Later this week, FTX, the now-bankrupt crypto exchange, is scheduled to appear in the Delaware Bankruptcy Court, seeking approval to liquidate $3.4 billion worth of Bitcoin and other crypto assets. This development has sparked concern among market experts and participants, who express concerns that such a large-scale sale will worsen the market’s existing challenges, potentially resulting in significant selling pressure and price declines.
FTX Eyes Massive Crypto Sell-off
FTX’s crypto holdings, as of January 17, were valued at $685 million in locked Solana (SOL) tokens. In addition, the exchange’s holdings include $529 million in its native asset, FTT, $268 million in Bitcoin (BTC), $90 million in Ether (ETH), and several other less significant holdings.
These include Aptos ($67 million), Polygon ($39 million), Dogecoin ($42 million), XRP ($29 million), and various stablecoins. The embattled exchange also has an extra $1.2 billion secured in crypto assets held on third-party platforms.
Last month, the company proposed that Mike Novogratz’s Galaxy Digital be appointed as the investment manager overseeing the sale and administration of the recovered holdings. Under this plan, FTX would have the authority to sell a maximum of $100 million worth of tokens per week, potentially capping the sales at $200 million for individual tokens.
Although these proposals do not yet have legal backing, the move is expected to be evaluated and possibly sanctioned by the Delaware Bankruptcy Court on September 13. Meanwhile, the industry’s primary concern is the consequences of these sales.
Many fear that many coins will flood the market during the creditor sale and believe the market’s recovery will only begin after it has steadily absorbed this excess supply. Meanwhile, some observers note that it is doubtful that these coins will be dumped at once on the open market.
However, they are concerned about the proposed weekly limit for the sale of these tokens. Also, most of these assets’ sales will be over-the-counter (OTC).
The tokens the firm couldn’t sell OTC, it will sell them through the various market makers. As a result, industry experts opined that such a move would lead to a more measured and controlled approach to asset liquidation.
The Tokens’ Composition
Examining the holdings reveals that FTT and Solana make up a large chunk of the tokens. Notably, FTX’s SOL holdings are still under lock and will not be fully accessible until 2025 or later.
In this case, any possible sale would require a buyer to assume FTX’s vesting contract. Regarding FTX’s FTT tokens, despite being valued at $529 million, the asset’s current market capitalization is only $350 million, raising questions about who would be interested in purchasing such a significantly devalued holding.
Meanwhile, even if the court approves the asset sale on September 13, the sale process will not begin immediately. Regulatory bodies like the US Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) will oversee the sales and ensure they protect investor interests.
Also, an insurer will likely oversee the liquidation to ensure the process follows all applicable laws and regulations. While there may be some selling pressure, a sudden and widespread sell-off is considered illegal and unlikely.
Nevertheless, experts believe that the fear, uncertainty, and doubt (FUD) surrounding the event will be far more damaging than the event itself.
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