[EN] Has Alameda Research (FTX) outplayed everyone?
For the first time reader, I recommend you check out the research I have published over the years. The most extensive research (link — in russian version):
- Bitcoin: Will the crisis destroy crypto? (in the original — Bitcoin: Кризис уничтожит крипту?) — Screen
- Will Grayscale turn the crypto market around? (in the original — Grayscale развернет крипторынок? ) — Screen
- Bitcoin is a part of a great scheme or how the crisis… (in the original — Биткоин часть большой схемы или как кризис…) — Screen
Also I publish weekly sentiment reviews, which have managed to identify the recent fall of the crypto market without any hesitation.
It has been an intense week in terms of events. One of the largest crypto exchanges was on the edge of collapse. To say that I was not expecting something to crash would be a lie. But I didn’t know FTX would be the one to bring the market down.
Who is FTX? It is one of the largest and top exchanges in the crypto market. Only Binance was bigger than FTX. Coinbase, Microstrategy, and Grayscale are next door in importance. There is also a company called Alameda Research, which is a market maker for many other large exchanges. 90% of the volume that was traded on Binance not too long ago was wash-trading, and this wash-trading was done by Alameda Research. You can read about wash-trading on Binance in my separate (link — in russian version) article. Also Alameda Research is one of the best analytics and research companies in the crypto environment. The company owns intra-exchange information of its exchange and information from other exchanges, having professional and author’s software for market sentiment estimation. With a high degree of certainty, it can be said that Alameda Research has almost always known where and how the price of bitcoin will move. This gives the company a huge advantage over ordinary cryptocurrency holders.
So what happened? Let’s start in order. The main story began on November 6, when CZ (Changpen Zhao, CEO of Binance) announced that he was holding 30 million FTT exchange tokens, which he planned to flush into the glass. On Alameda’s offer to buy back the tokens at a fixed rate, Zhao refuses and starts selling on the market, while at the same time posting all the action on Twitter. Whether Zhao had artificially divested FUD, or whether it had happened on its own, the result was that many exchange clients began to withdraw their capital sharply. Sam Bankman-Fried (CEO of FTX) was silent the whole time. FTT’s exchange rate began to fall rapidly, on top of which FTX had a liquidity crisis. The problems snowballed and FTT ended up devaluing by almost 95% in just a few days, the exchange froze withdrawals and bitcoin devalued by 25%. I will not describe the backlog of events in detail, Anton did it in the Crypto Daily channel (CoinPost project) (link — in russian version).
Let us speculate, what are the dangers of this exchange’s collapse? How is it that the crypto-whale is on the edge of bankruptcy in just a few days? And how is it that Alameda Research, one of the best research companies, did not predict this crisis?
I can see three possible reasons why this has happened.
It’s a game, a manipulation, another “hamster scam”.
The aim of the event is to gather liquidity at $17,600 and then turn the market upwards. This risk and consequences are fairly easy to predict, as no complex empirical chain reactions have been seen so far. So Fried has sacrificed his reputation, 95% of his capital, lost most of his team for the sake of collapsing bitcoin by just 25% in the moment? It must be understood that whales like Zhao and Fried are now looking to get inside the walls of the White House in Washington and want to go to the next level in the crypto. The current situation, even if resolved, will close many doors in Fried’s face for years to come. Reputational risks associated with government funds, pension funds, Wall Street companies put a fat black mark on the reputation of Fried and FTX. Also a serious counter-argument to the manipulation is that the crypto market is primarily ruled by the market maker, not the news. First a position is gained, then the news appears, the market maker pushes the market slightly and profits from the movement triggered. And the fact that a whale in the cryptocurrency world, being a market maker, put his name on the line is extremely unlikely.
So it’s not a game, it’s a real crash. There are only two options here. It is a series of accidental mistakes, or a deliberate company collapse. Let’s analyse each situation:
It’s a series of unfortunate circumstances
In the mass media, it is presented as a series of fatal fails that have brought the company to the edge of bankruptcy.
The first counter-argument is that I almost never believe the media, as the mass media usually always present false or distorted information.
The second argument is based on an analysis of exchange trading of the FTX token to USDT and USD. Let’s look at each trading pair.
The chart shows the FTT exchange token paired to USDT on the FTX exchange at the very peak of the market. Just a few weeks before the historic ATH, the exchange token received a dump and 1.3 billion tokens were traded on that dump, equivalent to $113 billion. Based on that week’s pump, the rapid subsequent uptake and the high volume, we can conclude that the lion’s share of those tokens was sold by the largest holder. Then the price fell by 95%. Importantly, on the catastrophic dump, the volume of tokens is minimal, only 126 million tokens (~0.1% of peak volume). We can conclude that an equivalent number of tokens, someone who was selling at the highest peak of the market — was not buying at the current dump.
