Weekly Research Report: CEX CLEANSING; DEX RISING

The Crypto market had a very independent pathway last week as the second largest crypto exchange FTX was discovered to be at risk of insolvency. Sam Bankman-Fried, the CEO of FTX, has confirmed the company has filed for bankruptcy and this caused the crypto market to decline despite the November CPI came out surprisingly lower than the anticipated number. Crypto market cap dropped 8.1% to $883bln. Bitcoin plunged to a new low in 2022 ($15,512) and is now stabilizing at $16.5k (7d $BTC -9.3%).

Crypto dominance: (BTC 36.8%, ETH 17.1%, USDT 7.5%, USDC 5.1%).

General funding rates turned negative (7d avg funding: BTC -8%; ETH -9%) (Chart 1).

Alt’s funding rates underperformed except for DOGE’s (7d avg funding: SOL -2310% (massive selling pressure during FTX liquidity crisis with SBF as a Solana Passionist), BNB -18%, DOGE +9%).

On liquidation side (Chart 2), $284m worth of bitcoin long positions have been liquidated two days after FTX collapse. The total bitcoin liquidation in the last two weeks was $686m, with 1.8 Long/Short liquidation ratio.

Chart 1: 7dma of BTC, ETH Perpetual Futures Funding Rate (Source: Binance)
Chart 2: 4hr BTC liquidation chart (Source: Coinglass)
Major Crypto KPI (Nov 16, 2022)

Centralized crypto exchange tokens declined sharply following the failure and FTX’s misuse of $FTT (14d: $FTT -93.0%; $HT -42.3%; $KCS -24.0%).

Decentralized crypto exchange tokens recovered strongly as CEX collapses raised public awareness to transit from CEX to DEX (7d: $DYDX +64.0%; $GMX +19.5%; $UNI +1.8%). Crypto wallets’ tokens also rallied for security reasons (7d: $TWT +62.5%; $SFP +66.4%; $C98 +19.9%).

Crypto exchanges (e.g., Binance, Crypto.com, OKX, Kraken) simultaneously adopted “Proof-Of-Reserves” campaign to calm users fears after the collapse of several centralized crypto exchanges.

$USDT temporarily de-pegged to $0.96 as of FTX’s wobbles. The USDT reserve has once gone up to 73% in stablecoin 3pool on Curve Protocol. Tether then efficiently processed $700m redemptions and $USDT returned $1.00 immediately. Tether also froze FTX $USDT. After that, Tether announced that they have eliminated all commercial papers from their reserves to further strengthen users’ confidence.

Bored Ape Yacht Club (BAYC)’s floor price fell more than 25% in the last seven days and reached a 9-month low of 48.5eth. BendDAO, the NFT lending protocol, was auctioning off 14 BAYCs from underwater loans, while all the bids were below floor price, implying a soft demand in the NFT market.

The European Union delayed the vote on Markets in Crypto Assets (MiCA) legislation until February.

Circle and Paxos received regulatory approval from Singapore Monetary Authority.

Hong Kong planned to open doors for legalizing retail crypto trading.

FTX crypto exchange suspended withdrawal since 9 Nov, then FTX and its affiliates (Alameda Research) filed for chapter 11 bankruptcy after Sam Bankman Fried (FTX’s CEO) confirmed on twitter that his company has become insolvent. The official FTX website was then hacked and more than $600m worth of assets being drained. Now the FTX website has been shut down and its assets were frozen for investigation.

Binance formed ‘industry recovery fund’ to reduce the cascading effects from FTX collapse. The fund will support projects which were fundamentally solid but current had liquidity crisis. Bitcoin increased +4.9% one hour after the news.

Meta continued to dive deeper into the web3.0 space. It partnered with Arweave to store NFTs on Instagram; it will use Polygon blockchain network for new NFT feature.

Goldman Sachs launching crypto classification system “Datanomy”, created with MSCI (global index provider) and Coin Metrics (leading crypto data firm).

1inch partnering with Revolut (British fintech and banking company) to launch “Learn-and-Earn Courses”. It aimed at educating newcomers and spreading crypto knowledge to the world.

Visa filed trademark applications for digital wallets, NFTs and Metaverse

CPI went down to 7.7%, hinting a high probability that the Fed pivot is coming in December. US stocks soared accordingly as inflation seemed to have been peaked (7d: DJI +4.2%, S&P500 +5.9%, NQ +8.8%). Tech stocks recovered strongly despite the recent headcount cuts from Twitter and Meta. Commodities were mixed (GOLD +5.4%, Oil -3.5%, Wheat -4.0%).

The recent collapse of crypto exchanges caused a setback for crypto investors. Since the error was caused by centralized humanity problems and in fact there was nothing changed on blockchain fundamentals, SR believes that the cleansing process will be beneficial to the entire crypto industry for sustainable development in later terms. Regulation and security concerns were raised, and institutions are finding ways to enter the industry. Investors became more willing to adopt decentralized protocols. Once the crypto independent chaos is settled, SR is looking for a strong rally in the crypto market.

DYOR, Good Luck!

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