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After spurring a ferocious wave of volatility that has ricocheted across the entire crypto sphere and bled into high-beta US equities, the FTX exchange might just be able to survive after all.
For those who might be unaware, FTX essentially suffered a bank run when Binance announced to dump its holdings of the FTT token due to the outsized exposure that Alameda Research – the trading arm of FTX’s founder Sam Bankman-Fried (SBF) – maintained to this synthetic coin on its books, which, according to Binance, amplified the risk around the FTT ecosystem. Bear in mind that FTX incentivized its users to hold the FTT token by offering attractive discounts on trading fees along with a host of other rewards. The exchange maintained FTT’s value by using a third of its trading commissions to buy back FTT coins, which were then burnt.
In reality, FTX and Alameda were running a Ponzi scheme where Alameda was able to acquire FTT coins at very cheap prices (through pre-mining, etc.) while FTX artificially inflated the coin’s price via regular burns. Alameda then posted its FTT holdings as collateral to borrow around $6 billion in FTX client funds. These client funds were used by Alameda to place leveraged bets. However, the gameplay ended when Binance’s decision to dump FTT unleashed cascading liquidations that pummeled the coin’s price. With Alameda’s collateral crashing and FTX experiencing elevated withdrawal requests, the exchange has found itself on the brink of bankruptcy.
As we noted earlier today, FTX has been actively negotiating with Justin Sun, the founder of blockchain-based, entertainment-focused digital platform Tron, after bailout talks with Binance collapsed yesterday. The embattled exchange is also reportedly in talks with Singapore’s Temasek.
— *Walter Bloomberg (@DeItaone) November 10, 2022
Now, Reuters is out with the scoop that FTX is seeking a $9.4 billion package, with Justin Sun contributing $1 billion to this bailout attempt. Another $1 billion is expected to come from the OKX crypto exchange. Tether is also expected to contribute $1 billion, while a consortium of investment funds is slated to provide $2 billion. The residual $4.3 billion will be coughed up by other investors, including Daniel Loeb’s Third Point hedge fund.
Nonetheless, and this is a major qualifier, SBF is currently experiencing difficulty in finalizing this ambitious rescue package. Consequently, the probability that FTX eventually goes under can’t be written off at this stage.
In other news, FTX has finalized an interim "special facility" with Tron to "allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. Note that all of these coins are linked to Justin Sun, which means that Tron is in a unique position to facilitate this swap arrangement. This functionality will be enabled at 18:30 UTC, November 10, 2022." The company went on to note in a blog post:
"Initially, $13,000,000 of assets will be deployed to facilitate such swaps. Information on future capital injections will be shared on a weekly basis."
FTX Exchange (0x2faf) has resumed transfer out 1 hour ago.
A total of 99 transfers were made, with $4,433,330 stablecoins.
— Lookonchain (@lookonchain) November 10, 2022
Meanwhile, it appears that FTX has at least partially resumed the processing of withdrawal requests, with its hot wallet address no longer dormant.
Strip away housing from core and CPI fell for the first time since May 2020 pic.twitter.com/qSe898z3w6
— zerohedge (@zerohedge) November 10, 2022
In other news, today’s mild CPI print has created a massive bullish tailwind that is currently supporting cryptocurrencies, including Bitcoin, as investors pare back hawkish bets on the Federal Reserve's monetary trajectory. Bear in mind that the world’s premier cryptocurrency had touched the $15,000 price handle yesterday as the negotiations between FTX and Binance faltered.
Super negative funding rate, asymmetric negative skew towards puts and massive unwind of the carry trade in consequence of the negative basis rate are all indicative of a short-term bottom.
Combine that with fire-sale valuations and you get most-likely the cyclical bottom.
— André Dragosch⚡ (@Andre_Dragosch) November 10, 2022
Today’s price action is spurring a few analysts to pronounce that the bottom for Bitcoin is probably in. However, we’ll withhold such a pronouncement for now, especially as Bitcoin has yet to complete its customary 80 percent correction from the previous all-time highs. After all, such a correction has been the hallmark of each of Bitcoin’s previous bear markets.