Concerns about FTX's liquidity issues caused the total crypto market cap to fall from over $1 trillion to $900 billion on Wednesday morning 9th November 2022. Traders lost over $700 million in 24 hours, leading to wrong positioning. Bitcoin (BTC) and ether (ETH)fell over 8% in the last 24 hours, putting a halt to their gradual recovery.
Ripple (XRP), Dogecoin (DOGE), and Cardano (ADA) all fell more than 12% in the last 24 hours, while Sam Bankman-Fried, a prominent investor, is a major supporter of Solana (SOL), which dropped 25%. Futures on bitcoin and ether lost a collective $390 million due to liquidations, while $40 million of Solana futures were liquidated. $27 million of FTT futures was also liquidated, implying that the significant decline was driven mostly by the sale of spot tokens.
When a leveraged position is liquidated due to a margin call (a trader does not have sufficient funds to maintain the position open), the exchange forces the trader to close the position. An exchange forcefully closes a trader’s leveraged position if he or she cannot meet the margin requirements (if they do not have sufficient funds to maintain the position open).
Last week, there were reported that Alameda Research, a cryptocurrency firm owned by Sam Bankman-Fried, who also owns FTX, had a lot of FTX’s native FTT tokens on its balance sheet. Because Alameda Research was largely supported by a cryptocurrency created by a sister company, not a fiat currency or other cryptocurrency, the report caused rumours that FTX might be insolvent. Industry players, in turn, sold FTX-linked coins in an effort to safeguard their downside in the face of rumours of FTX bankruptcy.
The sudden dump of FTT from rival Binance, which held over $500 million of FTT on its books, spooked crypto markets as traders worried about contagion risks. Many now consider FTX to be insolvent after Binance signed an intent to acquire it, as traders reacted to market dynamics that spooked crypto markets. FTT prices dropped 70% to reach levels last seen in mid-2021.