Still reeling from the LUNA meltdown earlier this year, the crypto niche of the financial markets suffered another serious knockdown during the second week of November. So far, the FTX group, and its associated FTX token (FTT), appear to be the most prominent casualties.
The FTT coin is down roughly 90% over the last seven days, and has pulled down the broader crypto universe along with it. The FTT implosion also appears to have sunk the FTX exchange—as well as its sister company Alameda Research—along the way.
Prior to last week, FTX was the second-largest cryptocurrency exchange in the world. As of this weekend, the exchange has entered Chapter 11 bankruptcy protection—a lightning-fast descent that’s sent shock waves through the industry.
The current crypto crisis appears to have started on Nov. 6, when the CEO of Binance, Changpeng “CZ” Zhao, announced on Twitter that the company was selling its entire stake of FTT coins. That revelation set off a crisis of confidence in FTT, which resulted in the sharp correction illustrated above.
Because FTT is viewed as a proxy for the fortunes of the broader FTX group, the crisis of confidence then spread like wildfire among customers of the exchange itself. Reports suggest that roughly $5 billion in customer deposits were withdrawn from the FTX exchange on Nov. 6. Due to the resulting cash crunch, FTX was forced to halt customer withdrawals, while it raced to secure emergency financing.
That bailout never materialized, and on Friday, Nov. 11, FTX filed for Chapter 11 bankruptcy. The well-known founder of FTX, Sam Bankman-Fried, has since resigned as CEO.
In recent days, it’s been reported that FTX had loaned customer deposits to its affiliate—Alameda Research. The latter company was using those funds in highly speculative fashion. Bankman-Fried indicated that Alameda now owes FTX somewhere in the range of $10 billion.
In the traditional world of finance, laws require customer funds to be segregated from other company assets, which is intended to protect against scenarios such as these. However, due to the mostly unregulated nature of the crypto universe, it’s unclear how much responsibility FTX will be forced to bear.
That begs two immediate questions—how much of that $10 billion will Alameda be able to pay back? And how will customers of FTX be made whole?
It could take months—or even years—for those questions to be answered.
Broader crypto sector trades lower on FTX news
The broader crypto sector turned south on the heels of the aforementioned developments. FTX is an established and well-known entity in the crypto sector, so its quick descent has stoked anxiety in the broader digital asset universe.
Last week, Bitcoin (BTC) traded down about 14% in the wake of the FTX news, and briefly dropped below $16,000/coin. It has since recovered slightly, and is trading around $16,500/coin as of Nov. 13.
Another large crypto trading exchange, Crypto.com, also reportedly halted customer deposits and withdrawals last week—particularly from the Solana (SOL) ecosystem, including the USD Coin (USDC) and Tether (USDT) stablecoins.
Solana has dropped in value by about 45% over the last 7 days, and is viewed as especially risky at this juncture because a large portion of the coin’s circulation is controlled by the FTX affiliate, Alameda Research.
Highlighted below are some of the worst-performing digital coins over the last 7 days (price data from Nov. 13):
- FTT Token (FTX), -90%
- Serum (SRN), -65%
- Marinade Staked SOL (MSOL), -63%
- Solana (SOL), -62%
- Celsius (CEL), -50%
- Huobi Token (HT), -50%
- Render Token (RNDR), -49%
- Aptos (APT), -49%
- VVS Finance (VVS), -48%
- Reserve Rights (RSR), – 46%
- Cronos (CRO), -46%
- Arweave (AR), -44%
- ApeCoin (APE), -44%
As illustrated in the chart below, bearish sentiment in the crypto sector has vastly reduced the overall value of the market during the last 12 months.
Considering the industry-wide pullback shown above, the current market environment may offer bullish investors and traders an opportunity to enter at attractive valuations—depending on one’s unique outlook, strategic approach and risk profile.
To learn more about the current state of the crypto industry, check out this detailed report from tastyworks. For daily updates on everything moving the markets—including the global crypto market—monitor TASTYTRADE LIVE, weekdays from 7 a.m. to 4 p.m. CDT.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to firstname.lastname@example.org.