The situation is already different in the FTT to USD trading pair. At market peak, 2.92 billion tokens were traded, equivalent to ~$240 billion. Based on the findings above, the lion’s share of this volume was also sales by large token holders.
It is also interesting that the last candle shows 1.1 billion tokens. Judging by the large number of current financial problems at the exchange, a large amount of this volume is also being sold by the big players to generate some cash.
Why is there ten times more volume in the USD pair than in USDT? After all, if the last candle with large volumes is an attempt by a large player to buy a cheap token, it is not clear why tokens were not purchased for crypto dollars. It makes sense that a big player “on the hay” was selling in USDT as well, and should now be buying with them, then holding FTT.
What conclusion can be drawn:
- FTX\Alameda have traded volumes of over $350bn in just one week. Most of the volumes are sales. Most likely few bn $ was generated by the company itself that week on token sales alone. A huge amount!
- The sale of these tokens was at the highest peak of the market. Alameda\FTX clearly knew when the market peaked. It is logical to guess that the bottom of the market organisations are also able to predict.
- The token dump was mainly done in pairing with USD in order to get some additional cash now in order to at least cover the needs.
Another counterargument to the casual series is that FTX is not some small crypto fund, not a small start-up with one person running the whole process. It is a large organisation, invested in by pension funds, well-known Wall Street companies, top cryptocurrency projects. It is an organisation with a complex structure, a board of directors, a CFO (Chief Financial Officer). Such organisations have legal mechanisms to prevent quick-fix bankruptcies. After all, a person with minimal financial education understands what a safety cushion is.
The last argument is an extension of the previous argument. A company in its right mind, aware of the liquidity crisis and the holes in its budget, would never offer billions of dollars to rescue other cryptocurrency projects. But FTX did so all summer after the $30,000 dump.
I hope the arguments are enough.
Is this collapse a deliberate exit-scam?
Firstly, this statement becomes the main working theory because of the exclusion of the other variants.
Secondly, this is indicated by the potential profits made last year at the very peak of the market. Company executives (those involved in the scheme) made as much as few bn $ on token sales alone in a one week.
Thirdly, the argument is supported by a series of silly investments against the backdrop of a liquidity crisis. A complete lack of simple risk management and financial education in the leadership of a company that made a multi-billion dollar company from scratch is unlikely.
In fourth, the speed of the collapse and the cause. Not a complicated FUD from Zhao and the company collapsed? So simple?
In fifth, the market fell by more than 70% from the peak. Historically, plus or minus after such a decline, the market was prepared to stop falling, accumulate and turn upwards. Did Alameda Research, a top analytics company with years of proven expertise, let a large organisation intentionally falter at the bottom of the market?
Sixthly, there was information in the media that Alameda had dumped the exchange’s clients’ money while trading. So this means that first Alameda dumped its own capital, then dumped the clients’ capital?
The final argument and the most important one. The organisation arranged the sale of exchange-traded tokens at the peak of the market with great clarity. Five months from the beginning of this summer, while bitcoin was sideways, Alameda was clearly aware of the hole in the budget and all the risks and problems. And instead of saving itself, it has been giving away money left and right. The strategy of deliberately sinking itself lacks all logic. At first glance…
Was Alameda really that stupid as a result? Or is the cryptocommunity stupid and Alameda outplayed everyone?
The scheme is taking shape
Let’s summarise the results. The management of the exchange earned about few bn $ in a week just from selling tokens (the amount is approximate, but not far from the truth). A huge amount of activities like launchpads, stacking, farming and etc also brought in excess profits. Alameda was well aware of the market dump. During the five-month sideways period, it continued to intentionally sink itself. Fried publicly even bullied Zhao, probably sure that he would respond.
But for whaaat?
If the collapse had happened nine months ago, this exit scam would have been quite understandable by now, like the Terra (link — in russian version) situation. But now -70% of market peak, the crypto community is waiting for a plus-minus bottom at current values. Scamming the exchange is just unreasonable!
So… unreasonable if you take it as a given that current market values are plus-minus the bottom. What if the statement-axiom is wrong in advance? That would explain a lot.
So, if we assume that Alameda Research did not make a series of fatal fails, but allowed it to make hundreds of billions of dollars and then came out NOT at the bottom of the market, ending its game, then the situation already looks a lot more logical.
What is it then, half a fall? Or less than half?
Let’s assess the prospects for damage
Let’s assume that as a % of the bitcoin price, Alameda is out of the game no later than halfway down. There is no point in going close to the bottom. From ATH passed -70%. It comes out at least another -70% since the FTX collapse the price should go down. This value is at around $6,000. So that’s it, a $6,000 long for the whole cutlet? Errrrr, no, now let’s get our heads together and take a sensible look on the situation.
