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Cryptocurrency Meltdown Pauses After FTX and Alameda Implosion

Cryptocurrency Meltdown Pauses After FTX and Alameda Implosion

Nick Cawley, Senior Strategist

Bitcoin (BTC), Solana (SOL), and FTX (FTT) Prices, Charts, and Analysis:

  • Binance backs out of a potential FTX bailout after looking at the books.
  • FTX and Alameda are under heavy regulatory scrutiny.
  • Liquidity concerns continue to roil the market.
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This week’s collapse of cryptocurrency exchange FTX, and sister company trading house Alameda, sent shockwaves through the crypto market and left investors and traders alike nursing heavy losses on their digital coins and tokens. While the market continues to fear potential knock-on liquidity problems, the cryptocurrency market will remain under selling pressure and further losses may accrue.

This week’s liquidity crunch at FTX, who it seems had been lending customer’s deposits to Alameda in an attempt to stem heavy trading losses, left FTX customers unable to withdraw their funds from the exchange, with fears now that many of them will not get any of their money back. Another cryptocurrency exchange, Binance, mooted buying FTX’s non-US unit but quickly backed away from any potential bailout after looking at FTX’s books.

The week started with large withdrawals from FTX over the weekend, sparking a Twitter row between FTX owner Sam Bankman-Fried and Binance owner and CEO Changpeng Zhao (CZ).

Bitcoin (BTC) Slumps as FTX and Binance Spat Hits Market Sentiment

The situation then took a turn for the worse after Binance agreed to acquire FTX, only to pull out of the deal after looking at FTX’s numbers.

Bitcoin Agrees to Acquire FTX, Bailing Out its Rival to Plug a Liquidity Hole

With the situation turning increasingly sour the cryptocurrency market sold off further, sending coins and tokens tumbling to multi-month lows and worse. The owner of FTX and Alameda, sent out a series of tweets on Thursday admitting that he had ‘f*cked up’ and ‘should have done better’. In his mea culpa, Sam Bankman-Fried admitted ‘poor internal labelling of bank-related accounts’ and liquidity issues.

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It then turns out, according to a story in The Wall Street Journal that FTX had been lending customer deposits to its sister firm Alameda Research to prop up its ailing trading business. According to the article, FTX lent about USD10 billion to Alameda. On Thursday, Sam Bankman-Fried said that Alameda was winding down its trading operation.

One article written around a week ago by CoinDesk, also showed that a large portion of Alameda’s balance sheet was made up of FTT tokens issued by FTX. As the value of these tokens collapsed, Alameda’s fate was sealed.

The heavy losses involved in the FTX/Alameda collapse have prompted swift actions by a range of regulatory bodies. The Securities Commission of Bermuda has frozen the assets of the Bahamian subsidiary of FTX, while the SEC and the Justice Department are now investigating FTX.

The FTX/Alameda collapse sent cryptocurrency prices sharply lower over the week with the market capitalization of the space falling by around 20%. The FTT token fell from the mid-$20s to a current level of $3.49 over the past seven days, wiping out billions of dollars….

FTT (FTX) Token Price Chart – November 11

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….while Solana (SOL), one of Alameda’s largest holdings, halved in value over the week on investor fears that Alameda’s position will be dumped on the market. Solana traded as high as $260 one year ago.

Solana (SOL) Daily Price Chart – November 11, 2022

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Bitcoin was not immune to the market sell-off and at one stage broke below $16k this week, its lowest level in two years. The market has picked up marginally with BTC/USD now trading around $17.4k.

Bitcoin (BTC/USD) Daily Price Chart – November 8, 2022

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Chart via TradingView

What is your view on Bitcoin – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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