Crypto Market Drops on Potential $1.3B FTX Liquidation Contagion

Crypto market

The global crypto market has plummeted following news of a potential liquidation of $1.3 billion worth of users’ crypto assets locked in the custody of the defunct crypto exchange FTX. If released at once, the assets withdrawal is capable of plunging the crypto market, especially the altcoin market, into a severe bloodbath.

FTX to Liquidate $1.3B

FTX was once a multi-billion-dollar crypto derivatives exchange with Sam Bankman-Fried (SBF) as its CEO. However, following its dramatic crash in November 2022 and the arrest of SBF, the company’s administration changed. John J. Ray III, an American attorney known for recovering funds from failed companies, became CEO of the defunct exchange.

Under the administration of the new FTX CEO, the company recovered around $7 billion worth of assets. In a 47-page court document filed in August with the Delaware Bankruptcy Court, FTX’s legal team requested permission to sell and stake some of its assets in custody. The court document proposed the sale of up to $100 million worth of assets weekly. The court hearing is scheduled to be held on September 13th.

Another court document released today revealed that FTX held $3.4 billion in crypto assets. Crypto-focused research company Messari narrowed down the total crypto assets in the custody of FTX liquidators to $1.3 billion, excluding stablecoins. These cryptocurrencies include SOL, BTC, ETH, APT, DOGE, TRX, MATIC, and XRP.

Crypto Market May Be Affected by Liquidation

Following the revelation, the crypto market plunged into a bearish trend, causing investors to worry that a price drop might ensue due to a mass sale of tokens, especially for altcoins. 

FTX’s crypto balance sheet shows it holds $1.16 billion worth of SOL tokens. The asset’s value has already dropped by over 8% over the past 24 hours. SOL currently trades at $17.

The BTC stash is currently with $560 million, according to market prices from August 31st. Its ETH holdings equaled $196 million, followed by $136 million in APT.

Messari’s study reveals that the combined FTX and Alameda’s BTC holding ($353 million) is only about 1% of the asset’s weekly traded volume. It implies that the BTC “market can absorb much of the selling.” The same applied to ETH.

Assets such as DOGE, TRX, and MATIC may be impacted negatively by such massive token sales since they are less liquid in comparison to the two leading cryptocurrencies.

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