FTX recently obtained court approval to liquidate its substantial crypto holdings, estimated at around $3.4 billion. Can FTX Liquidation Lead To An Altcoin Crash?
According to the latest court documents, FTX’s crypto portfolio includes over $1.1 billion in SOL and approximately $870 million in BTC, ETH, and USDT. Other notable holdings include Aptos (APT) at $137 million, XRP at $119 million, Bit DAO’s token BIT at $49 million, and Stargate Finance’s STG token at $46 million.
Source: US Bankruptcy Court, District of Delaware
These valuations are contingent on the assumption that FTX can liquidate these crypto assets at current market prices.
Structured Sales Approach
The liquidation process is scheduled in increments of $50 million to $100 million per week, from Saturday through Friday. However, the methodology for offloading these holdings remains uncertain. FTX management may sell directly via centralized exchanges or engage with OTC market makers.
In both scenarios, the market impact could be significant due to the prevailing conditions of subdued altcoin trading volumes and liquidity, which have reached multi-year lows.
While OTC transactions are generally less disruptive, soliciting a quote from a market maker may result in information leakage, potentially leading to a decline in asset prices.
Anticipated Market Impact
Even before the court approved this liquidation plan, anticipation of the sales had already precipitated a decline in altcoin prices. Funding rates for SOL and APT have remained negative, indicating market sentiment.
Source: Kaiko
Analyzing the average daily volume and market depth of FTX’s top crypto asset holdings, BTC and ETH emerge as the most liquid, boasting average daily volumes of $9 billion and $3.4 billion, respectively.
XRP, having been recently re-listed by major U.S. exchanges, has experienced a surge in trade volume and market depth. On the other hand, STG and BIT are the least liquid holdings, with average daily volumes in the low millions and market depth measured in the hundreds of thousands.
Source: Kaiko
A broader view of market depth for FTX’s crypto asset holdings reveals a significant drop in liquidity over the past year across the board.
Source: Kaiko
Even the most liquid altcoins on FTX’s balance sheet have seen their liquidity decline from $90 million pre-collapse to a current level of $50 million, which is just half the $100 million upper weekly sales limit. Additionally, liquidity is increasingly concentrated on offshore exchanges, making selling exclusively on U.S. markets a costlier option.
Source: Kaiko
Coinbase has a higher price slippage compared to Binance. And the difference between the expected and execution price for a simulated $100,000 market sell order.
FTX’s liquidation plan faces significant challenges due to current market conditions, including low liquidity and trading volumes of altcoins.
The liquidation method and its potential market impact remain central concerns as FTX proceeds with this substantial divestment.
Disclaimer
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