A weekly market report of the largest cryptocurrency exchange in America, Coinbase, outlines some reasons why the upcoming mass token liquidation of its bankrupt rival FTX is unlikely to cause shocks in the market ecosystem.
The research report, written by Coinbase’s head of institutional research David Duong, revealed that exchange analysts found some factors that should reduce the risks of market shocks if the property is finally sold.
The upcoming Crypto Liquidation of FTX
On September 13, Judge John Dorsey of the US Bankruptcy Court for the District of Delaware approved FTX’s motion to sell its crypto assets worth $3.4 billion, which include Solana (SOL), bitcoin (BTC), ether (ETH ), Aptos (APT) , and other tokens.
The top FTX holdings are $1.16 billion in SOL, $560 million in BTC, $192 million in ETH, and $137 million in APT. The embattled firm also received approval to liquidate $1.3 billion in brokerage and government-recovered assets and $2.6 billion in debtor and non-debtor cash. In total, the assets to be liquidated will add up to $7.3 billion.
The exchange request received support from the official committee of creditors and the ad hoc committee of non-US customers because they saw the importance of de-risking the company’s token portfolio and liquidating its assets in order to maximize the value of users.
Duong noted that market players reacted to the news of FTX’s plans as crypto trading volumes surged over the past week, with daily spot activity for BTC and ETH rising to 37% The crypto market later recovered after some selling pressure, confirming the belief of analysts that there are factors that can reduce the risks of market shocks.
Reducing Market Shocks
Explaining why the FTX plans are unlikely to cause market shocks, Duong revealed that liquidations are bound by weekly trading limits of $50 million across crypto assets in the first phase . Over time, committees representing FTX creditors will increase the amount to $100 million and then the upper limit of $200 million.
In addition, the committees have placed strict controls on the sale of certain tokens associated with insiders and will require a ten-day advance notice before they can be liquidated. FTX will also be able to block its sale of assets identified as BTC and ETH through an investment advisor.
Additionally, a large portion of FTX’s SOL holdings will remain locked up until 2025 due to the asset handover schedule. This also applies to other tokens that are traded.
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