Bitfinex Alpha | FTX Gloom Adds to Macro Woes
In a week when we saw a glimmer of hope on inflation, we also saw probably the most disruptive event ever in the short history of crypto markets with the implosion of FTX.
The ramifications of the collapse of the once third-largest crypto exchange by volumes and the impact on crypto markets will be significant. But if there was ever a time to focus on fundamentals and what really underpins the pricing of assets, it is now.
The good news is slowly emerging on the macro front. Aside from a lower than expected Consumer Price Index report, the ISM manufacturing prices index is also edging down. The aggressive monetary tightening from the Fed seems to be having an impact.
Manufacturing grew at its slowest pace in two years, and the market now sees rates peaking at 4.75-5 percent.
Of course, the market reaction we saw – with a 1000-point gain in the Dow at one point – was way too optimistic. Food prices are rising at a rapid pace, hurting households significantly. Shelter costs also remain rigidly high. The much-desired Fed pivot is not going to happen anytime soon. Investors should remain vigilant for markets that overreact.
In the meantime, the fall of FTX will have a depressing impact on the entire crypto industry and will keep prices subdued for some time. It has not only shaken confidence but is also likely to have emboldened the resolve of regulators to react in what could be potentially an overreaching manner. This should keep crypto investors wary.
In our view, however, the collapse of FTX, in which we go into in some detail in this week’s Alpha, was not caused by the volatility of crypto but, in fact, the failure to adequately manage risk alongside what seems to be potentially criminal malfeasance over the use of customer assets.
We reveal how the 172 million movements of FTT, most likely to FTX trading company Alameda, was the start of the end for the company. This movement of tokens has been interpreted as the bailout that FTX provided to Alameda, most likely following unsustainable losses it incurred in the wake of the Terra Luna collapse. Following the revelations that FTT was a significant component of the Alameda balance sheet, the pressure on the token became immense and blew out Alameda’s liabilities, marking the end for FTX and Alameda.
Away from the FTT fracas, in our on-chain section, we assess the circulating supply of Bitcoin and the real cost basis of coins held in wallets versus their current value. We conclude unsurprisingly that many coins are held in loss and that, technically, we may only be halfway through the bear market, based on previous market cycles. With the exogenous impact of the FTT collapse, however, it is likely that we may have an even longer downturn that the charts are currently predicting.
Trade carefully in these challenging times.