December 5, 2022

CZ continues to sink competitors. House of cards effect. Where is the crypto market headed?

After the story with FTX and Alameda, the crypto market continues to be in a fever. Three weeks have not passed since November 8, and already a whole a series of major market players announced problems inconnection with the liquidity crisis. Yes, Sam Bankman-Fried has launched his tentacles deep into the market, and today we will try to find out how much. Let's analyze how the head of Binance behaves, with whose tweet the collapse of FTX began, let's see what awaits the crypto giant Genesis, and discuss what awaits the crypto market in the near future. Go!

On November 8, the cryptocurrency market experienced the strongestshock. The native token of the largest exchange FTX collapsed by more than 90%, which led to a drop in the quotes of all cryptocurrencies. We discussed the situation in detail in two articles here and here. And today we will talk more about the consequences of this collapse for the market.

1. Why will the collapse of FTX affect the crypto industry so much?

The asset hole left by FTX will be around for a long time to cometo influence the crypto market, many companies that had close relationships with FTX are trying to sweep losses under the carpet, but one way or another, they will be forced to admit losses.

Alameda Research and FTX very activeinvested in all top blockchain projects. And its former boss, Sam Bankman-Freed, has hands up to his elbows in altcoins (for example, FTX owns 10% of SOL tokens). Here is a complete picture of the influence of Sam's empire on the crypto market.

CZ continues to sink competitors. House of cards effect. Where is the crypto market headed?

We already know about the deplorable state of BlockFi.They are already filing for potential Chapter 11 bankruptcy, according to the WSJ. The Salt landing platform and the Australian crypto exchange Digital Surge also closed the deposit and withdrawal of funds. But this is not the worst thing for the industry. Much scarier is what's happening with the Genesis.

2 Genesis. This is the end?

To understand, Genesis started as the firstOTC platform back in 2013. And now they are the largest crypto-lending company, and are part of DCG - the holding company of Barry Silbert, which owns CoinDesk, Foundry, Genesis, Grayscale and Luno.

Dozens of companies use Genesis to help users make money. Among them are the largest exchanges and liquidity providers. How does Genesis work?

You lend your crypto to the exchange → the exchange gives your crypto to Genesis → Genesis lends your crypto to the fund. He also borrows Genesis X + 2% → Genesis gives the exchange X + 1% → the exchange gives you X.

Genesis is in the heart of the marketscrypto capital. Therefore, if they stop, the whole mechanism breaks down, as a result of which not only ordinary users suffer, but also large players, losing the opportunity to withdraw their funds.

On November 16, Coindesk announced a temporary suspension of buybacks and issuance of new loans by the lending arm of the crypto investment bank Genesis Global Trading.

It turned out that $175 million of Genesis capital remained in FTX accounts, which created a $1 billion liquidity crisis, which then decreased to $500 million.

CZ continues to sink competitors. House of cards effect. Where is the crypto market headed?

Genesis brought in third-party experts.We are talking about consulting services from Alvarez & Marsal. They should help the crypto broker get out of the liquidity crisis. They also work with lawyers from Cleary Gottlieb and Moelis & Company.

Moelis & Company is an independent investmenta bank that provides audit and consulting services. They previously worked with crypto lender Voyager Digital after filing for bankruptcy.

3. Binance refused to rescue Genesis.

As we mentioned in the previous article, Binancecreated a support fund for crypto projects affected by the liquidity crisis. They want to help projects that are strong in their fundamentals. But, as practice has shown, not all.

November 21, WSJ portal citing its sourcestated that Genesis has reached out to Binance and Apollo for help. And if the latter have not yet commented on their participation in the rescue, Binance refused to invest in Genesis, citing a possible conflict of interest in the future.

Binance's help is not just very selective, there isthere is every reason to believe that it is the infrastructure of the Chinese exchange that will benefit from this crisis. No one knows the conditions under which Binance is ready to inject money into drowning projects. In a hopeless situation, companies that have suffered serious losses from the collapse of FTX may be forced to give large shares of their capital into the hands of Binance.

