FTX liquidation is imminent and traders are worried

After the court filed a motion to appoint a liquidator and grant discretionary sales authority of $100 million per week, a tweet from FTX’s official Twitter account raised alarm among some traders.

On Wednesday, the rarely used official FTX account tweeted that the organization has “been actively bridging tokens” from various blockchains to its native chain, perhaps to reduce vulnerabilities associated with bridge hacks. The tweet also mentioned merging assets with custodian Bitgo.

Armchair analysts have long criticized the organization for its inefficiencies in managing the company’s remaining assets and customer deposits following its November 2022 collapse, with sometimes amateurish interactions with DeFi protocols ultimately leading to losses totaling millions of dollars.

On-chain analysis shows that known FTX addresses have indeed bridged a large amount of assets back to their native chains over the past week. According to analysis by Matt Aaron, founder of Cielo Finance, FTX transferred $1.7 million worth of UNI from Solana to Ethereum. In addition, Blockworks' analysis of Arkham data shows that FTX addresses have also bridged more than $12 million in ETH, as well as smaller amounts of assets such as YFI, SUSHI, and HXRO. Blockworks was unable to identify any transfers to Bitgo. Under the original terms of the partnership, Bitgo would receive a $5 million retainer and $100,000 per month in compensation as a qualified custodian of FTX. Despite the relatively mundane news and data, the tweet still caused anxiety among some traders.

CMS Holdings Dan Matuszewski tweeted a GIF of a meteor hitting the Earth in response to FTX’s original statement. Popular anonymous trader Hsaka tweeted an image of the famous “fire sale” scene from the 2011 “margin call.”

Part of the unease can be attributed to recent court proceedings, in which FTX’s lawyers asked the court to authorize an agreement that would enable cryptocurrency manager Galaxy to liquidate a large portion of the company’s assets.

The agreement will allow Galaxy to sell up to $100 million per week, with an option to increase the cap to $200 million per week. Galaxy will also be tasked with hedging BTC and ETH prices in an effort to “reduce the debtors’ exposure to adverse price movements prior to selling their Bitcoin and Ether.”

So far, there is no clear on-chain evidence that a large-scale sale has taken place.