FTX, the bankrupt cryptocurrency exchange, is scheduled to appear in Delaware Bankruptcy Court on Wednesday, September 13, to request approval for the liquidation of $3.4 billion in Bitcoin and crypto assets. Analysts and market participants have expressed concerns about the potential impact of this sale on an already struggling market.
According to the latest estimates from January 17, FTX holds a variety of cryptocurrencies, including $685 million in locked Solana (SOL) tokens, $529 million in FTT tokens, $268 million in Bitcoin (BTC), $90 million in Ethereum (ETH), and other assets such as Aptos ($67 million), Dogecoin ($42 million), Polygon ($39 million), and XRP ($29 million). In addition, there is approximately $1.2 billion held in crypto on third-party exchanges [Twitter source].
The prospect of such a significant sale has raised concerns about a potential selloff in the Bitcoin and crypto market. Market participants fear that the influx of billions of coins could delay the market’s recovery. However, it’s important to separate fact from fiction in this scenario.
Firstly, it is highly unlikely that these coins will be sold all at once on the open market. Secondly, there are proposed weekly limits on the amount that can be sold. And thirdly, it is expected that most coins will be sold Over-The-Counter (OTC), meaning that they will be sold directly to buyers, or gradually via market makers.
A closer look at FTX’s holdings reveals that a significant portion of the tokens are in FTT and Solana. The SOL holdings are locked and will only be fully vested in 2025 or later. Any potential buyer would need to take over FTX’s vesting contract. As for FTT tokens, their current market cap is significantly lower than their marked value, raising questions about who would be interested in purchasing this devalued asset.
While FTX holds substantial amounts of Bitcoin and Ethereum, they are not large enough to cause market-wide disruptions. The only asset that could potentially create concern is Aptos, with a market cap of $1.17 billion and $67 million worth of APT to be sold. However, given the intent to maximize value, it is unlikely that it would be sold all at once.
Furthermore, even if the asset sale is approved by the court on September 13, the actual sale won’t commence immediately. Regulatory bodies such as the SEC and CFTC will oversee the sales to ensure that they are conducted in compliance with the law and protect investors. An underwriter will likely manage the liquidation process, which involves assessing risks and finding suitable buyers. This process is expected to take several months.
In summary, while some sell pressure may occur, a sudden and massive sell-off is both illegal and highly unlikely. The fear and uncertainty surrounding this event (FUD) appear to be more damaging than the event itself. Market participants are advised to stay informed and avoid succumbing to panic and misinformation.
In response to rumors about the sale, the price of SOL declined by over 7% yesterday. Bitcoin also experienced a slight downward movement and was trading at $25,859 at press time [TradingView source].
[Featured image from iStock, chart from TradingView.com]
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