From 85 to 2 dollars, FTT tokens in a bloodbath. How will FTX bankruptcy impact crypto markets?

On Saturday, at CoinMarketCap, FTT tokens were pushed off the cliff where they lost millions of dollars of market valuation. At the time of writing, FTT tokens are trading at $2.05 down by nearly 40%. Its market cap is around $272.89 million — which can go further south in the coming days.

Due to extreme selloff, FTT tokens’ weekly drop is now nearly 92%, while its monthly downturn is nearly 91%.

FTT tokens 7-day high is around $24.83 — but has corrected significantly — taking its weekly low to $1.99. It’s 30-day high and low is around $26.47 and $1.99 respectively.

Compared to its all-time high of $85.02 level which was clocked on September 9, FTT tokens have plummeted by a breath-taking over 97.5% currently.

FTX’s co-founnder Sam Bankman-Fried faced the heat of the bloodbath in FTT.

According to a Bloomberg report, the entire $16 billion fortune of former FTX co-founder Sam Bankman-Fried has been wiped out, one of history’s greatest-ever destructions of wealth.

According to the CoinMarketCap website, FTX claimed that it stands out due to such features as clawback prevention, a centralized collateral pool, and universal stable coin settlement. As of 2022, the platform has over a million registered members, and the daily trading volume has reached billions of dollars.

FTT was launched by Sam Bankman-Fried in 2019. Soon after the stable coin was backed by significant trading companies in the industry, including Almeda Research, OTPP, Temasek, BlackRock, Coinbase Ventures, and Sequoia Capital.

A couple of months ago, FTX seemed like a saviour for many illiquidity-suffered crypto exchanges. Bankman-Fried was known for his arbitrage trading and huge investments. FTX had even bailed out lending platform BlockFi in June when the crypto markets were struggling due to the Terra crash in May, their founder Bankman-Fried was also among the bidders for Voyager’s assets, and even contemplated bailing out Celsius.

Then how did FTX enter into troubled paradise?

At first, it was Alameda’s balance sheet that raised questions as it was reported to be heavily stacked with its sister company FTX’s native tokens instead of other cryptocurrencies — which led to a panic selling in FTT and not just that in overall crypto markets. Then followed the fear of insolvency in FTX Group over its financial positions. But when Binance started to liquidate their holdings in FTT tokens, and then later this Changpeng Zhao-backed company refused to bail out FTX — situations at Sam Bankman-Fried backed firm only worsen.

Expectations of insolvency in FTX escalated further which led to a series of free falls in FTT tokens. Things went frantic when finally on November 11, FTX Group announced their filing of Chapter 11 for bankruptcy.

On Friday, FTX released a statement on its Twitter handler. It said that FTX Trading, West Realm Shires Services (FTX US), Alameda Research, and approximately 130 additional affiliated companies (together the FTX Group) have commenced voluntary proceedings under chapter 11 of the United States Bankruptcy Code in the District of Delaware in order to begin an orderly process to review and monetize assets for the benefits of all global stakeholders.”

Not just that, Sam Bankman-Fried has resigned from his post as CEO at FTX Group. John Ray III has been appointed in his place as the CEO.

According to FTX, the immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximise recoveries for stakeholders.

The aftertaste of the Terra tokens collapse that wiped out billions of dollars in wealth, the liquidation of Three Arrows Capital, and the illiquidity crunch that led to bankruptcies of many renowned exchanges like Celsius Network and Voyager Digital were still fresh in the minds of investors. Take note, the crypto market is still recovering from these crises. And now, FTX’s bankruptcy is another shock and dent in the trust of investors. This will probably have a acute impact on crypto markets. 

Currently, on CoinMarketCap, the global crypto market is trading at $846.60 billion lower by over 1% over the last day. Bitcoin is down by 2% and struggling to float near the $16,800 mark. The majority of the cryptocurrencies are in a panic selloff.

Bitcoin’s weekly drop is around 21%, while Ethereum has dipped over 22.5%, BNB has plunged around 19.5%, XRP shed over 25%, and Dogecoin tumbled nearly 27%.

How will FTX bankruptcy impact crypto markets?

Amanjot Malhotra, Country Head – India, Bitay said, the FTT crash can start a snowball effect in liquidations as the lenders to FTX could also go down alongside them taking the investors down with them as well. We can see a lot of other companies and projects liquidating or declaring Bankruptcy.

Bitay India’s leader added that a lot of retail investors might go inactive for a while due to the current volatility in the market, on the other hand, institutional investors might like to capitalize on discounted assets at the moment and hedge their investments.

Malhotra further added that this event will somehow make other exchanges more powerful, especially Binance. Other active exchanges could see a flurry of deposits coming in which depends on which exchange is in its best shape at the moment. Although, retail investors will be wary of moving their funds from FTX to another exchange in the current situation. Investors might like to convert their ALts into Bitcoin, Ethereum, and other stablecoins and put them in a cold wallet till the point the market stabilizes.

As per Anurag Agrawal, Principal, Investment Strategy at Kunji, being one of the most widely connected firms across the Trading ecosystem, private crypto equity, sports arenas, and whatnot, FTX’s plunge will surely create havoc for crypto markets in the coming months.

He added that even though a final leg up is hugely probable for the broad markets, structural changes in the crypto ecosystem and much stricter regulations should be expected after this episode.

Further, Rajagopal Menon, Vice President, WazirX said, the worst might not be over yet, and anything can happen. The industry is worried contagion is here. Binance refusing to bail out FTX means they effectively have a massive hole in their balance sheet. Now the market has to deal with this new unknown; what is the size of the hole that SBF and FTX have dug themselves into?

Earlier, WazirX VP pointed out that Alameda has been borrowing from lenders by giving FTT as collateral. This means the lenders are underwater as they now own illiquid FTT. The consensus is that the biggest lenders, BlockFi and Genesis, probably have a 10 billion dollar balance sheet on how much of that was lent to Alameda. By the look of things, lenders of Alameda will have to absorb the full hit.

Also, Menon explained that this is a worrying development for the industry already in the middle of a bear market. The general feeling was that we had hit bottom, and the only way was up. Now the market has to deal with this new unknown; what is the size of the hole that SBF and FTX have dung themselves into?

“The general feeling was that we had hit bottom, and the only way was up. Things could get a lot worse in terms of volatility before they get better. In the long run, there will be a push for more transparency in the form of proof of reserves. Also, we expect the regulatory push to be much harder and faster,” Menon added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.