September 18, 2023
The Bankrupt FTX Gets Court Approval to Sell $3.4 Billion in Crypto Assets: How Will It Affect the Market?
As people's attention spans shrink and other means of maintaining focus blur, it becomes increasingly difficult to get people to think critically.
That rings true to me, especially in the context of the latest hot topic about FTX, which is desperately trying to get regulatory approval to sell $3.4 billion in cryptocurrency assets.
While some market observers believe that most of the tokens, especially Solana, which are locked in according to the vesting schedule, allay fears of an immediate liquidation, I still see clear implications for the market.
I'm not saying it's going to be an earth-shattering event; I'm just saying that rushing to judgment on a hasty basis will have serious consequences for everyone involved, without exception.
And the following events are a telltale sign of this.
As you read this, insolvent cryptocurrency exchange FTX has received approval from the Delaware Bankruptcy Court to liquidate its $3.4 billion in cryptocurrency assets.
The company said the decision would allow it to refund customers in U.S. dollars and mitigate risks associated with volatile cryptocurrency market prices.
I won't bog down the plot here, but will summarize the point.
Initially, the U.S. Trustee questioned FTX's approach to liquidation, insisting that any intention to liquidate significant assets must be publicly disclosed. This concern arises from the potential market disruption that could result from the sale of such significant amounts.
Under the plan, FTX would be permitted to sell tokens with an aggregate value of up to $100 million per week, with the possibility of increasing this limit to $200 million for individual tokens.
In general, FTX's crypto holdings are estimated to include approximately $685 million in locked Solana tokens, $529 million in FTT tokens, $268 million in Bitcoin, $90 million in Ethereum, and millions in various other assets.
In an attempt to find common ground and compromise, FTX committed to maintaining a confidential channel of communication with the U.S. Trustee and the committees representing its creditors in order to minimize the potential market impact of the proposal.
In other words, they recognized that even the suggestion of a large-scale sale could trigger a downward spiral in the cryptocurrency markets.
Let's pause for a moment and imagine that these sums are spilled out into the market, even assuming that there is some buyer demand to begin with.
This is not a case of two steps forward, one step back; in our case it is more like one step up, two steps down. All of the readily apparent earlier movements toward recovery that are about to appear would push that point far back in the case of this "compromise" decision.
Perhaps the release of such a volume of holdings into the open market will have no short-term effect on the price of the token.
In the long run, however, such unforeseen events (or better yet, events that occur through manual action rather than being dictated and regulated solely by the market's supply and demand principle) are bound to have a huge impact on all parties involved. Not for the better, of course.
After all, one thing is for sure - the liquidation will definitely lead to short selling and cause crypto asset prices to plummet.
So, the name of the game now is to get rid of all prejudices while developing critical thinking and drawing your own conclusions about the issue at hand.