Alameda Research reportedly obtained $2.2 billion worth of loans using FTT as collateral, a token created by cryptocurrency exchange FTX.
An ongoing selloff in the FTX Token (FTT) market could worsen in the coming months owing to a mix of pessimistic technical and fundamental indicators.
FTT could plunge 30%
From a technical perspective, FTT has formed an inverse-cup-and-handle pattern on the daily chart, identifiable by its crescent-shaped price trend followed by a less extreme upward retracement.
On Nov. 6, FTT broke below the pattern’s support line near $22.50, accompanied by a volume spike. The FTX exchange token’s selloff continued on Nov. 7 below the support line, raising risks of a bearish continuation phase in the coming months.
FTT/USD daily price chart featuring inverse-cup-and-handle pattern. Source: TradingView
As a rule of technical analysis, the inverse-cup-and-handle breakdown can push the price down by the length equal to the distance between the pattern’s support and peak level. That puts FTT’s breakdown price target at around $16, down roughly 30% from the current price.
The bearish technical setup came as Changpeng Zhao (CZ), the CEO of crypto exchange Binance, said his company would liquidate its entire FTT holdings in the coming months, on fears that the token might collapse in the same manner as Terra (LUNA) in May 2021.
Binance was an early investor in FTX.
Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs. Onwards.
— CZ Binance (@cz_binance) November 6, 2022
Raising selloff risks, the announcement followed a large transfer of roughly 23 million FTT tokens worth $530 million to Binance, which CZ confirmed was a “part” earmarked for liquidation.
Yes, this is part of it. https://t.co/TnMSqRTutr
— CZ Binance (@cz_binance) November 6, 2022
This also coincided with a spike in individual transactions worth more than $100,000.
Number of FTT transactions worth $100,000 or more. Source: Santiment
Alameda Research faces insolvency allegations
Binance’s decision took cues from allegations that Alameda Research,a crypto-focused hedge fund founded by FTX exchange’s Sam Bankman-Fried, could turn insolvent from its exposure to illiquid altcoins, including FTT.
Notably, Alameda Research had $14.6 billion on its balance sheet as of June 30, with FTT being the largest holding at $5.8 billion, making up 88% of its net equity. In addition, the firm held $1.2 billion in Solana (SOL), $3.37 billion in unidentified cryptocurrency, $2 billion in “equity securities,” and other assets.
On the other hand, Alameda Research reportedly had liabilities worth $8 billion, including $2.2 billion worth of loans collateralized by FTT. That, coupled with the firm’s alleged exposure to illiquid altcoins, prompted some analysts to predict its insolvency in the future.
“Alameda will never be able to cash in a significant portion of FTT to pay back its debts,” wrote Mike Burgersburg, an independent market analyst, for the Dirty Bubble Media Substack, noting:
“There are few buyers, and the largest buyer appears to be the very company which Alameda is most closely tied to […] the fair market value of their FTT in the event of large sales would rapidly approach $0.”
Interestingly, on-chain data trackers detected wallets associated with Alameda Research sending nearly $66 million worth of stablecoin tokens to FTX addresses on Nov. 6, potentially to absorb the token’s sell-side pressure.
93% of FTT tokens in circulation are owned by 10 addresses. Source: Etherscan
Alameda Research CEO Caroline Ellison countered these allegations, noting that the firm had more than $10 billion worth of assets and had returned most of its loans due to the tightening in the crypto credit space in 2022.
A few notes on the balance sheet info that has been circulating recently:
– that specific balance sheet is for a subset of our corporate entities, we have > $10b of assets that aren’t reflected there
— Caroline (@carolinecapital) November 6, 2022
Bankman-Fried called the rumors “unfounded,” assuring followers that FTX keeps audited financials.
However, FTX traders appear to be taking the cautious route, reflected by a 95% drop in the exchange’s stablecoin reserves in the last two weeks. As of Nov. 7, FTX held $26.141 million worth of dollar-pegged tokens, its lowest in a year.
All stablecoin reserves on the FTX exchange. Source: CryptoQuant
Meanwhile, investors have been selling their FTT holdings at a loss amid the ongoing Alameda Research fiasco, per EtherScan data. For instance, a small whale reportedly took a 65% loss on its FTT investment
Still, independent market analyst Satoshi Flipper sees a potential FTT price rebound ahead as it retests a long-standing support range visible on the weekly chart below.
FTT/USD weekly price chart. Source: TradingView/Satoshi Flipper
“Too much FUD so I’m long here @ $22.95,” the analyst wrote.
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