Do you remember my crossed-out graph from the last big review (link — in russian version)? Let’s make some new notes on it.
What do we have? ATH, -70% from peak, this is before the start of the Alameda & FTX crash. ~6000$ is -70% since the start of the Alameda & FTX crash.
The total turns out to be a cascade of levels: 3, 124$, 3, 880$, ~6, 000$. Three historical Low’s very close. This is called a liquidity cascade. The liquidity here is rather psychological, but nevertheless, from the psychological point of view, these levels are incredibly strong. Price tends to close all these levels.
Before the reader gets completely sucked in, here’s the news: MicroStrategy CEO Michael Saylor commented on the market decline and the company’s debt (link — in russian version). As we can see, the price could go as high as $3,500 to cover the last two Low, based on Alameda Research’s action assessment. Can we imagine what will happen to the market at $3,500 after Microstrategy is forced to lock in all assets at a 90% loss and dumping 130k btc into the cup during a horrible bear market?
And here’s some more interesting food for thought. Here’s (link — in russian version) how important the news is, here’s (link — in russian version) the original link to the news. Core Scientific and Iris Energy are on the edge of bankruptcy. A whole series of mining companies are already in trouble. The market has ALREADY fallen below the levels when the companies were claiming serious problems. What will happen next? I will not explain the danger of mining companies going bankrupt one by one.
What do I think about the rising hash rate? Thoughts are here (link — in russian version).
Let’s remember how Elon Musk cheekily robbed his followers on Twitter by pampering Doge and BTC? In the stock market, Musk would have already been fined hundreds of millions of dollars for something like that. In the crypto market, however, nothing would happen. This behaviour is also explained by the fact that the last juices were being squeezed out of the market, since already junk tokens were making up to a thousand X’s.
Let’s add here the thoughts (link — in russian version) about stock market and the political/macroeconomic situation in the world. If we still suggest that the current stock market situation is a false growth, the feeling of a collapse would be catastrophic.
Some readers, yes-yes, they know who they are, don’t like discussion about politics on my crypto blog. Crypto should remain crypto, without politics. But a real macro assessment should still contain a share of political events.
There are some new marks on the chart, but the main movement vector is the one outlined in the review (link — in russian version). A decline of up to -30% is expected.
The consequences from the FTX crash must also be considered. Here is my comment (link — in russian version) from Shaman LIVE:
I divide the situation into three stages:
1. Sale of Alameda & FTX assets. This is the first stage, most likely already passed.
2. Collapse of projects that are directly or indirectly related to Alameda & FTX. Funds, crypto companies, entire ecosystems will go bankrupt one by one.
3. Collapse of “sick” projects and companies. They are not connected to Alameda & FTX, but the budgets of these companies are running out. Mining companies, small stables, DeFi. They were on the edge for 5 months, waiting for the market to finally grow. The miracle did not happen.
Like a house of cards…
It should also be taken into account that the classical approach to the analysis of cryptocurrencies ALREADY does not work!
Stock-to-Flow
The deviation from the model is so significant that the value at the bottom is simply not contained in the graph.
Logarithmic curves
MA200
The dip under MA200 (the average price value over the last 200 bars) has never been so long and so deep.
MA300
The asset has never (!) gone below the MA300 moving average.
Classic indicators based on on-chain metrics, mining metrics, technical simple analyses are already showing their inefficiency. This proves that it is necessary to look at the market in a new way.
Conclusions
It looks like Alameda Research has outplayed everyone. The largest and smartest analytical crypto company has emerged victorious from the industry! With huge profits and minimal losses, Sam Benkman-Fried is riding off into the sunset.
Trials with courts, proceedings, it will be nothing more than a show for the crowd. Those who need it will be paid a bribe, those who really need it will get their deposits back. Sam Bankman-Fried will apologize many times on Twitter. Hello to Don Kwon and Arthur Hayes!
The prospect of a price collapse is difficult to estimate… $ 3,500 in the prospect of a year or two against the background of the growing crisis in the stock market is quite likely. Whether the price will be even lower is not particularly important, right?
Such as Sam Benkman-Fried, Elon Musk, Michael Novogratz, Don Kwon, Michael Saylor, Arthur Hayes, earn billions on the losses of millions, and the developer (link — in russian version) of Tornado Cash will sit in jail. While the real banking cartel is robbing on a historical scale, arranging genocides, wars and crises, random people will be guilty. This is the modern world, you are welcome.
Will the crypt die? No, of course not! But it is fated to be seriously reborn, getting rid of sick projects and scammers who profit from it.
And while I was finishing writing the article, FTX declared itself bankrupt.
The Shaman was with you, good luck!