Below is a short note on recent moves and news in Bitcoin and digital assets from Marcus Sotiriou, Analyst at the publicly listed digital asset broker GlobalBlock (TSXV:BLOK).
FTX pauses withdrawals, causing market-wide panic 8 November 2022, London, UK.
As Meta, Facebook’s parent company, is allegedly planning to execute major layoffs this week, affecting thousands of employees, fears of an incoming recession heighten. This creates risks for markets, including the crypto market.
This is because when people lose their jobs, they may need to sell their most liquid assets first. Crypto is the most liquid asset ahead of stocks, which generally have longer processing times. This also decreases spending, affecting profits and causing defaults and hence more layoffs.
In this environment, people do not want to sell their assets, but they do so because they do not have a choice. We do not know if a recession will take place yet, or how severe it may be, but as rates stay higher for longer the odds increase. The positive side of this situation is that a decrease in spending results in inflation inflecting down, which is what is required for the Federal Reserve to ‘pivot’ and cut rates again.
When there is an accommodative Federal Reserve, crypto has historically been the best performing asset class, so it is a great time to be watching out for the strongest projects fundamentally for when the time comes.
According to the Block, FTX have stopped processing withdrawals. Mass panic around FTX’s solvency has caused investors to withdraw their assets from the platform hastily, which FTX have clearly struggled to deal with.
Whether this is just short-term liquidity issues due to the speed of withdrawals, or a more fundamental issue, is yet to be seen. However, the silence from FTX CEO, SBF, is deafening, and causing further fear. FTX’s token FTT is down 30% at $15 at time of writing, but an announcement from FTX could result in a short squeeze.
