Welcome to our market review for October, where we recap the biggest developments in the past month, provide some snapshots of the cryptocurrency markets and review the FTX contagion.
FTX Contagion Rattles Markets
The snapshot for markets on Perp v2 over October 9th to November 9th is displayed below:
Source: https://app.santiment.net/s/4N6KAI95 as of November 9th (14:30 UTC). Active addresses data unavailable for those with “-”.
PERP, MATIC, APE and AAVE have all seen a 20% or greater increase in the number of active addresses. Out of the markets on Perp v2, only ETH (-27.83%) and CRV (-3.17%) saw a decline in the number of daily active addresses over the past 30 days.
AAVE (+67.23%), LINK (+34.83%) and NEAR (+34.41%) saw the greatest increase in social volume, while SAND experienced a 53% decline in social mentions. Both BTC and ETH saw a decline in social mentions, around -17% for each.
Looking at the wider market, the top 15 crypto-assets by volume growth and social volume growth between October 7th and November 7th are both shown below:
Source: Santiment; https://app.santiment.net/s/4wycaYih
WEMIX, a stablecoin created by the South Korean blockchain game developer Wemade, saw the greatest increase in trading volume of almost 1400% after launching on October 20th. The stablecoin is pegged to USDC and Wemade also launched WEMIX.Fi, a DeFi service to allow users to store, stake and swap Wemade’s crypto tokens.
FTX’s native token FTT saw a 831.2% gain in volume as revelations about the exchange’s balance sheet came to light.
IOTX, a token used as part of the IoTeX platform to link internet of things gadgets with decentralized apps, gained almost 800% in trading volume.
DOGE experienced a 420% gain in volume as Elon Musk took the reins at Twitter, sparking speculative frenzy over whether the social media platforms would integrate wallets for the memecoin.
MATIC saw the sixth greatest increase in trading volume out of the top 150 crypto-assets with at least $10 million in volume after striking a deal with Meta and also benefited from hype around Reddit’s collectible avatar NFTs.
Source: Santiment; https://app.santiment.net/s/4wycaYih
UNI also saw tremendous growth in social mentions, up 868.5%, on the back of news that Uniswap Labs raised $165 million in a Series B funding round. A community vote also favored launching the DEX on Ethereum’s zkSync Layer 2.
WEMIX also saw a large rise in social mentions, up 466.7%.
Exchange tokens have also been a hot topic during October, with HT and FTT both seeing social mentions rise more than 400% and 300% respectively. The rise in social mentions corresponds with a big jump in the price of HT, while FTT sparked a social buzz following the Voyager bankruptcy case and the move by a Texan securities regulator to scrutinize FTX.
The MVRV for both Bitcoin and Ethereum are both below 1, suggesting a bottom is yet to play out. During October, the metric for Ethereum surpassed the threshold at 1, but with the FTX contagion, it has fallen back below this level. We’d want to see the MVRV move above one and out of the buy zone for confirmation that a long-term bottom is in, otherwise fresh lows for BTC and ETH are likely.
FTX rattled the markets and shocked the entire cryptocurrency ecosystem in recent days as it came to light that they had been secretly insolvent for quite some time. The downfall of FTX is one of the biggest shocks for crypto investors since the collapse of Mt. Gox in 2013, with the price of the platform’s native FTT token falling 75% in a single day on November 8th.
In a thrilling sequence of events that started with the founder of FTX, Sam Bankman-Fried (or SBF), lobbying Washington to get a bill passed that would benefit centralized exchanges but harm DeFi protocols ended up with SBF tweeting on November 8th that they’ve asked Binance to come in to help with the liquidity crunch.
On October 13th, Richard Chen of 1confirmation posted the following tweet. Little did anyone know that a few weeks later, SBF would announce that FTX had come to a strategic transaction with Binance to make its customers whole again.
Then in early November, reports from CoinDesk about FTX’s balance sheet revealed that Alameda, the sister market making firm of FTX, had $14.6 billion in assets mostly made up of FTT tokens ($5.8 billion) and illiquid Solana ecosystem tokens.
The exchange had seemingly loaned Alameda money using it’s FTT stake as collateral, which worked fine and allowed FTX to remain solvent, that is until the price of FTT was impacted by the following tweet from Binance’s CZ on November 6th:
The tweet precipitated a ‘bank run’ on FTX, with more than $750 million worth of assets flowing out of the exchange in the past week.
But with no new deposits and customers running for cover, FTX had to defend the price of FTT to avoid defaulting on their loans. The head of Alameda Trading offered to purchase the FTT tokens from Binance for $22, but just a day later, the price of FTT broke below this level and FTX paused withdrawals on their platform.
It has been reasoned by Lucas Nuzzi, CoinMetrics’ Head of R&D, that the collapse of the exchange may have stemmed from the blow up of 3AC and others in the second quarter of the year, and that around this time, Alameda was lent money by FTX to ensure its survival. Approximately 173 million FTT tokens (which were worth more than $4 billion at the time) were sent to Alameda in September from FTT’s Initial Coin Offering smart contract.
The old adage, “Not your keys, not your coins” has never been more relevant, and the FTX development underscores the importance of DEXes and the DeFi sector in general. In fact, Alameda had to pay off $13 million in MIM for its Abracadabra loans, since they would have faced liquidation if they didn’t because of the automated nature of DeFi.
FTX’s liquidity hole is estimated to be somewhere to the tune of ~$6 billion, with recent reports indicating that Binance may pass on the deal to save FTX, leaving its users in the dark. To fill this gap and repay creditors, Alameda may have to sell more of their crypto holdings and FTX may go through a lengthy bankruptcy case, just like Mt. Gox.
This Dune dashboard shows the firm’s estimated holdings (although they may have other unlabelled addresses with more funds in cold storage). Nevertheless, it’s clear that there could be a lot of selling pressure in the coming weeks for these tokens, with Alameda’s wallet mainly comprising USDC, BIT, WBTC, SUSHI, SRM and LDO.
Even outside of these tokens, a domino effect has been felt across the entire cryptocurrency market, with BTC falling to a fresh 2022 low beneath $17,000 and an increased risk of tighter regulations for crypto exchanges. A lot of details are still unclear, and it’s likely that this event will continue to weigh on the markets for some time.
November 10: US Consumer Price Index (13:30 UTC)
November 20: Start of the FIFA World Cup
November 23: FOMC minutes (18:00 UTC)
November 28: US Preliminary Annualized GDP for Q3 (13:30 UTC)
December 2: Non Farm Payrolls (13:30 UTC)
Disclaimer: the contents of this report should not be taken as financial advice and is provided purely as market commentary. The information provided in this report is not intended to form the basis for making investment decisions and is presented here for educational purposes only. Please do your own research before participating in the crypto market, seek independent advice on crypto-assets and ensure you are aware of the risks involved.