Is an FTX sell-off hanging over the market?

FTX's current board chairman wants to sell off the exchange's crypto portfolio. This is causing turmoil here and there, as the bankrupt exchange still has $3.4 billion worth of coins and tokens on hand. Whether a big wave of selling will reach the coast soon? You can read that, and more, in this Weekly.

Cryptomarket

"All in all, it can be argued that extreme apathy and boredom best describe the prevailing sentiment." - these words come from the opening of the latest Glassnode Insights. The writers are referring to the low trading volume, low volatility and the remarkably narrow price range in which the stock price finds itself.

For almost six months, we have seen prices between roughly $25,000 and $31,000 on the boards. We entered this price range with the rapid rise after the problems at Silicon Valley Bank in March. That's a long time for such a narrow price range. On which side would we exit this zone first, the downside or the upside?

After BlackRock's ETF filing, we were at the top for almost four weeks. The mood was optimistic: "it will all work out". Meanwhile, we have been at the bottom for three weeks, and the mood has also turned from hope to fear.

This is not entirely unjustified. Although we are still in the same price range, and the chances of BlackRock ETF approval have only increased, we do see some "technical damage".

The strong bullish trend since the beginning of this year is considerably weaker. We are below some key moving averages, such as the 200-day and 200-week. Momentum indicators also point to further weakness. But just as pushing against the upper end of the price range does not automatically mean an upward breakout, prices around $25,000 are no guarantee of a downward breakout either.

The bulls can still hold on to that. And perhaps we are still above the 50-week average. Some see that as the dominant average to separate long-term rising and falling trends.

The chance of the SEC approving BlackRock's bitcoin ETF in 2023 is now 75%, according to Bloomberg ETF watchers. And if it fails this year, at least in 2024, of which they put the probability at 95%. Former SEC chairman Jay Clayton is also optimistic: "I think approval is inevitable".

We do not yet see this optimism reflected in the share price of bitcoin and ether, the two digital currencies for which ETF applications are now pending. For both, the price is roughly at last week's levels with bitcoin at $26,000 and ether at $1,600. Still, capital is flowing into the crypto market.

Grayscale's 15-billion-euro bitcoin fund has seen investor interest increase in recent weeks. Since 22 August, GBTC's share price rose 14%, while bitcoin's price fell in the same period. Grayscale has been struggling for two years with solid undervaluation of the stock relative to the bitcoins it is entitled to.

In December, it was nearly 50%, now down to 18%. The reversal of this undervaluation is a signal that investors expect Grayscale may convert its fund into an ETF. And indirectly, therefore, optimism about the arrival of other ETFs. If Grayscale is allowed to do it, then surely BlackRock can too.

News summary

On 11 November 2022, the FTX conglomerate filed for bankruptcy in a court in the US state of Delaware. Since then, hundreds of consultants, lawyers and directors have been working to maximise proceeds for creditors. Part of this includes liquidating the company's crypto assets. From recently filed documents, FTX now values those assets at $3.4 billion.

According to various influencers and news websites, a sales wave is hanging over the market as a result. In particular, concerns are being raised about the price of Solana. This is because FTX's Solana position is valued at a whopping $1.162 billion. Will that soon overwhelm the market? In any case, the recent fall in the price of the currency is linked to this concern.

We like to add some caveats to the concerns.

First, it is not yet certain whether FTX's crypto assets will be sold at all. A plan to do so was filed in late August and today, on Wednesday 13 September, the bankruptcy judge is ruling on it.

Secondly, most of FTX's Solana property consists of illiquid currencies. So-called vesting contracts unlock the purchased assets over seven years. Only in 2027 does that term expire. The value of the liquid portion is now estimated at $128 million. FTX may choose to dispose of the vesting contracts as part of the sale plan, but logically this will have no direct impact on the currency's exchange rate.

Thirdly, it is very unlikely that the coins held by FTX will be sold on the open market all at once. Indeed, the impact of that could be detrimental to creditors, who want to recover as much as possible of their claim. Therefore, the sale plan contains basic rules to minimise the impact on the market. In addition, Galaxy Digital was asked to guide the process. Bringing in a specialist in so-called over-the-counter trading suggests that FTX is looking for deals to be done outside traditional exchanges.

There is usually a grain of truth in FUD - fear, uncertainty, and doubt. It may well temporarily affect the performance of some currencies. Yet often the consequence of the FUD itself is greater than the impact of the event on which it is based. That seems to be the case now too!

The other news:

Asset manager Franklin Templeton also wants a spot bitcoin ETF. Franklin Templeton Investments manages more than $1.5 trillion for its clients. A total of 10 major financial institutions are now in the running for an ETF. Together, they have more than $17.5 trillion under management. Whether and when approval will come is still unknown. At a recent US Congressional hearing, SEC chairman Gary Gensler did not let on much about it.

IMF and FSB warn G20: Crypto ban won't work The regulators' recently published advisory report focuses primarily on macroeconomic and financial stability. In it, while they say that the rise of crypto assets could have far-reaching implications, they note that a ban is a bad idea. Such a measure is expensive, technically complex, and difficult to enforce due to the borderless nature of crypto assets.

Companies are lining up to enter Taiwan's crypto market. According to the regulator, 52 companies have applied. Of the 52 companies, 25 have gone through the anti-money laundering procedure. Binance is one of them. An estimated half a million Taiwanese are active in the crypto market.