FTX may liquidate $3.4 billion in crypto assets. Will it become the "culprit of the market crash"?

This week will be a busy one for FTX ’s legal team as they seek regulatory approval to liquidate $3.4 billion worth of crypto assets so that they can return funds to creditors in cash/fiat. A Delaware bankruptcy judge has scheduled a court hearing on the liquidation plan for September 13.

Bitcoin briefly fell below $25,000 during U.S. trading on Monday for the first time in nearly three months amid concerns about selling pressure. Ethereum, the second-largest crypto asset by market value, fell 3.2% on the day, changing hands at $1,560.

Altcoins fared even worse, with Solana ’s SOL down more than 8%. Toncoin’s TON and Layer 2 Arbitrum ’s ARB fell by similar amounts, and Ripple ’s XRP fell 5%.

What crypto assets does FTX hold?

The FTX shareholder report updated on September 11 pointed out that FTX's assets exceed $7 billion, including digital assets, cash, brokerage investments, venture capital portfolios, tokens and real estate. The company owns 38 properties in the Bahamas with a book value of $222 million.

According to the market price on August 31, FTX (including FTX.com, FTX.US, and Alameda) holds a total of approximately $3.4 billion worth of crypto assets. The ranking by holding value is as follows:
1. SOL, holding value is about 1.162 billion US dollars;
2. BTC, holdings valued at approximately $560 million;
3. ETH, holdings valued at approximately $192 million;
4. APT, holdings valued at approximately $137 million;
5. USDT, holding value is about 120 million US dollars;
6. XRP, holdings valued at approximately $119 million;
7. BIT, holdings valued at approximately $49 million;
8. STG, holdings valued at approximately $46 million;
9. WBTC, holdings valued at approximately $41 million;
10. WETH, holdings valued at approximately $37 million.
The above 10 currencies account for 72% of FTX’s total crypto asset holdings, and the remaining 28% of holdings are made up of more than 400 other altcoins.

The proposal to sell the assets was first proposed in August, and Mike Novogratz ’s Galaxy Digital will be hired as the investment firm to lead the sale. Under the plan, FTX will be allowed to sell $100 million worth of tokens per week, with the cap potentially increasing to $200 million.

What is the impact on the market?

Singapore Digital Asset Service Provider

Matrixport noted in a market report on Monday that an “altcoin crash is imminent” as FTX could begin selling tokens as early as this week.

Evgen Verzun, founder of Kaizen.Finance , a multi-chain asset management platform, said: “Similar large sell-offs have occurred before, including the recent sell-off by Vitalik Buterin , which had a significant impact on the cryptocurrency market, and we noticed a withdrawal of funds even before the sell-off began. This time is no exception, and I expect the market to follow suit: we will see a drop before the sell-off begins.”

IntoTheBlock highlighted that the impending FTX liquidation could dampen positive progress for Ethereum and Solana. The firm commented: “Despite positive news regarding Visa and potential ETH spot ETFs, FTX’s upcoming $3 billion liquidation could determine market movement.”

But other market watchers saw the sell-off differently.

Messari posted on social media that what needs to be paid attention to is not the absolute value of the tokens held by FTX, but the amount relative to the active trading volume of each asset. For example, FTX/Alameda's BTC holdings ($353 million) account for about 1% of BTC's weekly trading volume, which means that the market can absorb most of the sell-offs, and the same is true for ETH.
Messari said that for less liquid assets such as DOGE, TRX, MATIC, FTX holds 6-12% of weekly trading volume, which has a much greater impact on the market. While SOL and APT have considerable dollar value and relative market capacity, these assets are held by Alameda and venture capitalists and are mainly composed of vested tokens that are not immediately liquid on the open market. Only 9.2 million SOL are unlocked each month, which significantly reduces the liquidation impact, making it more similar to the manageability of BTC and ETH liquidations.

Other market observers have echoed the same sentiment. RR2 Capital trader Crypto Rand noted that SOL tokens will not be locked into a vesting schedule until 2025 at the earliest. Potential buyers can buy SOL to sell, but must abide by the vesting schedule, which will not have an impact on short-term prices.

André Dragosch, head of digital asset research at Deutsche Bank, said in an interview with The Block that FTX's final liquidation may have been largely reflected in the price at present, but there is still great uncertainty about the cryptocurrency held by FTX on third-party exchanges. Dragosch emphasized that the potential FTX sell-off combined with other already relatively bearish indicators could amplify the downward pressure on Bitcoin, and he pointed out that on-chain data showed that both Bitcoin spot and derivatives trading volumes fell.

Panic may be premature, with well-known crypto commentator Hitesh.eth tweeting that even if FTX’s liquidations are approved on September 13, liquidations may not begin immediately.

FTX Reboot: FTX 2.0

A document obtained by Fortune magazine shows that the prospect of FTX resuming business in some way through a restart is still possible. The document said that after the debtor began to "pitch" the idea in May, more than 75 possible bidders have contacted FTX about the restart, and bidders for "FTX 2.0" must decide whether to make changes by September 24.

"The proposals are being evaluated. The timing of the transaction will depend on the nature of the transaction, the readiness of the bidders and other considerations," the filing said.

Matthew Gold, a partner at Kleinberg Kaplan, said on social media that restructuring or financial restructuring in the cryptocurrency field is particularly rare after bankruptcy. The possibility of restarting depends on whether the "major creditors" agree to move forward and whether the creditors support the proposal by a majority vote.