Bankrupt cryptocurrency exchange FTX is scheduled to appear in Delaware Bankruptcy Court on Wednesday, September 13, seeking approval to liquidate $3.4 billion in Bitcoin and crypto assets. The incident has raised concerns among market analysts and participants, who fear the sale could bring significant selling pressure to an already troubled market.
As of January 17, FTX’s cryptocurrency holdings were estimated to include $685 million in locked Solana (SOL) tokens, $529 million in FTT tokens, $268 million in Bitcoin (BTC), and $90 million in Ethereum (ETH) as well as various other assets including Aptos ($67 million), Dogecoin ($42 million), Polygon ($39 million), XRP ($29 million), and stablecoins. Another $1.2 billion is held in cryptocurrency on third-party exchanges.
Are Bitcoin and Cryptocurrencies About to Suffer a Sell-Off?
On August 24, FTX proposed a plan to appoint Mike Novogratz’s Galaxy Digital as an investment manager to oversee the sale and management of these recovered assets. Under the plan, FTX will be allowed to sell $100 million worth of tokens per week, with the cap on a single token potentially increasing to $200 million. While the proposals are not yet legally binding, the Delaware Bankruptcy Court is expected to review them on September 13 and possibly approve them.
The biggest concern for the market is the potential impact of these sales. Billions of tokens could flood the market as part of the creditor sale, and there are widespread concerns that the market may not recover until this glut is gradually eliminated. In this case, however, it is crucial to distinguish fact from fiction.
First, these coins are unlikely to be sold in large quantities on the open market. Secondly, there are recommended limits per week. Third, most tokens are likely to be sold over the counter (OTC), and those that are not will gradually be sold through market makers.
Looking at holdings, it is clear that a large portion of the tokens are in FTT and Solana. It is worth noting that FTX’s SOL holdings are locked and will only fully vest in 2025 or later (until 2028). Any sale would involve the buyer taking over FTX’s vesting contract.
Although FTX’s FTT token is priced at $529 million, its current market cap is only $350 million, raising questions about who will buy this significantly devalued asset. As for Bitcoin and Ethereum, FTX’s holdings are significant, but not enough to cause chaos across the market. Aptos, with a market capitalization of $1.17 billion, and APT for sale worth $67 million, are the only assets that might cause concern, but only if they are sold all at once, which is unlikely to happen given the intent of maximizing value.
Furthermore, even if the court approves the asset sale on September 13, the actual sale will not begin immediately. Regulators such as the Securities and Exchange Commission and the Commodity Futures Trading Commission are expected to monitor these sales to ensure they are conducted in a manner that does not harm investors. The underwriters may manage the liquidation process and ensure compliance with all laws and regulations. The process, which involves risk assessment and finding a suitable buyer, is expected to last several months.
In summary, while there will be some selling pressure, a sudden large-scale sell-off is both illegal and unlikely. The fear and uncertainty (FUD) surrounding an event appears to be more damaging than the event itself. Bitcoin and cryptocurrency market participants are urged to stay informed and avoid succumbing to panic and misinformation.
Affected by the rumors, the price of SOL plummeted by more than 7% yesterday. At press time, Bitcoin prices were down slightly, trading at $25,859.
Featured image from iStock, chart from TradingView.com