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11 November 2022

In this issue

Weekly price tracker || New kids on the block || FTX disaster

Hello,Barely two days ago Flori Marquez, Founder and COO of crypto lender BlockFi, put out a Twitter thread ostensibly to reassure everyone that everything was fine with the company. Few hours ago, the company tweeted that they “cannot operate business as usual” and are pausing withdrawals. This is the story of cryptoland in 2022. Founders tell us our funds are safe one day, the next day they pause withdrawals and soon the company goes kaboom. The biggest hero-turned-villain in the ongoing catastrophe, of course, is FTX and its founder Sam Bankman-Fried (some would argue that Binance CEO CZ is the bigger villain, assuming that he had engineered the whole situation although he has denied it). With FTX’s death knell sounded, the company is all but over and billions of dollars have just vanished into thin air. Welcome to the latest issue of Cryptogram and all we have for you is bad news – the crypto winter could very well get colder and darker, so brace for impact. In this issue, we will explain to you exactly what happened in the FTX saga, and how you can protect yourself.

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY PRICE TRACKER

Price movements from last Friday

BTC:  16% post FTX crashETH:  19% post FTX crashFTT: 

 86% as investors lose confidence in the exchangeSOL: 

46% - first order effect of FTX crashUSDT: 

0.2% - Depeg as a result of market uncertainty

NEW KIDS ON THE BLOCK

New coins to watch out for:$MASQ - private Web3 browser with earning ecosystem, competitor to Brave browser.$GNS - decentralized leverage trading platform built using Polygon

Project to watch out for:Anq Finance, revolutionizing credit card industry with Web3.

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THE BIG STORY

FTX disaster, and how to protect yourself from it: Explained

WHY did the FTX meltdown happen? Sam Bankman-Fried’s crypto empire has (rather had) two arms, cryptocurrency exchange FTX and trading firm Alameda Research. FTT is FTX’s native token. FTX provides Alameda with data on which Alameda builds its quant models. If that alone was the relationship, it isn’t a problem. The problem is that, according a news report based on leaked documents, USD 5.8 billion of Alameda’s total assets (USD 14.6 billion) were dangerously held in illiquid FTT collateral that had a mere market cap of ~USD 3.35 billion, and Alameda was using FTT as collateral to backstop their loans. Basically, FTX created a token out of thin air, Alameda got a lot of those allocated to itself, and then took out a loan from FTX with FTT as collateral. But FTT is illiquid, so if its price crashed Alameda too would, and that would also affect FTX – which is what drives the value of FTT. One of CZ’s tweets explained it best:

HOW did the FTX meltdown happen? Or, how did people get wind of all this? It started with this Coindesk article, which reported on the partially leaked balance sheet of Alameda. Meanwhile, all through 2022, the relationship between Binance, who held massive amounts of FTT tokens and FTX had been souring. The rivalry reached hostile levels following the release of a Coindesk article, especially when Binance CEO CZ announced that they were liquidating all their positions in FTT. 

By this point, the discomfort which had set in after the Coindesk article had soared into panic – and people were selling off FTT tokens and also started withdrawing their funds from FTX. And guess what? FTX did not have enough funds to match the withdrawals. SBF was now in damage control mode, and hit Wall Street to get more liquidity, with no luck. And then he has to knock on the doors of the only other man who could help him – CZ.

CZ said he would help, pending due diligence. Just a day later, he backed out.

By now, SBF’s net worth was reduced to nothing and FTX and Alameda’s dream run were all but over. FTX paused withdrawals. As we write this, FTX is going insolvent. Impact on the market What wasn’t over is the misery this saga imposed on the entire ecosystem. Investors like Sequoia have written off their investments in FTX, and there are several crypto players like BlockFi and Galaxy who are exposed to FTX.Shares of Bankman-Fried-backed Robinhood dropped nearly 20%. Coinbase was down about 10% to the day. In a statement after the Binance-FTX deal — and the subsequent crypto prices tumble — Coinbase assured investors that it has no exposure to the FTT tokens and “very little” exposure to FTX. Blue-chip names such as SoftBank Group Corp.’s Vision Fund, the Ontario Teachers’ Pension Plan, the Singapore wealth fund Temasek Holdings Pte., hedge fund Tiger Global Management and Lightspeed Venture Partners have invested in FTX.BTC traded below $16K, lowest in 2 years. Solana (SOL), heavily promoted by SBF in personal capacity, is traded below $15 and dropping (All-time high of $250 last year)Following are or will be affected by #FTX Insolvency: (Link)

1 Galaxy Digital's $77 million exposure to FTX2 Multicoin Capital - 10% AUM stuck in FTX3 TrueFi had $12m exposure to Alameda.4 Bybit -100m $BIT tokens5 FTX & Alameda's (previously) >$2b $SOL exposureHere is a consolidated list of all firms backed by FTX.

So, how should an average investor react?- Stick to BTC as an investment in this climate – no altcoin is safe. Exit all altcoin positions at the earliest. Remember, LUNA and SOL were top 10 coins before they capitulated.

- Don’t trade this volatility. It can go either way - Be patient – let the market find the bottom, start investing then.- Hold your reserves safely in an Indian exchange or in a private wallet.

That’s all we have for this issue, see you next week! 

If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

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