When zombie movies started playing with the idea of zombies being able to run non-stop (think World War Z or 28 Days Later), it scared the bejeezes out of people. Then, when you consider the idea of zombies that can run like zebras, it would make running humanoid zombies feel like playtime in kindergarten. That's the kind of bloodbath a number of market-watchers are predicting might happen with an FTX market dump this week.
Anyone who remembers those first lessons in business classes, particularly Economics will remember the basic rules of supply and demand. Where supply is plenty and more than demand, price and value fall. Where supply is scarce and demand is hot, price goes up as scarcity drives up value. This principles aren't disconnected from crypto markets. Both Bitcoin (BTC) and Ethereum (ETH) are driven by market pushes, up and down, and move heavily when there are serious changes in the units available in either coin.
As of this week, the further liquidation and recovery of FTX assets poses a serious flooding of the market, which essentially means supply rises and demand and price will drop hard in most scenarios. No surprise, those who need to get out are already selling their positions on the hope of either buying back in when prices are much lower or protecting themselves from value loss altogether and taking the exit door while value is reasonable. The question, however, is which coins are going to take the hit the most? BTC and ETH already have the jitters because, for whatever reason, when one of the alt-coins gets the flu, the big coins shiver and momentarily drop. However, they are not necessarily the biggest vulnerability at the moment to FTX. Instead, the bigger likelihood to take a very hard hit down would be Solana (SOL), as well as
The FTX package is seeking permission to let go of something near $3.4 billion in positions that need to be liquidated in its bankruptcy process. A clear decision on the matter and whether it will be allowed is to happen tomorrow, Sept. 13, in the U.S. Bankruptcy Delaware courts (now approved as of 9/14/23). That kind of portfolio includes $1.5 billion in SOL-related tokens. Interestingly, the actual amount of Solana involved is a mere $128 million. Instead, the bulk of the monster on the SOL network involves a whole bunch of positions FTX took in wrapped coins, the big players modified to represent value on the Solana network but really based in Bitcoin, for example. Ouch.
In fact, if one wanted to do the digging, the FTX portfolio involved, at least as of January 2023, had the following:
- $685 million in Solana tokens
- $529 million in direct FTT tokens
- $268 million in BTC
- $90 million in ETH
- $67 million in miscellaneous tokens
- $42 million in DOGE (heads up Elon!)
- $39 million in Polygon
- $29 million in XRP
- $1.2 billion of a variety of monies in various exchanges
Now, for those of you who are calculator-savvy, that's not $3.4 billion above; it's more like $2.95 billion. The almost $1 billion in other assets have been added since that January bankruptcy report. Woof!
"Hello, we're here to eat you, er...take your portfolio value, yeah, that's it!"
The pundits will point to the related market drop and state loudly, once again, crypto is failing and needs regulation. However, this is pure economics in play. Supply will be flooding the marketing this week if the Delaware court gives a green light. So, one could look at things two ways: 1) wow, what an entry opportunity, or 2) run for the hills!
And if you think is this is financial advice, there's something wrong with you. Get checked.
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Update 9/14/23: The U.S. Bankruptcy Delaware Court gave full approval to liquidate the FTX $3.4 billion portfolio. Here comes the tidal wave...
