The Exchange War: FTX Faces Liquidity Crisis

1 year ago

The beneath is an excerpt from a caller variation of Bitcoin Magazine Pro, Bitcoin Magazine's premium markets newsletter. To beryllium among the archetypal to person these insights and different on-chain bitcoin marketplace investigation consecutive to your inbox, subscribe now.

In “The Bigger They Are,” we concisely discussed the details astir Alameda Research’s equilibrium expanse and highlighted immoderate questions astir the magnitude of FTT tokens they ain successful their plus holdings.

In short, it was revealed by CoinDesk that Alameda Research, a proprietary trading steadfast co-founded by FTX co-founder Sam Bankman-Fried, has a ample magnitude of its nett equity tied up successful FTX’s autochthonal speech token.

It didn’t instrumentality agelong earlier it became a overmuch bigger woody successful the remainder of the marketplace with CZ, the CEO of Binance, telling the nationalist yesterday that Binance intended to liquidate each of their FTT holdings from their books (approximately $580m worthy astatine the clip of writing).

The CEO of Alameda Research, Caroline Ellison, responded with the following:

Those comments, on with responses from the heads of FTX and Alameda Research, person generated 2 reactions from the market:

A slope tally connected assets sitting connected the FTX platform.
An detonation successful unfastened involvement from speculators astir the worth of the FTT token.

Whether strategical oregon not, FTX is 1 of Binance’s largest competitors. In conscionable 1 day, those comments and Binance’s merchantability of FTT holdings started a concatenation of second- and third-order effects. Most importantly is simply a question of panic taking signifier that questions the solvency of some FTX and Alameda Research. As a result, we’ve seen astir $1 cardinal successful assets and token values alert retired of known FTX and Alameda addresses implicit the past week. That data was compiled by Larray Cermak, VP of probe astatine The Block.

Sam Bankman-Fried responded aboriginal this greeting to effort and calm markets and FTX customers. He highlighted the platform’s quality to screen each lawsuit holdings, arsenic good arsenic its excess currency position. Bankman-Fried besides responded to the reduced gait of lawsuit withdrawals from FTX.

There’s a broader hazard to the marketplace present arsenic we spot Alameda unwind galore different positions crossed tokens and bitcoin that volition beryllium utilized to rise further capital. Don’t hide that this duo is 1 of the astir captious institutions successful the space, particularly erstwhile it comes to providing marketplace making and liquidity for the full market. We’re conscionable successful the opening stages connected what whitethorn play retired here.

The Big Question

Two things that aren’t known and stay the biggest questions are:

What are Alameda’s liabilities, successful which currency and lent from whom?
Does FTX person important counterparty vulnerability to Alameda, fixed the companies’ highly adjacent and often opaque narration with each other.

The accelerated summation successful withdrawals by FTX users bespeak the uncertainty to the answers of some of these questions.

In respect to the 2nd question, wallet movements from Alameda yesterday nighttime surely don’t animate confidence.

The Speculative Attack

It’s important to retrieve that we don’t needfully cognize the nonstop presumption of Alameda’s finances. However, we person seen their determination to support the $22 level arsenic good arsenic its value arsenic enactment successful the adjacent chart. This provides a beardown confluence of variables.

Alameda would apt not person specified a vested involvement successful defending this level if it was not leveraged. Otherwise, they would fto the marketplace autumn arsenic overmuch arsenic it wants and simply get FTT astatine a little price.

If Alameda has collateralized their FTT position, determination are nary ample buyers to service arsenic bargain broadside liquidity.

As reported by Dirty Bubble Media, the dynamic betwixt FTX and FTT token looks awfully akin to that of Celsius Network and its token, CEL.

We look to beryllium watching a classical speculative onslaught unfold. The champion lawsuit for Alameda (and the marketplace successful general) is that the liabilities person been severely reduced since the extremity of the 2nd quarter, and they are simply buying their token to prop up the marketplace to animate confidence.

In our view, this is unlikely. We judge with an expanding level of assurance that determination is simply a overmuch much important conflict going connected and the FTT speech complaint is simply a substance of solvency for Alameda.

Final Note:

Industry titans person begun to battle. What began arsenic passive-aggressive comments connected societal media has turned into outright market-based fiscal warfare. While Alameda attempts to support the FTX speech token FTT with its spare capital, CZ looks to beryllium rejoicing successful the infinitesimal arsenic speculators heap connected short, frankincense expanding the downward speech complaint pressure.

As of now, we are near with much questions than answers arsenic to the authorities of Alameda’s fiscal standing.