4. CZ drowning competitors...or cleansing the industry?

The actions of CZ, to which many questions have appeared, do not end there, recently the CEO of Binance posted a tweet discrediting Grayscale and Coinbase with the following content:

“So, Coinbase Custody holds 635k.The BTC of the Grayscale fund, 4 months ago, was less than 600k BTC on Coinbase (an exchange, I believe). just stating 'media reports' without making any claims... Glassnode probably has more up-to-date data."

In response, Coinbase released an announcement that the funds of the troubled Grayscale fund, which are placed in the custodial service Coinbase, are in perfect order.

After some time, CZ deleted this tweet by releasing a new one:

“Brian Armstrong just told me the numbers in the articles are wrong. Deleted the previous tweet. Let's work together to increase transparency in the industry.”

5. Coinbase and Grayscale are the new FTX and Alameda?

Under pressure from the media and having a lot of weight in the crypto world, CZ Coinbase Custody revealed the reserves of Grayscale.

CZ continues to sink competitors. House of cards effect. Where is the crypto market headed?

As you can see, Grayscale really has a lotbitcoins - 635,235 in the Grayscale Bitcoin Trust and 6390 BTC in the Grayscale Digital Large Cap Fund. They also have a lot of ether, SOL, ADA, DOT, MANA and LINK tokens.

Recall that at first (before the tweet of the Head of Binance), the investment fund refused to show its reserves, referring to the privacy rules of Coinbase Custody.

In a statement, Coinbase Custody emphasizes that theircustodial service is not an obstacle in this matter. The digital assets of each product in Grayscale have their own address on the network. They can be verified on the blockchain as well as provide accurate reports on digital assets.

At the end, the company emphasized that digital assetsGrayscale is protected from misuse as much as possible. They cannot be provided to Coinbase, used for loans or other transactions.

However, after the disclosure of all debts, it turned out thatthat brokerage company Genesis Global has $2.8 billion in outstanding loans on its balance sheet. About 30% of loans are issued to related parties, including the parent company, Barry Silbert's Digital Currency Group.

Lending company Genesis Global Capital borrowed money from Genesis Global Trading.

Doesn't this remind you of anything?

6. The world after FTX. Stability and purity in the assets of centralized exchanges.

Despite the fall in quotations, capitalization andother problems that the liquidity crisis brought to FTX and Alameda Research, there are also positive aspects. A number of crypto exchanges have announced that they will begin publishing regular reports on the transparency of their reserves. This will help restore market confidence.

The first to do this, of course, was CZ.Binance has shared the details of their hot and cold wallet addresses. This list includes tokens only in such networks as: BTC, ETH, BSC, BNB, TRX. The full list will be published a little later.

You can verify the statements of the exchange and get acquainted with the wallets here.

The market leader CEX was followed by the OKX exchange, andthen the largest aggregator CoinMarketCap introduced a new feature on its website. Thanks to it, users will now be able to view the reserves of cryptocurrency exchanges directly on the aggregator website. Exchanges that have published their reserves will be marked with a special icon in the rating.

CZ continues to sink competitors. House of cards effect. Where is the crypto market headed?
7. Conclusions. What's next? Is Crypto Winter Already Here?

Despite the fact that the quotes of all cryptocurrenciestoday is much lower than the cost familiar to investors, many experts believe that the real crypto winter has not yet arrived. For example, former Bitmex CEO Arthur Hayes believes that we should all prepare for the $10,000 BTC price in the near future.

According to analytics platform Glassnode, long-term holders of cryptocurrencies are currently under acute financial stress, holding an average of -33% of unrealized losses.

CZ continues to sink competitors. House of cards effect. Where is the crypto market headed?

This is comparable to bear market lows.2018, when the peak of unrealized losses averaged -36%. This leads to logical questions, the answers to which will tell you what the market is waiting for next. How long are whales willing to sit in a drawdown? Are they ready for the second day? How will whale unloading affect the market going forward?

Follow the developments in the crypto market with us in our Telegram channel and write your opinion about the future of cryptocurrencies in the comments.