The weekly market report from the largest American cryptocurrency exchange, Coinbase, outlined several reasons why the upcoming mass liquidation of tokens by its bankrupt rival FTX is unlikely to cause market shocks in the ecosystem.
The research report, authored by Coinbase’s head of institutional research David Duong, revealed that analysts identified several factors that should mitigate the risks of market shocks when the assets are eventually sold.
FTX’s Upcoming Crypto Liquidation
On September 13, Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware approved FTX’s request to sell its crypto assets valued at $3.4 billion, which included Solana, Bitcoin, Ether, Aptos, and other tokens.
FTX’s largest holdings are $1.16 billion in Solana, $560 million in Bitcoin, $192 million in Ether, and $137 million in Aptos. The beleaguered company also received approval to liquidate $1.3 billion in brokerage and state assets and $2.6 billion in cash from debtors and non-debtors. Overall, the assets to be liquidated amount to up to $7.3 billion.
The exchange’s request received support from the official creditors’ committee and an ad hoc committee of non-U.S. users as they recognized the importance of reducing the company’s token portfolio risk and liquidating its holdings to enhance value for users.
Duong noted that market participants reacted to the news of FTX’s plans as crypto trading volume increased over the past week, with daily spot activity for Bitcoin and Ether rising by 37 percent. The crypto market later recovered after some selling pressure, confirming analysts’ belief that there are factors that would reduce the risk of market shocks.
Mitigating Market Shocks
Explaining why FTX’s plans are unlikely to cause market shocks, Duong revealed that liquidations are tied to weekly sales limits of $50 million across crypto assets in the initial phase. Over time, the committees representing FTX’s debtors would increase the value to $100 million, and then a maximum limit of $200 million.
Furthermore, the committees have implemented strict controls on the sale of certain tokens related to insider information and would require a ten-day notice before liquidation. FTX will also be able to protect its asset sales identified by debtors through an investment advisor.
Additionally, a large portion of FTX’s holdings in Solana will remain locked until 2025 due to the asset sale schedule. This also applies to some other tokens that are for sale.
