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Is FTX behind Terra’s collapse?
Based on IntoTheBlock’s weekly newsletter. If you enjoy it, and would like to receive it every Friday make sure to sign up here!
This week we evaluate the recent claims alleging FTX may have started the crypto crisis that ended up taking it down. Some elements behind these are still unconfirmed, but we analyze multiple sides of it to try to make sense behind the reasons for FTX’s demise.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees dropped slightly and remain low along with network activity
- Ethereum fees rebounded, with a suspicious new project XEN Batch Minter being number 1 on Ultrasound Money’s burn leaderboard
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation under regular circumstances
- Bitcoin saw negligible withdrawals from CEXs in comparison to the $2B withdrawn last week
- ETH recorded nearly $880M in withdrawals from CEXs
Crypto Goes Full Circle
The crash that set off crypto’s contagion appears to begin and end in the same the place: with FTX and Alameda. This week, it came to light that federal prosecutors have begun an investigation alleging that Sam Bankman-Fried’s Alameda was behind the Terra and UST collapse as per the New York Times.
Via IntoTheBlock’s Wrapped UST indicators
How Could it Happen? It is plausible that Alameda sought to profit from UST’s collapse without measuring its second and third order effects
- On February, 2022, FTX launched a perpetual swaps market for UST
- On April, the Luna Foundation Guard (LFG) sold $1B to Genesis
- Throughout that month, the LFG use proceeds from that sale, their previous fundraising and swaps on their Curve pool, to acquire 80,000 Bitcoin (worth ~$3.2B) in the effort to have assets to backstop a UST de-peg
- In May, Alameda opened a nine figures Bitcoin short position as evidenced in Voyager’s bankruptcy papers
- On May 8, $1B UST previously on Genesis began getting sold in the Curve pool, initiating the de-peg
Several Terra-related people including its founder Do Kwon and 3AC’s Su Zhu have pointed at these events as Alameda beginning the crash that led to their eventual demise.
Via IntoTheBlock’s FTT indicators
Round-trip — FTX went from $0 to a $32B company, back to near $0 within three years
- Though Alameda likely profited from this Bitcoin and UST selling, a Bitcoin.com article cites an anonymous insider stating they already had a $1.31B hole in their balance sheet in May
- This could have come from Alameda being the main entity backstopping FTX liquidations and facing issues doing so during the tumultuous Terra collapse
- Following Terra’s collapse, BlockFi and Voyager, where Alameda had FTT-collateralized loans, began having solvency issues, jeopardizing their scheme
- It’s unclear how Alameda’s hole climbed further to $8B worth of FTX’s customer funds by November
It’s not just FTX, Alameda and Terra; many other assets’ prices and their network activity have returned back to 2019 levels.
Via IntoTheBlock’s Bitcoin transaction metrics
Bear Market Drop — Prices and key metrics for most crypto-assets dropped 80%+ in 2022
- This pattern is typical of bear markets, but it’s likely that the contagion from FTX and Terra have exacerbated the downfall
- As mentioned in last week’s newsletter, crypto has begun a restructuring period with credit markets frozen and uncertainty still lingering
Overall, we are still not 100% certain if FTX took down the first domino in this catastrophic sequence, nor if already saw the last of it. However, more clarity has begun to emerge, with blockchain data being a transparent tool shedding light into this dark situation. Hopefully this helps lead to justice for those affected and greater guidance on the path ahead.
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Crypto Goes Full Circle was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.