What impact did the FTX incident have on the encryption market?

Original title: "Perspective on the FTX incident, how fragile the encryption market is now"

Original author: Asher Zhang, Bitui

Core point of view: Whether FTX will be the next Three Arrows Capital, the possibility may be relatively small, but in a bad market environment, if you encounter a big short attack , the market is under the herd effect, panic intensifies, and digital assets are expected to shrink further; and FTX is likely to cash out in a large amount in the short term due to market protection and capital turnover, which leads to weak short-term buying and huge selling of digital assets. The vulnerability of the market has risen enormously, and the risk of an accelerated decline in currency prices has increased. What needs to be more vigilant is that if such a spiral decline occurs, the real risk of a run on FTX will come, and FTX's capital chain may be unable to pay due to the shrinkage of digital assets. In addition, from a macro perspective, U.S. stocks and Bitcoin are closely linked. The U.S. mid-term elections and this week’s CPI data are likely to further dampen market confidence, and may become the last straw that crushes the camel. The following article will discuss the above viewpoints in detail.

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A few facts behind the FTX incident that cannot be ignored

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Regarding the FTX incident, the media has reported it in detail. This article only briefly introduces the outline, the purpose is to sort out the timeline. This article focuses on some potential facts and analyzes them.

For the FTX incident, CoinDesk first exposed Alameda’s financial data, the market was in an uproar, and panic began spread. He Yi, the co-founder of Binance, tweeted an insinuation of the incident, and the market's speculation on the financial status of FTX and Alameda intensified. Subsequently, Whale Alert detected that $580 million in FTT was transferred from an unknown wallet to Binance. CZ said that this was the fact that Binance was liquidating FTT. This "butterfly effect" caused the market panic to reach its climax, and selling pressure began to arise . Afterwards, SBF and CZ expressed their intentions and expressed no intention of going to war. Regarding Coindesk’s report, Alameda CEO Caroline responded that it was not true, saying that its assets of more than 10 billion US dollars were not reflected there, and then expressed her willingness to buy all FTT of Binance at a price of 22 US dollars.

So behind this incident, what risks and facts are worth noting?

1. FTX and Alameda have a close relationship, the founders are both SBF, FTX after the LUNA crash , frequently sell, participate in unsecured loans, buy bankruptcy liquidation companies, spend money on sponsorships, etc. Among the more well-known companies involved in acquisitions include Celsius, Blockfi, Voyager, etc. This is also the gist of the insinuation of a well-known figure in an exchange, and the large amount of money may have been excessive.

2. On September 22, it was reported that the encryption exchange FTX is working with The source of the earnings report obtained by Coindesk may be related to potential investor negotiations to obtain up to $1 billion in new funds. In addition, in January this year, FTX Trading Ltd. announced the completion of a US$400 million Series C financing with a valuation of US$32 billion. SoftBank, Paradigm, Tiger Global and the Ontario Teachers’ Pension Plan Board participated in the investment. FTX’s frequent financing, in addition to expanding its business territory, may also be intended to make up for the funding gap.

3. Binance He Yi stated that the decision of Binance to clear FTT is determined by the risk monitoring system . This means that even if FTX said that there is no financial problem, Binance still thinks there is a problem from the perspective of risk control (FTT is currently at the low point of the bear market). Although the market does not know where the risk point is, considering The LUNA thunderstorm event, follow-up has become a panic tendency in the market.

4. Alameda said that he is willing to accept FTT at $22, and now that FTT has fallen below $22, market psychology The defense line has been broken, and the panic has begun to spread like dominoes. Regarding this crisis, Xu Mingxing seems to have also smelled it, and came out to persuade him: "The collapse of FTX will not benefit the entire industry. I hope that CZ and SBF will reach a new agreement. Helping FTX recover from the current rumors is the best choice for CZ."

5. Faced with a large number of users withdrawing cash, Alameda and FTX began to mobilize a large amount of funds to cope with the run, and sold Some other encrypted assets are used to protect the market, including selling assets or including BIT. The risk of FTX has essentially spread to the entire market. If the big shorts follow up, the possibility of falling into a death spiral is rising. According to Nansen data, in the past 24 hours, the total deposit of ERC20 tokens (including ETH) on FTX was 540 million US dollars, the total withdrawal was 1.2 billion US dollars, and the net outflow was 653 million US dollars.

