Newsletter Volume 1

As of Thursday, 11th November 2022

Article 1 — The Market This Week

To sum up the last week, expressions like bloodbath or unprecedented would be an understatement. The crypto market capitalisation dropped sharply to 894 billion from $1.05 trillion last week. The week saw one of the largest centralised crypto exchanges, FTX, pausing withdrawals owing to a liquidity crunch. It all started with an article by Coindesk highlighting the intertwined nature of FTX and Sam Bankman Fried’s (SBF) trading firm Alameda Research. Coindesk unveiled that a large part of Alameda Research’s balance sheet consisted of the FTT Token, a token issued by the exchange that grants holders a discount on trading fees on its marketplace.

Following the piece by Coindesk, Binance’s CEO Changpeng Zhao (CZ) tweeted Sunday that he will sell the remaining FTT tokens held on his books that he took on as part of his exit from Alameda sister company FTX last year. Soon fears over a withdrawal run from the billionaire SBF’s cryptocurrency exchange sent digital-asset markets into a fresh tailspin on Tuesday, hitting altcoins, including the trading venue’s own FTT as well as Solana.

Users quickly started to report delays in withdrawals. FTX tried to calm the markets, saying it was working through the backlog and they are still being processed. But eventually, it became clear that no one was able to withdraw their balances from FTX. Soon, the market went into free fall, with Bitcoin and Ethereum declining sharply along with nose-diving FTT. Meanwhile, multiple entities have also revealed their exposure to FTX, so the full contagion from FTX’s debacle is yet to unravel.

To sum up, on a week-on-week basis, the IC15 exchange slumped to 26,008 on Friday, 11th November, from 32,406 on 4th November. Meanwhile, the US CPI climbed 0.4% during October from the previous month. The year-over-year CPI increase of 7.7% was an improvement from 8.2% in September. These numbers caused yields on two-year and 10-year U.S. Treasury securities to show their largest one-day declines in over a decade amid strong buying activity. The euphoria carried over to the stock market. The DJIA, S&P 500 and NASDAQ headed sharply higher, with all 11 sectors of the S&P 500 rising significantly, led by the consumer discretionary sector, which includes Amazon, which surged over 12%.

Article 2 — Weekly Review of IC15

The IC15 Indices, also known as the Index of Cryptos, is a rule-based broad market index by market capitalization that tracks the performance of widely traded liquid cryptocurrencies worldwide.

SBF, FTX and Alameda-Research were the greatest proponents of the Solana and its ecosystem, and with all of them taking a beating, Solana was the hardest hit amongst IC15 constituents tumbling over 46% in the last week. There is still more to unravel in terms of the future of wrapped Bitcoin within the Solana ecosystem for which FTX was the custodian.

But all hope is not lost for crypto participants. Observers noted the communities of core DeFi protocols like Uniswap, Aave and MakerDAO continued to operate as usual. Market participants expect greater adoption of DeFi over CeFi in the coming days. Additionally, all major centralised exchanges have committed to greater transparency going forward, which augurs well for the health of crypto in future.

As we always say, zooming out, Bitcoin and Ethereum are up more than 1000 times since they entered the scene despite the recent drawdown. So, it’s all about staying in the game for longer without getting knocked out.

Article 3 — Battle of Bull and Bear

The week, the market was dominated in a one-sided battle by the bears as people scrambled to somehow get their money out of FTX and their related parties. Most of the gains made post the collapse of Terra Luna were lost. Now all heads eye turn to Justin Sun and SBF to see if they can ink a deal to prevent further contagion. Market estimates currently show there is an $8 Billion hole in FTX’s balance sheet. Meanwhile, Sequoia, one of the leading investors in FTX, have already written off their investment to 0.

There are a lot of questions to be answered when the dust settles down for SBF and his inner circle. Reports have indicated some US agencies are investigating FTX over pausing of withdrawals. Also, we will have to wait and watch the future of Solana. Their community has been holding strong, with Anatoly, the co-founder of Solana, spending the night at the office calming down and answering all the questions. Anatoly indicated they have over 30 months of runway left with them.

Amongst all this doom and gloom, the CPI numbers coming in below expectations gave some hope. Apart from the US markets, which surged higher, Asian markets also opened significantly higher. MATIC held up well to gain over 12% despite the ongoing unprecedented liquidity crisis. Polygon’s MATIC also had a great last week, cementing multiple partnerships, including Meta and JP Morgan. OKB Token gained a hefty 16% over the course of last week. OKB is a cryptocurrency released by the OK Blockchain Foundation and Maltese crypto exchange, OKEx. The OKEx exchange is one of the largest in the world and currently ranks third in liquidity, fourth in trading volume, and provides a wide selection of trading pairs.

Article 4 — Key Indicators

○ Crypto Market Cap: $894 Billion

○ Bitcoin Market Cap: $327 Billion

○ Ethereum Market Cap: $148 Billion

○ Ethereum Gas Price: 17 Gwei

○ Defib TVL: $63 Billion

Article 5 -Market Sentiments

Apart from FTT and Solana, Aptos was also in the limelight, although not for reasons they would have liked. Aptos collapsed over 33% as rumours emerged that a part of Aptos’s treasury was held with FTX. Though Aptos refuted the rumours, FTX being the backer of the touted Solana killer, also added to the woes for Aptos.

FTT is now down over 97% from its all-time high of $84.18 back in September 2021. Meanwhile, Solana’s founders are trying hard to keep the enthusiasm about the Solana ecosystem alive. “We launched in 2020 after markets crashed and the world went into lockdown — chewing glass is in our DNA, and we’ll get through together,” tweeted Solana co-founder Anatoly Yakovenko earlier today, echoing comments made at last weekend’s Solana Breakpoint conference while highlighting Solana’s recent and upcoming technical improvements. Solana has now shed 95% of its value since reaching an all-time high price of $260 almost exactly one year ago when the wider crypto market was hot. This week’s downturn follows months of wider market struggles and macroeconomic pain, and the FTX fallout appears to be taking a toll on builders and investors alike.

Nonetheless, for investors that are looking to buy and hold for a few years or so, the prices right now are very low compared to where the market was just a few months ago, so if you believe a certain project will do good in the long run; wait and watch how the current situation plays out and maybe then it might be a good time to start building your positions for the years to come. Even amid the FTX and crypto market chaos, Cathie Wood-led Ark Investments increased its Coinbase holdings with a purchase of 237,675 COIN shares worth about $12.1 million on November 9.

When you zoom out and see the bigger picture, you’d understand that the current bearish year is normal. From a market cap of $250 Billion in 2020 to a current market cap of $894 billion, the crypto market is definitely in good shape over the long term. The question remains, when will the crypto market go back to its uptrend? Well, the short answer, as we say often, is not likely next week.