Bitcoin crashes below $20,000 amid fears of FTX contagion

by James · November 8, 2022

Bitcoin crashes below ,000 amid fears of FTX contagion

The price of Bitcoin has once again fallen below the crucial $20,000 mark in recent hours. The crash occurred around 12:00 PM EST amid concerns about whether the crypto market is at risk of another Terra Luna/Celsius disaster.

Bitcoin investors apparently responded with a risk selloff. According to analytics service Coinglass, $112.83 million worth of cryptocurrencies were liquidated in the last hour alone, and a whopping 9% of these were long positions.

BTC USD Bitcoin — Bitcoin price below $20,000 in the 1-hour chart. Source: TradingView

Fear of Bitcoin contagion among FTX vs. Binance Feud

The market is on shaky ground due to the feud between two of the richest CEOs in the crypto world. Since Binance CEO Changpeng Zhao (“CZ”) announced that his exchange will sell its massive stack of FTT tokens, the token’s price is under tremendous pressure.

But with the FTT token a mainstay of the balance sheet of Sam Bankman-Fried’s FTX exchange, as a recent report revealed, there are also growing rumors that the exchange itself may be on the brink of insolvency.

As Bitcoin analyst Dylan LeClair revealed, FTX’s stablecoin reserves are disappearing almost as quickly as they are being replenished.

CryptoQuant FTX — FTX’s stablecoin reserves under pressure. Source: Twitter

Massive impact on the Bitcoin market could also have been the fall of the FTT token below the important $22 mark. After the price of FTT stayed around $22 for a long time, there was a sudden crash to as low as $15.03.

Yesterday, Alameda CEO Caroline Ellison emphasized that her company would like to buy the token for $22 from CZ. Now that this important mark has fallen, LeClair expressed suspicion that this could be the breaking point for FTX. The analyst tweeted:

I have a horrifying thought that the Alameda counterparty to the leveraged FTT exposure may be the solvency of FTX itself.

When $22 FTT fell, ~400k worth of FTT open interest was removed. Who else capitulates with size at that exact level besides Alameda?

But in addition to the crash of the FTT token, there are other alarming red flags. For example, some users report that FTX is currently not processing any withdrawals or is delaying them.

withdrawal from ftx does not go through … been an hour. will update

— degenerate (@hodlKRYPTONITE) 8 November 2022

Another burning question the crypto community is struggling with is where Bankman-Fried gets the liquidity for FTX. Various on-chain analysts have shown that FTX does not draw its liquidity from a cold wallet, as is actually common for an exchange that keeps user funds safe, but from other exchanges.

In another development, Alameda may have sold 100 million bybits exchange token BitDAO (BIT). The token’s price fell by 20% within an hour, while FTT also fell by 20%.

The juicy detail about this is that Alameda Research converted 3.36 million FTT (1% of total volume) to 100 million BIT (1% of total volume) with ByBit in 2021. Both parties agreed that they will not sell the tokens by three years.

However, Bybit CEO Ben Zhou said a few hours ago that someone had broken their promise and sold 100 million BIT, and that they may have been scammed.

If Alameda did in fact sell its 100 million BITs, this behavior could indeed be a breach of Alameda’s obligations. This in turn could indicate serious liquidity problems for Alameda and FTX.

The BitDAO community has now created a proposal asking Alameda to provide the chain address of the tokens that should not be sold for three years. If there is no response within 24 hours, the community will decide what to do with the 3.36 million FTT.