Concerns Over FTX-Driven Crypto Market Crash Exaggerated, Analysts Say

Alisha Dar
25 Sep 2023
Crypto markets experienced a downturn on Monday amid worries that FTX would liquidate a portion of its $3.4 billion cryptocurrency holdings. However, analysts suggest that these concerns may be overstated.

David Lawant, head of research at FalconX, stated, "The actual selling pressure could be much smaller than initially anticipated."

Digital asset markets saw a significant decline as traders feared that insolvent crypto exchange FTX might initiate the sale of its crypto assets, including $1.16 billion worth of Solana's SOL and $560 million in bitcoin (BTC). BTC dropped below $25,000, its lowest level since June, and SOL fell by as much as 8%.

FTX may obtain approval to sell assets in its upcoming bankruptcy court hearing scheduled for Wednesday.

Lawant emphasized that a portion of FTX's crypto holdings represents venture investments with lockup periods preventing the sale of these assets. Additionally, there would be constraints on the asset sales, mitigating the market impact.

Lawant commented, "It is likely that the reaction to the potential FTX sales was exaggerated, and the market will calm down from here."

Jeff Dorman, chief investment officer at digital asset investment firm Arca, noted that market participants initially overreacted to the potential consequences of the sales.

Dorman explained, "The way crypto market makers and traders are front-running the FTX supply shows a complete misunderstanding of how a syndicated sale process works."

Despite the initial scare, the market has rebounded, with BTC returning to $26,000, roughly its level before the Monday sell-off.

More Selling Pressure Expected in the Crypto Market

While the market impact of any FTX crypto sales may be less severe than expected, there are other looming events that could exert downward pressure on prices.

Vetle Lune, senior analyst at crypto analytics firm K33 Research, pointed out that "the market also expects further sell-side pressure from Mt. Gox's trustees and U.S. Silk Road Bitcoins."

U.S. authorities have been gradually selling chunks of the 50,000 BTC seized last November in connection with the Silk Road crypto marketplace. Victims of the Mt. Gox hack, where around 850,000 bitcoins were stolen years ago but only a fraction has been recovered, may be able to reclaim their assets later this year.

Lune noted, "The schedule and structure of these potential sell-side flows are unknown but have all been decisive forces in hammering an already pressured sentiment."

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