After Hacktober, which saw countless DeFi projects profiting hundreds of millions of dollars in total, November was expected to be a much quieter month for cryptocurrencies. However, this was not the case as the industry experienced one of the fastest, tumultuous and loudest declines of a giant – FTX.
An analysis by risk modeling firm Gauntlet identified a tweet from Alameda’s CEO that changed the whole situation for the worse.
This tweet is responsible?
Let’s rewind the clocks two weeks ago when the CEO of Binance took to Twitter to report that the exchange was planning to sell its entire stock of FTX (FTT) tokens due to some “recent revelations.” These came from leaked documents showing that Alameda Research – the trading firm founded by FTX CEO SBF – mostly uses FTT for collateral and overexposed the asset.
By some estimates, Binance held more than 23 million tokens, valued at more than $500 million at the time. This was approximately 10% of FTT’s market capitalization at the time. Alameda CEO Carolyn Ellison quickly responded to CZ and offered to buy all FTT coins for $22 each. The problem was that this offer was below market price.
Zhao rejected the proposal, saying that Binance “will remain on the open market.” But there could be bigger ramifications from Ellison’s tweet than just trying to buy the tokens below the market price.
Sales orders went up
Quoting Bloomberg, Gauntlet claimed that the number of sell orders increased minutes after this tweet. The risk modeling firm observed the buy and sell orders of the largest FTT pairs on major exchanges, such as FTX, Bitstamp and Bitfinex, and concluded that the bid/ask ratio fell below 200%. Essentially, this means that there are four sell orders for every buy order.
The report reads that when the order books of the exchanges are balanced between buy and sell orders, this ratio is zero. Going down to minus 200% “shows that the selling pressure on FTT has increased significantly and lasted for more than seven hours.”
Market conditions across a number of centralized exchanges trading FTT vs. USD or USDC deteriorated significantly vs. FTT shortly after Ellison’s tweets. This resulted in a sharp decline in FTT which likely led to a series of margin calls and/or liquidations for Alameda based on its balance sheet.” – commented Tarun Chitra, Founder and CEO of Gauntlet.
The beginning of the end of the FTX post is due to this Alameda tweet: The analysis appeared first on CryptoPotato.