Digital Asset Exchange Coinbase Says FTX Liquidation Will Not Impact Market
Coinbase, a digital asset exchange, has released a report stating that the potential liquidation of FTX’s crypto holdings will not have a negative effect on the market. There were concerns that the sale of FTX digital assets, valued at over $3.4 billion, would lead to a significant price drop based on weekly trade volumes. However, Coinbase explains that volume limits regulated in each phase of the liquidation will prevent major market changes.
The liquidations will initially be capped at $50 million per week and gradually increase to a $100 million cap in subsequent weeks. Contrary to previous speculations of an overnight sale worth $1.3 billion, FTX debtors and committees must approve a permanent $200 million per week sale. Furthermore, certain “insider-affiliated” tokens require 10 days advance notice for selling.
Coinbase notes that FTX can enter into hedging contracts with a licensed advisor but is limited to Bitcoin (BTC) and Ethereum (ETH). Approvals from creditors would be necessary for other coins. The company is also required to provide regular reports on balances, trades, sales, yields, market insights, and revenue-generating sources.
A recent court order allows FTX to sell its crypto holdings directly or through investments to repay investors. The collapse of FTX in November 2022 had various effects on the market, including initial market downturns and concerns surrounding the sale of its assets.
Bankruptcy Proceedings Cause Market Concerns
The collapse of FTX led to significant impacts on the market. A court filing reveals that the exchange holds around $7 billion in assets, including cryptocurrencies, investments, and Bahamian properties. Their BTC holdings amount to $560 million and Solana (SOL) holdings total $1.16 billion.
FTX also has approximately $4.5 billion in venture capital investments and real estate worth over $200 million. Experts previously speculated that the sale would heavily impact the market, prompting Tron’s Justin Sun to call for community support and express interest in bidding for some assets to mitigate market effects.
Solana makes up a large portion of FTX’s assets, although a significant amount is locked up due to vesting schedules. Despite this, Solana’s price dropped by 6% last week due to fears of a massive FTX liquidation.
Hot Take: Market Remains Stable Despite Fears
Despite concerns about the potential impact of FTX’s liquidation on the market, Coinbase’s report suggests that volume limits and regulated procedures will prevent significant changes. The gradual increase in weekly caps for liquidations and the requirement for approvals from debtors and committees aim to ensure controlled sales.
Furthermore, FTX’s ability to enter hedging contracts with licensed advisors provides additional stability. Although Solana’s price experienced a minor decline last week, the overall market has remained stable. As FTX proceeds with bankruptcy proceedings, it is crucial to monitor how the liquidation unfolds and its long-term effects on the crypto market.
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