FTT Price

3 reasons why the FTX fiasco is bullish for Bitcoin

The FTX fiasco is nothing new for Bitcoin as it survived multiple exchange collapses, bear markets and even outright bans in its decade-plus existence.

The “Bitcoin-is-dead” gang is back and at it again. The fall of the FTX cryptocurrency exchange has resurrected these infamous critics that are once again blaming a robbery on the money that was stolen, and not the robber.

“We need regulation! Why did the government allow this to happen?” they scream.  

For instance, Chetan Bhagat, a renowned author from India, wrote a detailed “crypto” obituary, comparing the cryptocurrency sector to communism that promised decentralization but ended up with authoritarianism.

Perhaps unsurprisingly, his column conveniently used a melting Bitcoin (BTC) logo as its featured image.

Bhagat should have picked a more accurate image for his op-ed (melting FTX (FTT) Token?), particularly after looking at Bitcoin’s decade-plus history that has seen it surviving even nationwide bans. This includes 465 466 obituaries since its debut in 2009 when it traded for a few cents.

Bitcoin performance since debut. Source: TradingView

The FTX/Alameda’s collapse is similar to previous bearish trigger events like Mt. Gox in 2014. Therefore, this failure of centralization will once again underline what makes Bitcoin special, and why FTX is the opposite of Bitcoin and decentralization. 

Moreover, the incident should also boost growth and development of in, non-custodial exchanges for Bitcoin that will help reduce dependency on trust. 

FTX may have had zero Bitcoin in custody

Traders responded to FTX’s shocking collapse by pulling their BTC from custodial exchanges. Notably, the total amount of Bitcoin held by all exchanges dropped to 2.07 million BTC on Nov. 17 from 2.29 million BTC at the beginning of the month.

United States-based exchanges saw the biggest outflows, in particular, with users withdrawing over $1.5 billion in BTC in the past week alone. 

Bitcoin reserves across all exchanges. Source: CryptoQuant

On Nov. 9, FTX halted withdrawals of all cryptocurrencies, including Bitcoin, raising suspicions that the exchange did not have adequate reserves to meet the demand.

That was further evident in a leaked FTX balance sheet that showed the exchange having zero Bitcoin against its $1.4 billion liabilities in BTC. In other words, FTX enabled fractional-reserve Bitcoin trading. 

“This is, on the one hand, bad for you as you will only find out if they have been swimming naked once the exchange implodes, accompanied by you losing all your funds,” Jan Wüstenfeld, writes independent market analyst. He adds:

“On the other hand, this artificially increases the bitcoin supply in the short-run, suppressing the price and preventing actual price discovery […] Yes, I know these are not real bitcoin, but as long as the exchanges issuing fake paper, Bitcoin remains operational, the effect is there.”

Thus, FTX’s little-to-negligible exposure to Bitcoin potentially reduces Its likelihood of selling any remaining funds to raise liquidity. 

The incident is also likely to produce a new cohort of Bitcoin hodlers by forcing people to not keep their funds on risky exchanges and practice self-custody. While a decreasing amount of BTC on exchanges means fewer coins available to sell.

Sam Bankman-Fried was anti-Bitcoin

FTX founder Sam Bankman-Fried (SBF) was the Democrats’ second biggest donor after George Soros for the midterm elections, giving nearly $45 million to lobby for crypto regulations that would allegedly benefit his firm.

Related: US crypto exchanges lead Bitcoin exodus: Over $1.5B in BTC withdrawn in one week

But speculations are large that SBF attempted to tarnish Bitcoin’s growth through the U.S. lawmakers,  as well as news articles, where he downplayed Bitcoin as an efficient payment system.

Other commentators have also pointed out a connection between SBF and anti-crypto U.S. Senator Elizabeth Warren, noting the former’s father, Joseph Bankman, helped the politician draft tax legislation in 2016. 

SBF’s influence among U.S. lawmakers is now gone with him facing potential criminal charges for illegally using customer funds for FTX trades. 

Press “F” to flush 

Past cryptocurrency market downturns have roots in the failure of centralized players as well as “altcoins” that ultimately ended up being a money-grab. 

FTX’s token FTT is just the latest example. Other failed projects that triggered a market downturn just this year include the Defi lending platform Celsius Network (CEL) and Terra (LUNA). 

Created and operated by centralized entities, the supply of these tokens, and therefore price, becomes vulnerable to manipulation: undisclosed pre-mine allocations, insider VC deals, small float vs. total supply, you name it.

It is exposure to such (crap) tokens, particularly in the form of collateral, that ultimately drove crypto hedge funds Three Arrow Capital, FTX’s sister firm Alameda Research, and many others to the ground.

“In our view, the bubble in crypto that popped this year was in the atmosphere of tokens being created just for speculative purposes,” noted BOOX Research, adding:

“While we can debate which cryptos are ‘bad money driving out the good’, FTT and LUNA are just two examples everyone can agree should not have existed.”

Therefore, a market flush of altcoins that should not have ever existed, FTT included, may further strengthen investors’ trust in Bitcoin. Early data is showing the same, with CoinShares reporting an inflow uptick into Bitcoin-based investment funds. 

Notably, Bitcoin-based investment vehicles attracted $18.8 million to their coffers in the week ending Nov. 11, bringing its year-to-date inflows to $316.50 million.

