A recent market report by Coinbase, the largest cryptocurrency exchange in America, has provided insights into why the upcoming mass token liquidation by their bankrupt competitor, FTX, is unlikely to have a major impact on the crypto market. The report, authored by Coinbase’s head of institutional research, David Duong, highlighted several factors that should help mitigate the risks of market shocks when FTX’s assets are eventually sold.
FTX received court approval on September 13 to sell its crypto assets, which are worth approximately $3.4 billion. These assets include popular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Solana (SOL), and Aptos (APT). However, the liquidation process will be regulated to avoid sudden drastic changes in the market. Initially, there will be a weekly sell limit of $50 million across all assets, which will eventually be raised to $100 million and later to a maximum limit of $200 million. Additionally, certain tokens associated with insiders will have strict controls on their selling, requiring a ten-day advance notice before liquidation. FTX will also have the option to hedge its sales of debtor-identified assets through an investment advisor.
Despite the news of FTX’s plans causing a sharp increase in crypto trading volumes, the market eventually stabilized, indicating that there are precautions in place to prevent drastic shocks. Moreover, a significant portion of FTX’s SOL holdings will remain locked until 2025 due to vesting schedules, which applies to other tokens that will also be up for sale. Overall, Coinbase’s report suggests that the measures taken by FTX and its committees are designed to minimize disruptions and ensure a responsible liquidation process.
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