefly stabilized, which indicates that the strength of U.S. stocks will have a certain positive effect on bitcoin in the short term. Wilson, chief strategist at Morgan Stanley, a well-known big short on Wall Street, said that investors should continue to be bullish on the stock market ahead of this week’s midterm elections, and polls show that Republicans will win at least one of the two houses of Congress, which may become a potential catalyst for the downward trend in U.S. Treasury yields and the rise in U.S. stocks, thus allowing the bear market rally in U.S. stocks to continue. During this time, it may be the most critical window for FTX to help itself. In addition to the midterm election impact, this week US stocks will welcome the key October CPI inflation data, which is also a blow to the crypto market if the data is too poor.
Winter has arrived, and survival is the most important thing
November 7 is the beginning of winter, and winter in the crypto market seems to be coming as scheduled. Whether FTX will be the next Three Arrows Capital may be relatively unlikely, but in a bad market environment, in the event of a big short sniper, the market will intensify under the herd effect, and digital assets are expected to shrink further sharply; The FTX is likely to cash out a large amount in the short term due to the protection and capital turnover, which causes weak short-term buying, huge digital asset selling, extremely high market vulnerability, and increased risk of accelerated decline in currency prices. What needs to be more vigilant is that if this spiral declines, the real run risk of FTX will come, and FTX’s capital chain may be unable to be paid due to the shrinkage of digital assets, and the risk of collapse of the broader market is expected to be greatly increased. In addition, from a macro point of view, US stocks and bitcoin are closely linked, and the US mid-term elections and this week’s CPI data are likely to further hit market confidence, which cannot be ruled out as the last straw that crushes the camel’s back.
However, the short-term market ups and downs, due to the lack of transparency of centralized exchanges, some judgments in this article may also be biased. However, from a macro point of view, bitcoin fell from near $70,000, the current consolidation time is relatively short, the overall lack of offensive momentum in the market, panic is relatively easy to spread, overall, the trend upward is still early, and the downside risk is relatively large.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/ftx-incident-have-on-the-crypto-market/
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