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Factors Indicating FTX’s Large-Scale Token Liquidation May Not Trigger Market Disruptions: Report
A weekly market analysis from Coinbase, the largest cryptocurrency exchange in the United States, has highlighted several factors that suggest the impending mass liquidation of tokens by its bankrupt competitor FTX is unlikely to disrupt the market significantly.
The report, authored by David Duong, head of institutional research at Coinbase, indicated that the exchange’s analysts identified certain elements that could alleviate the risks of market disruptions when the assets are ultimately sold.
FTX’s Upcoming Crypto Liquidation
On September 13, Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware sanctioned FTX’s request to liquidate its cryptocurrency assets valued at $3.4 billion, which encompass Solana (SOL), bitcoin (BTC), ether (ETH), Aptos (APT), and various other tokens.
FTX’s primary holdings consist of $1.16 billion in SOL, $560 million in BTC, $192 million in ETH, and $137 million in APT. The distressed company also obtained permission to liquidate $1.3 billion in brokerage and government-recovered assets, along with $2.6 billion in cash from both debtors and non-debtors. In total, the assets slated for liquidation amount to $7.3 billion.
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The exchange’s proposal garnered backing from the official creditors’ committee and the ad hoc committee of non-U.S. customers, who recognized the necessity of reducing risks associated with the firm’s token portfolio and liquidating its assets to optimize value for users.
Duong observed that market participants responded to the announcement of FTX’s intentions, as cryptocurrency trading volumes surged over the past week, with daily spot trading for BTC and ETH rising by 37%. The cryptocurrency market subsequently rebounded after experiencing some selling pressure, reinforcing analysts’ views that there are factors that would mitigate the risks of market shocks.
Reducing Market Shock Risks
In discussing why FTX’s actions are unlikely to trigger market shocks, Duong explained that the liquidations will be subject to initial weekly sell limits of $50 million across various crypto assets. Over time, the committees representing FTX debtors will raise this limit to $100 million and eventually to a maximum of $200 million.
Additionally, the committees have implemented stringent controls on the sale of certain insider-affiliated tokens, requiring a ten-day advance notice prior to their liquidation. FTX will also have the capability to hedge its sales of debtor-identified assets such as BTC and ETH through an investment advisor.
Moreover, a significant portion of FTX’s SOL holdings will remain locked until 2025 due to the asset’s vesting schedule, which also applies to some other tokens available for sale.
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