Crypto News Bites 2022/11/11
Massive assets rally on easing inflation / FTX $9.4b hole / DOJ investigation / Tether freezes FTX's USDT / Partial FTX withdrawals for Bahamians & Tron tokens
Top News Summaries
Assets saw massive gains as inflation data well below estimates, expectations of Fed slowing rate hikes in December.
FTX seeking $9.4b from investors, Alameda owes FTX $10b, Department of Justice investigation, Tether freezes FTX’s USDT, partial withdrawal for Bahamians and Tron token holders, LayerZero equity buy-out agreement, Bahamas freezes FTX assets.
Hash Blockchain obtains Hong Kong crypto trading license.
More details, news and analysis below! It’s not just about FTX!
Market Overview
Stocks, bonds, precious metals and crypto all saw massive rallies as US CPI data was well below estimates. US October CPI was 7.7%, below estimates of 8% and well below September’s 8.2%. This was the lowest increase since January and the first time since February below the 8% figure, indicating the inflation rate may have peaked from the 9.1% increase in June. Core CPI which excludes food & energy was 6.3% also below estimates of 6.5%, a welcome relief as the Fed tracks this figure closely. Markets expecting a 85% chance of a smaller 50bps December rate hike after 4 consecutive 75bps hikes. The rally perhaps showing a lot of money sitting and waiting on the sidelines, and I am looking closely at market leaders and strongest performers as indicators of further gains into year end. Just running the numbers since they are impressive: S&P +5.5% Nasdaq +7.3%, gold +2.3%, DXY -2.3%, US2Y -0.25%, BTC +11%, ETH +17%. It is a welcome relief for crypto after all the FTX insolvency drama (read previous posts), which conveniently leads to the next segment…
FTX
Insolvent crypto exchange FTX is seeking to raise $9.4b but so far a few potential investors such as Tether & OKX have declined. FTX CEO SBF tweets apologetically, not that Twitter cares, but also reveals slight details on metrics which is where some things went wrong and they couldn’t cover the $5b withdrawals on Sunday.
WSJ however points to what really went wrong, (in my view criminally wrong) that SBF basically used client deposits as his own piggy bank to take risky trades, violating their own terms of service. FTX lent $10b of the $16b customer deposits to its sister trading firm Alameda, and Alameda also owes $1.5b loans to other counterparties. A good summary on how it happened: FTX prints the $FTT token, Alameda buys or premines $FTT at a very low price, Alameda posts $FTT back to FTX as collateral, borrowing “real” assets from FTX’s customer deposits.
Outside SEC and CFTC probes, the US Justice Department is also looking into FTX. Stablecoin issuer Tether has frozen $46m of USDT held by FTX following a law enforcement request. USDT lost its $1 peg and fell as much as 3% as this is the first time Tether has frozen a wallet belonging to an exchange. Tether’s CTO said they had no issues and had processed 700m redeeming USDT into USD. USDT currently only 30bps off the peg.
Bulk of the withdrawals are still frozen, but FTX has started to allow the withdrawals for Bahamian funds, as they are headquartered in Bahamas and must adhere to local regulations… or as Twitter comments, “there are angry people nearby and they have guns” lol. Also the Bahamas regulator has frozen FTX assets.
A special agreement allowing withdrawals of Tron tokens TRX, BTT, JST, SUN and HT. Initially $13m of assets will be deployed and reviewed every week. Given that deposits and withdrawals are suspended, the price of TRX on FTX at the time of writing is 5x higher than other exchanges. Users with deposits stuck on FTX can buy TRX to have it withdrawn, effectively taking a 80% loss, but at least the capital is out. Twitter having a field day with this, saying it reduces the $8b hole FTX is in and also speculation that users lose their rights to any claims.
LayerZero Labs, a cross-chain bridging startup, reaches an equity buy-out agreement with FTX and Alameda, slightly alleviating the financial situation FTX is in.
Aside from shareholders and users, the contagion includes celebrity ambassadors (e.g. Tom Brady & Gisele Bundchen), sports sponsorships (FTX Arena for NBA Miami Heat), token investments (SOL, STG), companies bailed out by FTX (BlockFi, Voyager) etc. The fallout from FTX is widespread and we will learn more in the days to come, such as Genesis Trading revealing $175m funds locked on FTX.
As mentioned yesterday, multiple exchanges have promised to disclose their client assets for better transparency, and options exchange Deribit has done so already, showing all their wallets holding $1.6b in BTC & ETH. This will be a great way to gauge and track what before was a big black box on these centralized exchanges.
Bitcoin Miners
Bitcoin miners play a crucial role in keeping the blockchain running, and it is insightful to go through the earnings reports of publicly listed miners which are some of the world’s largest. Reports show most miners are being squeezed financially between lower BTC prices, and record high hashrates & hashrate difficulty (computing power & amount needed to generate next block on the blockchain, below chart), higher electricity costs, higher debt payments from rising interest rates and higher government scrutiny from the ESG front.
Crypto winter showing the difference between efficient and non-efficient miners. Some miners expanded capacity such as MARA, CLSK, RIOT, while some declared/warned of bankruptcy such as CORZ. Some miners didn’t sell any of their mined BTC, such as HUT and MARA. I believe we shall see more consolidation in the sector with the strongest buying out distressed assets of weaker competitors.
Adoption
Hashkey Group’s Hack Blockchain was granted a full license by Hong Kong’s regulator SFC, allowing them to provide crypto asset trading services. They are the second crypto service provider in Hong Kong to obtain the full set of licenses after OSL did back in 2020. Slowly but surely…
Aptos APT and Google Cloud unveil partnership, plan for accelerator program. Big web2 & web3 tie up, and great publicity for new blockchain APT. Aptos is a new blockchain co-founded by employees who worked on Meta’s Diem blockchain cryptocurrency. Google continues to dive into web3, earlier adding support for the Solana blockchain.
Solana
The 50m SOL or 14% of circulating supply that was supposed to be unlocked from staking yesterday was reduced by 28.5m as they were to be re-staked to other validators. Usually when tokens are unlocked from staking, holders are free to transfer their tokens, and potentially sell as well. Fears that 50m of additional selling pressure were allayed and SOL recovered 30%.
Another victim of the FTX fallout, Solend, a decentralized finance (DeFi) lending protocol, liquidates a large borrower who deposited $51m worth of SOL to borrow $44m USDC stablecoin, as SOL price crashed over 60% since the weekend. However this leaves the protocol with $6.5m in losses due to network congestions and price fluctuations. A governance proposal will soon be put to vote on whether this will be covered by the $22m in their treasury.
Decentralized Applications
Chainlink offers proof of reserve services for exchanges. I expect many more such solutions that offer users transparency to pop up.
A new app called Magic Mirror allows NFTs that are on Optimism, a layer 2 blockchain that alleviates congestion on Ethereum, to make a verified copy on Ethereum. If NFTs are on Optimism, then they could not be used on Ethereum for example to be verified on Twitter. This increases the appeal of non-Ethereum native NFTs and could help drive adoption of NFT collections created on Optimism.
Tokens Mentioned Today
BTC ETH USDT TRX BTT JST SUN SOL STG APT