FTX’s Token Liquidation Unlikely to Cause Market Turmoil, Says Coinbase Report

A recent research report from Coinbase suggests that the sale of cryptocurrency tokens by the bankrupt exchange FTX will not lead to a significant market disturbance. This assertion is based on multiple factors, including the volume limits imposed on liquidations and other regulatory checks.

Mitigated Liquidation Volumes

According to Coinbase, one of the main reasons why FTX’s token sales are unlikely to cause market shock is the phased approach to liquidations. Initially, sales are capped at $50 million per week, increasing to $100 million in subsequent weeks. Committees representing FTX’s debtors would have to approve any permanent increase, which is limited to a maximum of $200 million per week.

Substantial Holdings Under Scrutiny

FTX reportedly has around $1.16 billion in Solana (SOL), $560 million in Bitcoin (BTC), $192 million in Ether (ETH), and an additional $1.49 billion in other cryptocurrency tokens. A recent court ruling has allowed the exchange to sell and invest these holdings to pay back creditors.

Additional Safeguards

David Duong, head of institutional research at Coinbase, pointed out that there are stringent controls in place for selling tokens associated with insiders. Such sales require a 10-day advance notice to the committees overseeing the liquidation. This acts as a safeguard against sudden, unregulated disposal of assets that could potentially affect the market.

Locked Assets and Hedging Options

Interestingly, a significant portion of FTX’s Solana holdings are locked up until 2025 due to the token’s vesting schedule. Similarly, other tokens requiring liquidation are also bound by vesting agreements. This further reduces the potential for market disruption.

Moreover, FTX has the option to hedge its sales of Bitcoin, Ether, and other tokens through investment advisers, pending committee approval. This hedging capability will allow FTX to navigate market risks effectively.

Conclusion

The structure of FTX’s liquidation, coupled with the regulatory oversight and volume caps, makes a strong case against the likelihood of a market shake-up due to the sale of its cryptocurrency holdings. While the sheer volume of assets involved may raise eyebrows, the various checks and safeguards in place suggest a controlled and regulated liquidation process. This, according to Coinbase’s research, mitigates the potential for large-scale market disruptions.