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FTX’s Crypto Liquidation Sales Unlikely to Cause Market Shock: Coinbase
The token sales won’t flood the market because liquidations are bound by volume limits, the report said.
Updated Sep 25, 2023, 2:43 p.m. Published Sep 18, 2023, 8:32 a.m.
The sale of tokens held by bankrupt crypto exchange FTX will not result in a market shock due to several mitigating factors, Coinbase (COIN) said in a research report Thursday.
For a start, the sale of tokens won’t flood the market because liquidations are limited to $50 million per week in the first phase and then increase to $100 million in the following weeks, the report said. Coinbase notes that committees representing FTX debtors need to approve a permanent increase to a maximum of $200 million a week.
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According to a recent court filing, the crypto exchange holds about $1.16 billion in solana , $560 million in bitcoin , $192 million in ether and a further $1.49 billion in other tokens. It can now sell and invest these holdings to pay back creditors, the court ruled last week.
Additionally, there are “strict controls in place for selling certain ‘insider-affiliated’ tokens that require 10 days advance notice to these same committees,” wrote David Duong, head of institutional research.
A large part of FTX's solana holdings are locked up until 2025 as part of the token’s vesting schedule, as are some other tokens that need to be sold, the note said.
Lastly, FTX will be able to hedge its sales of bitcoin, ether and other tokens through an investment adviser once it has received committee approval, the report added.
Read more: Cryptocurrency Altcoin Crash Is Coming: Matrixport
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Coinbase Sees Crypto Recovery Ahead as Liquidity Improves and Fed Rate Cut Odds Climb
The crypto exchange also took note of a so-called AI bubble that continues to go strong and a weaker U.S. dollar.
What to know:
- Coinbase Institutional is seeing a potential December recovery in crypto, citing improving liquidity and a shift in macroeconomic conditions that could favor risk assets like bitcoin.
- The firm's optimism is driven by rising odds of Federal Reserve rate cuts, with markets pricing in a 93% chance easing next week, and improving liquidity conditions.
- Several recent institutional developments, including Vanguard's crypto ETF policy reversal and Bank of America's greenlighting of crypto allocations, have contributed to bitcoin's rebound from recent lows.
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