Crypto Civil War

Crypto Market Week in Review (11 November 2022)

Markets

This week the markets were in a positive mood, boosted by better-than-expected US inflation figures published on Thursday. The S&P 500 rallied by 5.6% during the single day on Thursday, and both stocks and bonds advanced since the last Friday’s close.

However, crypto was shaken by the news about FTX exchange and the related entity, Alameda Research. A conflict between Binance and FTX, which looked like a crypto civil war given a sheer size of the exchanges, started by an unconfirmed article disclosing that FTX had inflated its balance sheet with its own token (FTT). After trading accusations with FTX, Binance said it would sell its FTT token holdings in a market, causing its price to drop. After that, FTX faced an epic client run, losing 87% of funds in 5 days (according to CoinDesk). Despite earlier tweets from SBF, CEO of FTX, claiming "FTX is fine. Assets are fine", FTX halted withdrawals and asked Binance for a bailout. Here an interesting part began, as it turned out that FTX had transferred client funds to the related entity, Alameda Research, which used the funds for speculative bets that went sour.

FTX token price (FTT/USD)

Fearing large-scale liquidations by Alameda, crypto markets were sold off hard. Bitcoin lost almost 20% since the last Friday, and most other coins plunged even more. Solana was the second worst cryptocurrency during the week (after FTT token), reflecting its backing by FTX. Solana price almost halved.

Big spot moves and fear of forced selling by Alameda led to a spike of implied volatility. It now looks obvious that the last week inversion of the volatility curve (Bitcoin implied volatility for 7 days was higher than for 30 days) was related to crypto-specific risks and not to a macro news pack (which turned out into a big positive for the markets). It’s an interesting example of market efficiency and volatility market smartness, because the market hinted at a big short-term risk while FTX/Alameda implosion seemed to be just a remote possibility.

Bitcoin DVOL index

Ethereum DVOL index

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