FTX Seeks Approval for $3.4 Billion Crypto Asset Liquidation

Introduction

FTX, the bankrupt cryptocurrency exchange, is scheduled to appear in Delaware Bankruptcy Court on Wednesday, September 13, to seek approval for the liquidation of $3.4 billion in Bitcoin and crypto assets. This news has raised concerns among market analysts and participants, who fear that the sale could put significant selling pressure on an already struggling market.

FTX’s Crypto Holdings

• $685 million in locked Solana (SOL) tokens
• $529 million in FTT tokens
• $268 million in Bitcoin (BTC)
• $90 million in Ethereum (ETH)
• Other assets including Aptos ($67 million), Dogecoin ($42 million), Polygon ($39 million), XRP ($29 million), and stablecoins
• An additional $1.2 billion held in crypto on third-party exchanges

Is A Selloff Looming For Bitcoin And Crypto?

On August 24, FTX proposed a plan to appoint Mike Novogratz’s Galaxy Digital as the investment manager responsible for overseeing the sale and management of these recovered assets. The plan allows FTX to sell up to $100 million worth of tokens per week, with a possibility of increasing the limit to $200 million on an individual token basis. However, these propositions are not yet legally binding and are subject to review and approval by the Delaware Bankruptcy Court on September 13.

Market concerns revolve around the potential impact of these sales. While billions of coins could enter the market during the creditor sale, it is important to separate fact from fiction:

• The coins are unlikely to be sold en masse on the open market
• There is a proposed limit per week
• Most coins are expected to be sold Over-The-Counter (OTC) or gradually via market makers

Looking at the holdings, it becomes clear that a significant portion of tokens is in FTT and Solana. FTX’s SOL holdings are locked and will only be fully vested in 2025 or later. Any sale would involve a buyer taking over FTX’s vesting contract.

While FTX’s FTT tokens are marked at $529 million, their current market cap is only $350 million, raising questions about potential buyers for this devalued asset. The amounts of Bitcoin and Ethereum held by FTX are substantial but not large enough to cause market-wide disruptions. Aptos, with a market cap of $1.17 billion and $67 million worth of APT to be sold, is the only asset that could potentially cause concern if sold all at once, which is unlikely given the intent to maximize value.

Regulatory Oversight and Sale Process

Even if the court approves the asset sale on September 13, the actual sale won’t begin immediately. Regulatory bodies like the SEC and CFTC are expected to oversee the sales to ensure they are conducted in a manner that doesn’t harm investors. An underwriter will likely manage the liquidation process, ensuring compliance with all laws and regulations. This process, which involves risk assessment and finding suitable buyers, is expected to take several months.

In summary, while there may be some sell pressure, a sudden and massive sell-off is both illegal and unlikely. The fear and uncertainty surrounding the event seem to be more damaging than the event itself. Bitcoin and crypto market participants are urged to stay informed and avoid succumbing to panic and misinformation.

Market Reaction

As a result of the rumors, the SOL price plummeted by more than 7% yesterday. The Bitcoin price saw a slight downward movement and was trading at $25,859 at press time.

Featured image from iStock, chart from TradingView.com