Flow by asset. Source: Bloomberg/CoinShares

“The inflows began later in the week on the back of extreme price weakness prompted by the FTX/Alameda collapse,” noted James Butterfill, head of research at CoinShares, adding:

“It suggests that investors see this price weakness as an opportunity, differentiating between ‘trusted’ third parties and an inherently trustless system.”

Meanwhile, Bitcoin is not witnessing a collapse in demand in the current bear market compared to 2018, on-chain data reveals.

The number of non-zero Bitcoin addresses has continued to climb despite the price downtrend, hitting a record high of 43.14 million as of Nov. 16.

Bitcoin addresses count with a non-zero BTC balance. Source: Glassnode

In comparison, the 2018 bear market saw a substantial drop in the number of non-zero Bitcoin addresses, suggesting traders have become relatively more confident about a price recovery, especially as the FTX domino effect clears out the dead wood.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

FTX Token price risks 30% plunge as a 23M FTT ‘part’ moves to Binance

Alameda Research reportedly obtained $2.2 billion worth of loans using FTT as collateral, a token created by cryptocurrency exchange FTX.

An ongoing selloff in the FTX Token (FTT) market could worsen in the coming months owing to a mix of pessimistic technical and fundamental indicators.

FTT could plunge 30%

From a technical perspective, FTT has formed an inverse-cup-and-handle pattern on the daily chart, identifiable by its crescent-shaped price trend followed by a less extreme upward retracement.

On Nov. 6, FTT broke below the pattern’s support line near $22.50, accompanied by a volume spike. The FTX exchange token’s selloff continued on Nov. 7 below the support line, raising risks of a bearish continuation phase in the coming months.

FTT/USD daily price chart featuring inverse-cup-and-handle pattern. Source: TradingView

As a rule of technical analysis, the inverse-cup-and-handle breakdown can push the price down by the length equal to the distance between the pattern’s support and peak level. That puts FTT’s breakdown price target at around $16, down roughly 30% from the current price.

The bearish technical setup came as Changpeng “CZ” Zhao, the CEO of crypto exchange Binance, said his company would liquidate its entire FTT holdings in the coming months, on fears that the token might collapse in the same manner as Terra (LUNA) in May 2021.

Binance was an early investor in FTX.

Raising selloff risks, the announcement followed a large transfer of roughly 23 million FTT tokens worth $530 million to Binance, which CZ confirmed was a “part” earmarked for liquidation. 

This also coincided with a spike in individual transactions worth more than $100,000.

Number of FTT transactions worth $100,000 or more. Source: Santiment

Alameda Research faces insolvency allegations

Binance’s decision took cues from allegations that Alameda Research, a crypto-focused hedge fund founded by FTX exchange’s Sam Bankman-Fried, could turn insolvent from its exposure to illiquid altcoins, including FTT.

Notably, Alameda Research had $14.6 billion on its balance sheet as of June 30, with FTT being the largest holding at $5.8 billion, making up 88% of its net equity. In addition, the firm held $1.2 billion in Solana (SOL), $3.37 billion in unidentified cryptocurrency, $2 billion in “equity securities” and other assets.

On the other hand, Alameda Research reportedly had liabilities worth $8 billion, including $2.2 billion worth of loans collateralized by FTT. That, coupled with the firm’s alleged exposure to illiquid altcoins, prompted some analysts to predict its insolvency in the future. 

“Alameda will never be able to cash in a significant portion of FTT to pay back its debts,” wrote Mike Burgersburg, an independent market analyst, for the Dirty Bubble Media Substack, noting:

“There are few buyers, and the largest buyer appears to be the very company which Alameda is most closely tied to […] the fair market value of their FTT in the event of large sales would rapidly approach $0.”

Interestingly, on-chain data trackers detected wallets associated with Alameda Research sending nearly $66 million worth of stablecoin tokens to FTX addresses on Nov. 6, potentially to absorb the token’s sell-side pressure.

93% of FTT tokens in circulation are owned by 10 addresses. Source: Etherscan

Damage control

Alameda Research CEO Caroline Ellison countered these allegations, noting that the firm had more than $10 billion worth of assets and had returned most of its loans due to the tightening in the crypto credit space in 2022.

Bankman-Fried called the rumors “unfounded,” assuring followers that FTX keeps audited financials.

Related: FTX in talks with investors to raise $1B for further acquisitions

However, FTX traders appear to be taking the cautious route, reflected by a 95% drop in the exchange’s stablecoin reserves in the last two weeks. As of Nov. 7, FTX held $26.141 million worth of United States dollar-pegged tokens, its lowest in a year.

All stablecoin reserves on the FTX exchange. Source: CryptoQuant

Meanwhile, investors have been selling their FTT holdings at a loss amid the ongoing Alameda Research fiasco, according to EtherScan data. For instance, a small whale reportedly took a 65% loss on its FTT investment

Still, independent market analyst Satoshi Flipper sees a potential FTT price rebound ahead as it retests a long-standing support range visible on the weekly chart below.

FTT/USD weekly price chart. Source: TradingView/Satoshi Flipper

“Too much FUD so I’m long here @ $22.95,” the analyst wrote.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.