Why FTX’s Token Liquidation is Unlikely to Cause Market Shocks, According to Coinbase
A recent market report by Coinbase suggests that the upcoming mass token liquidation by FTX, a bankrupt cryptocurrency exchange, is unlikely to have a significant impact on the market. The report, authored by Coinbase’s head of institutional research, David Duong, highlights several factors that should help mitigate the risks associated with the sale of these assets.
FTX’s Planned Crypto Liquidation
FTX recently received approval from the U.S. Bankruptcy Court to sell its crypto assets worth $3.4 billion. These assets include popular cryptocurrencies such as Solana, Bitcoin, Ether, and Aptos. Additionally, FTX has also been granted permission to liquidate other assets and cash, bringing the total value of assets to be sold to $7.3 billion.
The decision to allow the liquidation was supported by FTX’s creditors and non-U.S. customers who recognized the importance of de-risking the exchange’s token portfolio and maximizing value for users.
Mitigating Market Shocks
To minimize potential market shocks, FTX’s liquidations will be subject to weekly sell limits in the initial phase. These limits will start at $50 million across all crypto assets and gradually increase to $100 million and then a maximum of $200 million as determined by the committees representing FTX debtors.
The committees have also imposed strict controls on selling certain tokens affiliated with insiders. These tokens can only be liquidated after a ten-day advance notice. Additionally, FTX will have the option to hedge its sales of debtor-identified assets through an investment advisor.
Furthermore, a significant portion of FTX’s SOL holdings will remain locked until 2025 due to the asset’s vesting schedule. This restriction also applies to other tokens that are part of the liquidation.
Hot Take: Unlikely Market Shocks Expected from FTX’s Liquidation
According to Coinbase’s research report, the forthcoming token liquidation by FTX is not expected to cause major market shocks. The report highlights various factors that will help mitigate risks, including sell limits, controls on insider-affiliated tokens, and asset locking. With these measures in place, it is anticipated that the impact on the cryptocurrency ecosystem will be minimal. Nevertheless, market participants will closely monitor the liquidation process to assess any potential effects on prices and trading volumes.
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