6. On-chain data shows that FTX seems to have stopped processing customer withdrawal requests. The last transaction of FTX on the Ethereum blockchain occurred at 18:37 on November 8, Beijing time. But there are currently still users waiting in line for their withdrawals. The same is true for FTX’s addresses on the Tron and Solana blockchains.

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How the FTX event will affect the crypto market trends

Through the above analysis, we can see that Alameda and FTX have indeed made great strides in the past year, which has caused their funds to become less abundant, so they frequently use financing to relieve pressure. Judging from the data on the chain, its assets are generally relatively dispersed, so there will be a steady stream of funds withdrawn to FTX, which will lead to liquidity problems in the encryption ecosystem. Judging from the outflow of funds, the panic in the market has spread rapidly, and the current net outflow is 653 million US dollars. From the price point of view, the FTX incident has spread to the encryption market, and the encryption market has reached a very important juncture.

The reason why this is a very important pass needs to be further discussed in terms of price. As of 17:00 on November 8th, Beijing time, FTT fell below $22, and the current price is $18.36. If $22 cannot be recovered, it will easily cause market confidence to collapse. Alameda CEO Caroline once said that she would accept Binance’s selling pressure at this price , if it encounters short sellers, the run on FTX will undoubtedly intensify, even if traditional banks encounter crazy runs, it will be too much; and if FTT continues to collapse, other ecological projects will be further collapsed, such as the public chain Solana, which is vigorously supported by SBF (SOL), BitDAO (BIT), which had 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. It has cooperated with Google Cloud, NFT will be launched on Instagram, the mobile phone will be delivered next month, and the EVM compatible network will be launched soon, 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 encryption ecosystem. At present, Bitcoin has fallen below the psychological barrier of 20,000 US dollars, and Ethereum has fallen below 1,500 US dollars. Among them, 20,000 US dollars of Bitcoin is also a very important psychological and support position. If FTX thunders, it is not impossible for Bitcoin to plummet, because FTX’s Its size is probably bigger than Sanjian.

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From a macro perspective, the correlation between U.S. stocks and Bitcoin is relatively high. U.S. stocks closed higher overnight, and Bitcoin briefly stabilized. This shows that the strengthening 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 investors should continue to be optimistic about the stock market ahead of this week's US midterm elections. Polls show that Republicans will win at least one of the two houses of Congress. The potential catalyst for the downward trend in U.S. bond yields and the rise in U.S. stocks has allowed the bear market rally in U.S. stocks to continue. During this period, it may be the most critical window period for FTX to save itself. In addition to the impact of the mid-term elections, US stocks will welcome the key October CPI inflation data this week. If the data is too bad, it will also be a blow to the encryption market.

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Winter is coming, survival is the most important thing

November 7th is the beginning of winter, and the winter in the encryption market seems to be coming as scheduled. Whether FTX will be the next Three Arrows Capital, the possibility may be relatively small, but in a bad market environment, if there is a big short attack, the market will be under the herd effect, panic will intensify, and digital assets are expected to further increase Shrinking; and FTX has a high probability of cashing out in a large amount in the short term due to market protection and capital turnover, which leads to weak short-term buying, huge selling of digital assets, extremely high market vulnerability, and increased risk of accelerated decline in currency prices. What needs to be more vigilant is that if such a spiral decline occurs, the real risk of a run on FTX will come. FTX’s capital chain may be unable to pay due to shrinking digital assets, and the risk of a market crash is expected to be greatly increased. In addition, from a macro perspective, U.S. stocks and Bitcoin are closely linked. The U.S. mid-term elections and this week’s CPI data are likely to further dampen market confidence, and may become the last straw that crushes the camel.

However, the ups and downs of the short-term market are due to the lack of transparency of centralized exchanges. Some judgments may also be biased. However, from a macro point of view, Bitcoin has fallen from around $70,000, and the current consolidation time is relatively short. The overall market momentum is lacking, and panic is relatively easy to spread. Generally speaking, it is too early to say a trend rise. The downside risk is relatively large.

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