Why Bitcoin, Ethereum, and Aptos Are Big Down Tuesday Morning

What happened

Cryptocurrencies didn’t just wake up on the wrong side of the bed this morning; they had a terrible night. At 9:45 PM ET on Monday, the bottom fell out The FTX token (FTT -16.04%) and the race was on to sell everything in crypto.

The worst decline was reserved for smaller cryptocurrencies, but as of 9:40 a.m. ET, Bitcoin (BTC -2.32%) has fallen 5.8% in the last 24 hours, Ethereum (ETH -2.37%) is down 7.5%, and Aptos (APT -6.83%) has fallen 13.3%.

So what

Drama has been building in the crypto space for about a week after CoinDesk reported that Sam Bankman-Fried’s trading arm, Alameda Research, has $14.6 billion in assets and $8 billion in debt. That’s not a problem in itself, but CoinDesk also said that $5.8 billion of the assets were FTX Token, FTT. It is noteworthy that Bankman-Fried also founded the FTX exchange, which is one of the best cryptocurrency exchanges.

Over the weekend, Binance CEO Changpeng Zhao announced that he would be selling nearly $500 million in FTX tokens, leading to speculation that the value would drop. That’s exactly what happened on Monday night, whether it was due to Binance’s selloff or traders anticipating the selloff.

At the same time, customers withdraw money from FTX’s exchange, which can lead to a “run on the bank”. Nansen reported that FTX has had $1.2 billion worth of Ethereum and ERC-20 tokens withdrawn in the past 24 hours compared to $540 million in deposits. CryptoQuant says FTX’s Bitcoin reserves were zero at one point.

Banks and exchanges usually do not have enough reserves to pay all customers their money if they withdraw all at once, which is known as a run on the bank. This can lead to panic selling and make a company insolvent relatively quickly.

What now

This is reminiscent of the summer collapse of Three Arrows Capital, which brought the Celsius Network and Voyager with it. Lending that investors didn’t know about on the balance sheet suddenly became problematic when crypto values ​​fell and loans were called back.

We are not sure this is what is happening at Alameda with FTX Token, but given the price action and money moving out of FTX, investors are taking a cautious approach.

It is not clear what happens next. FTX remains one of the largest exchanges and if it fails, the impact on crypto could be huge. I wouldn’t be surprised if this isn’t the end of the decline in crypto prices, although it does mean a buying opportunity for long-term investors, because an exchange can go bankrupt, but a token can’t.