Crypto exchange Coinbase published a report examining the state of the crypto market after a bankruptcy court approved FTX’s proposal to sell its digital assets.
In the report, researchers at Coinbase pointed to four mitigating factors that should reduce the risk of market shocks when FTX liquidates its holdings.
“First, it’s unlikely these tokens will flood the market because liquidations are bound by weekly sell limits of $50M per week across digital assets in the initial phase, before increasing to $100M in subsequent weeks,” the report stated.
The fact that “strict controls” are in place for selling certain insider affiliated tokens, requiring FTX to notify two committees prior to selling, will also limit the effects that an otherwise unexpected sale would have had, the researchers noted.
A major concern for market participants was the $1.16 billion worth of Solana (SOL) tokens in FTX’s possession, which would likely cause the token’s price to decline further if the exchange initiated a sale.
However, the Coinbase report reasoned that a major part of FTX’s SOL holdings is locked up until 2025 due to the token vesting schedule.
5/ The FTX estate also holds more than 1,300 “Category B” tokens that are illiquid and/or controlled by the estate. The three largest Category B holdings are SRM, MAPS, and OXY.
— Coinbase Institutional 🛡️ (@CoinbaseInsto) September 12, 2023
Lastly, the researchers noted that, subject to prior committee approval, FTX will be able to hedge its sales of Bitcoin (BTC) and Ethereum (ETH) through an investment advisor. The bankrupt crypto exchange has hired Mike Novogratz’s Galaxy Digital as its advisor to aid in timing the sales of its assets to maximize value.
Last week, news of FTX’s proposal to sell its assets triggered a selloff in crypto markets, with the price of Bitcoin falling under $25,000.
“The way crypto market makers & traders are front-running the FTX supply shows a complete misunderstanding of how a syndicated sale process works. This isn’t an “every man for himself VC unlock”. This is a court-ordered process that Galaxy will sell very slowly & opportunistically,” said Arca exchange CIO Jeff Dorman.