TA Tuesday: Crypto is 24/7 – crypto markets plummeted amid Binance-FTX/Alameda situation

Crypto is 24/7.

So much is currently going on in crypto. We also have the midterm elections, Fed members speaking, CPI numbers, and the inflation target, to name a few. We are living in some busy times.

Once again, the topics of credit risk and creditworthiness are on the table. Rumors are spreading about the FTX/Alameda situation, and without wanting to be redundant, I encourage you to take some time to read through this thread:

Truth be told, I was always a bit concerned about how Alameda Research was tied to FTX much too closely. To be specific, something that I really never liked was that Alameda, as a “Principal Trading Firm”, is the one of the biggest market makers in FTX, and is extremely involved in many different projects (i.e., Solana). In my opinion, it’s as if Citadel would be owned by CME. That would be crazy, right?

Nevertheless, if FTX has not been „playing around“ with client holdings (the way Celsius or Voyager did), I am not worried about the solvency of its platform. Having said that, though, as it is very likely that Alameda has many loans backed in FTT, which probably are locked and/or hard to easily liquidate, they implicitly have a trigger price and a “margin call”. If Alameda becomes insolvent, we might not only see a reduction in liquidity at FTX.com but the crypto space in general will suffer. A lot.

Sidenote: I am not expecting Alameda to show their balance sheet or the full list of holdings and positions.

Since last week, I am also closely watching lending/borrowing rates on FTX. Here is how it works: https://help.ftx.com/hc/en-us/articles/360053007671-Spot-Margin-Trading-Explainer.

As concerns started arising, many stopped lending out their tokens, causing the borrowing rates to increase. The always beloved FTX’s margining system is now under a magnifying glass. What if suddenly everyone stops lending? Borrowing rate spikes and margin calls should close the positions of the borrowers. I am curious to see the effect that this will have on the market, as many players used to borrow funds on FTX – typically at a lower rate than other DeFi protocols – to then stake/farm/etc. those assets on other platforms at higher rates. This is a systematic risk.

You can check out the rates here:

  1. https://lending.tools/
  2. https://ftxpremiums.com/

So far:

  • The USD lending rate is at 5% (slightly above the 4% Fed target rate, which is reasonable), but USD lending on FTX went from $2.5 billion on November 6, to $1.1 billion as of now. (You can check this out here: https://lending.tools/rate/USD )
  • The ETH lending rate jumped to 10% from the historical average of 2.53%, as the number of tokens lent went from 400k to 170k. (You can check this out here: https://lending.tools/rate/ETH )
  • AXS lending rate jumped to 500% from historical average of 66% (Check here: https://lending.tools/rate/AXS )

Now, let’s talk about prices…

Buying FTT, SOL, and all the “Alameda Coins” is nothing else than a bet. In case of clarification from Alameda, I can easily see FTT above 22 (now it’s trading at 18.03).

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