BTC/USD fell below the key level of $20,000 over the past several hours amid concerns that the crypto market could face another collapse similar to the failure of Terra Luna and Celsius.
According to Coinglass, $112.83 million worth of cryptocurrencies were liquidated in just one hour, as Bitcoin investors sold off BTC and fled risks. About 9% of liquidated positions were long positions.
FTX vs Binance
The market is unsteady due to the feud of CEOs of two rival crypto exchanges. Binance CEO Changpeng Zhao ("CZ") announced that his exchange will sell its huge FTT holdings, which has put the token's price is under tremendous pressure.
However, the FTT token is the main pillar of the balance sheet of Sam Bankman-Fried's FTX exchange. A recent report has sparked rumors that the exchange itself could be on the verge of insolvency.
Bitcoin analysts note that FTX stablecoin reserves are disappearing almost as fast as they are being replenished.
FTT's drop below the important level of $22 could also have had a major impact on BTC. The exchange's native token suddenly plunged to $15.03 after hovering near $22 for a long time.
The strange involvement of Alameda and ByBit
Yesterday, Caroline Ellison, the CEO of Alameda, stated that her company would like to buy FTT tokens for $22 from Changpeng Zhao. The token's drop below this key level could be the breaking point for FTX.
About $400,000 worth of FTT open interest were eliminated when the token fell to $22.
There are other red flags regarding the FTX exchange. Some users have reported that FTX is not processing any withdrawals or delaying them.
The crypto community is now grappling with another burning question – where Bankman-Fried is getting the liquidity for FTX. Several on-chain analysts have shown that the FTX is, in fact, drawing liquidity from other exchanges. Other exchanges which keeps user funds safe do so from a cold wallet.
Furthermore, Alameda might have sold 100 million tokens of the BitDAO exchange (BIT). BIT has lost 20% within one hour, while FTT also dropped by 20%.
In 2021, Alameda Research notably converted 3.36 million FTT, or 1% of its total supply, to 100 million BIT (1% of its total supply) with the help of ByBit. Both parties agreed not to sell the tokens for a period of three years.
However, ByBit CEO Ben Zhou said that someone has broken this agreement and sold 100 million BIT, adding that ByBit might have been deceived.
If Alameda did indeed dump 100 million BIT and broke its obligations, this might indicate that Alameda and FTX have serious problems with liquidity.
The BitDAO community has currently created a proposal to Alameda requesting the company to provide the on-chain address of the tokens that were supposed not be sold for three years. If the company does not respond in 24 hours, then the community will decide on what to do with the 3.36 million FTT.
Alameda CEO Caroline Ellison responded by claiming that the BitDAO community will get a proof of funds in the future. It remains to be seen whether it will happen or not.
Analysts rebuke FTX insolvency fears
In the meantime, BTC/USD fell to $19,351 on Bitstamp, reaching the lowest level since October 25. The pair began to show weakness alongside major and minor altcoins as Binance moved to cancel its exposure to FTX's native token, FTT.
Binance CEO Changpeng Zhao confirmed that the exchange sold its FTT tokens. He defended his decision on Twitter on November 7, while FTX CEO Sam Bankman-Fried tried to reassure markets that his exchange was solvent.
"There were questions about a large ($580m) FTT deposit to Binance, and we were transparent about the fact that we are closing our FTT position," Zhao said in one of its tweets.
However, market participants have ignored Bankman-Fried's pleas. The FTX exchange had a surge of withdrawals overnight, while monitoring resources even showing negative BTC balances for the exchange's wallets.
According to CryptoQuant, FTX's BTC balance slumped by 19,956 BTC on November 7 alone.
According to additional data, the exchange's BTC reserves stood at only 7.1 BTC at the moment of writing, potentially due to changes in wallet management,
"FTX, the #2 crypto exchange, is experiencing a bank run. Pushed to the brink by a debt crisis & an announcement from its #1 competitor, ~$1b has bled out from the platform in the last few days," Jack Niewold, founder of newsletter Crypto Pragmatist, posted on Twitter.
However, some analysts doubt claims that FTX is insolvent. "Binance wants to sell the position due to the reasons discussed, through which a sell-off was initiated. A bit different from LUNA and Celsius, but has similarities as well," Michael van de Poppe, founder and CEO of trading platform Eight said.
The midterm elections in the US and its results could coincide with the release of CPI data on November 10, which in turn could spark volatility in the market.
