The Derivatives Magazine #28

The Derivatives Magazine #28

"Black Friday" in the cryptocurrency market continued for the second week in a row. After the previous rapid drop, the total capitalization index of the cryptocurrency market continued to decline, but with a smaller amplitude.  Starting the period at $801.1 billion, the index showed sideways movement in the range of $777 billion to $814 billion almost to the end of the week. In just the last 24 hours, it fell to $747.5 billion. The period ended at $755.45 billion. The market decline at the end of last week was 5.7%.

The market continues to feel the effects of the FTX cryptocurrency exchange collapse.  Further investigation by regulatory authorities revealed some shocking (for some people expected) details. For example, there was virtually no financial management at the company, and client and investor funds were "burned" in the process of margin trading by a related trading firm, Alameda Research. This was one of the main reasons for the formation of such a huge hole in the balance sheet. Only $900 million of the exchange's $11 billion in reserves is in liquid form (the rest is actually in a multitude of blocked tokens from various projects). In addition to various blockchain companies and lenders that were on the verge of bankruptcy because of their connection with FTX (e.g., BlockFi), one of the main blows came to the Solana ecosystem.  Prior to the start of last week, the price of the SOL ecosystem's native token had fallen 62.5%, and over the past week, it has fallen another 10%. Against this background, Solana's prospects at the moment look very dim.

In the case of exchange balances of stablecoins, we could observe a very interesting situation in the market. Thus, after the first wave of market fall, we could see one of the largest daily withdrawals of USDT from the balances of exchanges in recent months. At the moment of the second wave of fall, there was almost the same volume of inputs of this type of stablecoins to the exchange. Probably, it happened due to the fact that large market players brought liquidity to exchanges for drawdown redemption. Speaking about the total balance of stablecoins withdrawn from exchanges during the period of the so-called "panic moods" in the market, the total outflow was only $3 billion (considering the total market capitalization of $750 billion, it does not seem such a terrible figure).

The bitcoin price fell below $15 800 for the first time in two years, and the level of activity of bitcoin addresses (according to analytical service Santiment) reached a record level for the last 6 months. This activity may not only be a sign of high trading activity (transferring bitcoin to exchanges for sale), but also a sign of the high volume of bitcoin withdrawals to non-custodial wallets amid a sharp drop in confidence in centralized cryptocurrency exchanges.

El Salvador to buy one bitcoin every day
El Salvador's President Najib Buquele and Tron blockchain founder Justin Sun decided to accumulate bitcoin at a rate of 1 BTC per day.  The president of El Salvador tweeted, "We are buying one #Bitcoin every day, starting tomorrow." This statement was followed by Tron founder Justin Sun, who promised to support this hoarding strategy. Blue chips at the top of the cryptocurrency market have risen in value over the past week. El Salvador began buying BTC in September 2021, just after it became legal tender. At the time, BTC was in the middle of a bull market, and every purchase made by the small state looked profitable as the price reached a new all-time high each week. However, with the onset of the bear market in the second quarter of 2022, El Salvador's early BTC purchases began to look like a gamble that resulted in large losses.

Genesis Global suspends withdrawals
Cryptocurrency exchange Genesis stopped withdrawing funds from its credit division and blamed the recent collapse of the FTX exchange for causing a surge in withdrawal requests.This led to an excess of liquidity for lenders. Genesis became the latest cryptocurrency company involved in market turmoil. Genesis said on Twitter that the sudden collapse of FTX last week "caused unprecedented market turmoil, leading to abnormal withdrawal requests" that exceeded Genesis' liquidity. As a result, Genesis said it has temporarily suspended payments and new loans in its Genesis Global Capital lending business, which had about $2.8 billion in loans at the end of last quarter. The firm did not name a timeline for the suspension, but said it plans to "present a plan" for the future of its lending business next week.

Vitalik proposed a technology to check the reserves of crypto exchanges
Ethereum co-founder Vitalik Buterin published an article on his blog regarding technology suitable for verifying crypto exchanges' reserves. Buterin described the limitations of the current methods that CEX uses to demonstrate its transparency and suggested ways to improve them, explaining in detail what Proof of Reserves is. Vitalik believes that the ZK-SNARKS technology will help in proving the solvency of the exchange. It is better than Merkle's Trees, which exchanges use today. The earliest attempts by exchanges to try to cryptographically prove that they are not cheating their users go way back. In 2011, MtGox, the largest bitcoin exchange at the time, proved that they had funds by sending a transaction of 424242 BTC to a pre-announced address.

This overview was prepared by the analytics department of the Biqutex, an innovative crypto derivatives exchange. Trade an extended list of instruments (Perpetuals Swaps, Futures, Options, Calendar Spreads etc.) with up to 125x leverage and deep liquidity!