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10th November 2022 > > FTX. Again.

tl;dr

You may be surprised to hear from me that the collapse of FTX might actually be a good thing for us all.


Market Snap








Market Wrap

One year on from the ATH, overnight we saw a 24 month low at $15.6k.


This was the reaction to the news that Binance has pulled out of the potential acquisition of FTX, accompanied by the largest ever move in perpetual futures funding rates. If you are short, then that is a very crowded position, with a very small exit door.


Curious Cryptos’ Commentary – The collapse of FTX

Amidst all the doom and gloom engendered by the collapse of centralised cryptocurrency exchange FTX, and the subsequent mooted takeover by Binance, there are snippets of good news, which I would like to share with you.


Senator Cynthia Lummis, co-sponsor of the Lummis-Gillibrand Responsible Financial Innovation Act, was quick to drive home the value of this proposed legislation, impetus for which will now have new legs:


“The recent events that have transpired between FTX and Binance are the clearest example yet of why we need clear rules of the road for digital asset exchanges in the United States.”


She continued:


“Market manipulation, lending activity, and whether customer funds and assets were appropriately safeguarded are just a few of the many issues my colleagues and I need to consider in the coming days.”


Increased oversight of companies like Coinbase and Binance is now a given, which is a very good thing.


Market participants seem to have learnt the hard lessons of the Terra fiasco which resulted in the collapse of Celsius and Voyager, especially regarding correlation risk, one of my deep-seated fears whenever leverage is involved.


First up, Paolo Ardoino, CEO of Tether, tweeted:


“To be clear: #Tether does not have any exposure to FTX or Alameda. 0. Null.”


Tether and its stablecoin USDT have often come in for criticism from the CCC due to the opacity of its financial disclosure reporting, and the presence of correlated assets within its reserves. Both issues have largely been addressed, and with ever increasing yields available on short term US government debt, Tether appears to be actively getting its house in order.


Circle CEO Jeremy Allaire, made the same claim about its stablecoin USDC:


“Circle has never made loans to FTX or Alameda, and has never received FTT as collateral, and has never held a position in or traded FTT. In any case, Circle does not trade on its own account.”


Brian Armstrong, CEO of Coinbase:


“Coinbase doesn't have any material exposure to FTX or FTT (and no exposure to Alameda).”


He also took this opportunity to give a good kicking to Sam Bankman-Fried, founder, CEO, majority shareholder of FTX, and now definitively an ex-billionaire:


“I think it's important to reinforce what differentiates Coinbase in a moment like this. This event appears to be the result of risky business practices, including conflicts of interest between deeply intertwined entities, and mis-use of customer funds (lending user assets).”


Even Changpeng Zhao, CEO of Binance, whose attitude and behaviour are normally heavily censured by the CCC, is starting to act and sound like a grown-up, for the very first time:


“Two big lessons: 1: Never use a token you created as collateral. 2: Don’t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.

Binance has never used BNB for collateral, and we have never taken on debt.”


His first point speaks directly to correlation risk, and the dangers it can pose.

My point is a simple one.


Events like this always cause a short-term loss of confidence, amid fears of contagion risk. That is why we have seen BTC sell off from nearly $22k to today’s price.


The markets will recover, and these examples above show that the resilience of the crypto world is made stronger by negative events.


In the medium term, we will all benefit from the collapse of FTX.

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