Home > Market Intelligence > Downward Pressure From FTX’s Hack In An Otherwise Slow Macroeconomic Week

Downward Pressure From FTX’s Hack In An Otherwise Slow Macroeconomic Week

Weekly News Wrap Up

It was a dull week for markets with no major catalyst. In TradFi, US Federal Reserve members continued to pushback on investors’ expectations of peak-inflation and slower rate hikes after October’s softer-than-expected Consumer Price Index (CPI), more cost-cutting in US Technology mega-caps as Amazon joins Meta in cutting jobs and Elon continues mass-firing at his recently acquired Twitter, and record-high US mortgage rates finally take a breather, falling to 6.61%. In Crypto, FTX-related news dominated the tape as we see contagion spread from its collapse (see more under “Cryptocurrency News” below).

Equities took a breather from its short-squeeze last week with SPX -0.65% for the week and NASDAQ -1.67%. USD (DXY Index) recovered (+0.52%) after its correction last week. BTC -0.31% and ETH -6.57%, which might be attributed to FTX’s hacker converting stolen ETH to renBTC on Sunday (20 Nov 2022). Outside of the hack-driven move in ETH, both BTC and ETH were trading in a tight range for the week as investors wait for the dust to settle around FTX.

Expect another quiet week on the data front with only notable event being the FOMC minutes from its last meeting on Wed, 23 Nov evening UTC.

Cryptocurrency News

FTX-applications reportedly hacked shortly after filing for Chapter 11 bankruptcy, leading to $659 million in outflows from wallets related to FTX and FTX US. Users are advised to delete the mobile application and not visit the website. In response, Tether has proactively blacklisted $31.4 million of USDT following the hack. The alleged hacker seems stuck with stolen funds worth $339 million as the walls closed in
Our View: the timing of the hack is unfortunate, leaving stranded FTX-users without any options for recourse. However, the response from the community is surprisingly efficient, identifying and tracing the funds in a matter of hours and proactively freezing the stolen funds
Hedge fund Galois Capital has half of its assets stuck on FTX exchange, the Financial Times reports. The amount is estimated to be around $100 million, with the co-founder apologizing to investors, adding that it could take “a few years” to recover “some percentage” of its assets.
Our View: with $8.9 billion of liabilities, as shown from a leaked balance sheet that the Financial Times reported (or here, if you are not a FT subscriber), expect to see similar announcements over the next few weeks as the list of impacted companies grow
Genesis suspends withdrawals and new loan origination after facing “abnormal withdrawal requests” in the aftermath of FTX’s collapse. The company has faced huge losses from the collapse of Three Arrow Capital, Babel and now FTX. In response, Gemini has also paused withdrawals on its Earn-assets after issues arose at its lending partner, Genesis Global Capital, LLC. The Singapore-based exchange stresses that “this does not impact any other Gemini products and services” in its announcement
Our View: following BlockFi’s footsteps in halting withdrawals, we are starting to see contagion across the industry as liquidity and assets locked-up in FTX impact other companies’ business
FTX faces criminal investigation in the Bahamas for potential criminal misconduct and is also under investigation by the U.S. Securities and Exchange Commission and the Justice Department for its mismanagement of customer funds and relationships with FTX.US and Alameda Research
Our View: similar to what we’ve observed with Terra’s collapse and Do Kwon, Sam Bankman-Fried, the now-former CEO, is being held accountable for the alleged mismanagement. Harsh penalties will hopefully serve as a deterrent in the industry to prevent similar cases from happening in the future
Liquidity in a post-Alameda world: BTC market depth (quantity of bids/asks within 2% of the mid-price) collapses 40% across exchanges, Kaiko research shows. ETH also impacted with market depth falling to May 2022 levels.
Our View: given the scale of the FTX-event, it will take time for liquidity to normalize especially since other market makers (e.g. Amber Group, Wintermute and Genesis) have exposure to FTX. This has also been exacerbated by a net outflow of tokens from exchanges
Cathie Woods’ ARK buys 315K shares in Grayscale’s Bitcoin Trust, the fund’s first purchase in almost 1.5 years, following FTX’s collapse. The ARK Next Generation Internet (ARKW) exchange-traded fund (ETF) purchased 315,259 shares worth about $2.8 million
Our View: while FTX’s collapse has eroded investor’s confidence in the industry, it is a positive sign that large asset managers are still deploying capital into the space. As a reminder, the collapse of FTX was due to alleged mishandling of client’s funds and bad practices, not due to the technology and value that cryptocurrency brings

Summary:

Contagion from FTX’s collapse is further compounded by an untimely sizeable hack putting downward pressure on ETH as the hacker converts to BTC. We’ve seen exploits in the industry before and it should not warrant panicking. Continue accumulating, be wary of suspicious e-mails, choose a trusted platform and keep abreast of crypto news.
Our best strategy for the moment is to take at least 1-3 years in Moderate Portfolio because it has a good defense with 50% Fixed Deposit , 30% In DCD and 20% in Staking because we still have potential return in DCD and Staking especially in BTC.

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