This week was no less than a high-speed roller coaster with sharp twists and turns. The week ended with a clear turmoil in crypto markets, with S&P 500 and NASDAQ inching a bit higher than last week. With the FTX insolvency fiasco disrupting crypto markets, equities got a chance to stabilize and rise a bit with the election polls kicking in. If this fiasco didn’t exist, the graph would have been an approximate vertical mirror image. With its price crash, of more than 85% on a weekly basis, FTT brought down liquidations and wealth destruction across its most important chain and holding SOLANA and then subsequent fall in BTC and ETH with the broader crypto market
FTX's insolvency - SBF a rescuer or rescuee
FTX was undergoing a difficult period last week. In only a few hours, FTX lost over 70 percent of its value as a result of its liquidity crunch and had agreed to give Binance the option to purchase the company’s non-US operations. FTX has been one of the biggest and most well-known bitcoin exchanges, with prominent alliances with athletes, teams, and sports leagues. When the company raised an extra $1.8 billion in January, it was valued at $32 billion in the private markets. The whole situation began with a report that said Alameda Research, FTX’s sibling hedge fund, was insolvent and projected to suffer the same path as Celsius Network. The alludes in the report referred to the recent balance sheet of Alameda, run by Bankman-Fried. The document allegedly showed that out of the hedge fund’s $14.6 billion in total assets, $5.8 billion is tied to FTT tokens. Additionally, the fund is believed to hold hundreds of millions of dollars in stocks such as SRM, OXY, MAPS, and FIDA, each of which is related to SBF in some way or another. Following this leak, Binance’s chief, CZ, soon tweeted that the company was liquidating any remaining FTT on their books. This accelerated the decline in the value of FTT, which decreased from $22 per token at midday Monday to about $17 by Monday night and eventually bottomed at around $2 this week.
While initially, Zhao showed interest in bailout FTX global, the cancellation of same due to unstructured due diligence caused further capitulation of FTT thus pushing SBF and FTX to the final options of raising emergency funds via equity, another route that has become tough for SBF owing to the valuations of FTT crashing and taking firms like sequoia’s investment of a $213.5 million in the firm with them.
As CZ stated, FTX going down was not good for anyone in the ecosystem. But allegations accusing him of orchestrating and pulling all the strings behind, FTX’s demise were floating vigorously. However, CZ wasn’t alone in this as speculations of the stablecoin launch by FTX as mentioned in the last week’s outlook were taken as another illustration of the company’s mismanagement and strategy to bail itself out with an intricate plan to become a stablecoin issuer. While severe damage was done to the broader system, currently FTX has started honoring its withdrawals, but not sure when, while looking actively for private investment for the firm.
Still, there’s a slight hope that FTX can stabilize. But even without it, in percentage terms, the destruction of market value across multiple bankruptcies this year was no worse than the Lehman crisis of 2008. Severe measures were taken then, and the same should be expected going forward. While that collapse gave us Bitcoin and other digital assets, so will this one.
META losses on employees - Gains on share and stability
As META did a huge layoff of 11000 employees, it triggered a good spike in the share value of the same. This was a very healthy move as riffs and layoffs were needed in the cloudy atmosphere from low-interest rates and the bull run last year. While this is just a start, a lot more severe layoffs will be happening in Q1 of 2023 as mentioned in previous outlooks. That drop will actually set the proper resource number for each company and restore a sane demand and supply in the ecosystem. In the web3 space, Dapper Labs cut 22% of Staff as NFT Market started showing weakness. The strict macroeconomic conditions are overarching the best of the best firms across the board
A critical juncture for Cryptocurrency Regulations
The SEC vs LBRY came to a close as a New Hampshire judge passed a judgment yesterday ruling that LBRY’s sale of its LBC tokens qualified as selling unregistered securities. The Court stated that the evidence in the record disclosed that LBRY promoted LBC as an investment that would grow in value over time through the company’s development of the LBRY Network, which means they marketed it as a security. The Commentary around the court’s understanding and creating precedence for future cases was very crucial and impactful here. That precise understanding of cryptocurrencies has the potential to bring down all altcoins including ETH(one of the first ones to ICO). While initially, higher chances of CFTC taking over the crypto space were imminent but now the future of cryptocurrency in the US is now shifting to an organization much worse than the SEC which is the United States Congress.
With the US midterm elections being positive for broad markets except for crypto, the CPI number coming in at 7.7% well under the expected 8.0% gave a bit of relief to markets across the board on the evening of 10th November. While the gain in BTC, ETH, and crypto seems larger than the equities, it’s just a very short-term thing. The actual aftermath of the crypto contagion caused by FTX’s insolvency is yet to be calculated. Being one of the most widely connected firms across the Trading ecosystem, private crypto equity, Gaming arenas, and whatnot, FTX’s plunge will surely create havoc for crypto markets in the coming months. Even though a final leg up is hugely probable for the broad markets, structural changes in the crypto ecosystem and much stricter regulations should be expected after this episode.
Bitcoin returns were -12.50% for this week. The Alpha Blue Chip Focused Strategy
returns were -15.24% during the same period (03 NOV – 10 NOV). The Top Cap Digital Assets Strategy and Arbitrage and Balanced Opportunities Strategy returns were -0.38% and 1.99%, respectively.