Popular altcoins Ethereum (ETH) and Solana (SOL) are trading at higher prices on FTX compared to Binance and other platforms. The unusual market dynamic has caused many to observe this situation. Here are the details…
Popular altcoins exchange hands at premium on FTX
According to the data, at the time of writing, Ethereum is changing hands for $52 more in FTX compared to Binance. That is, it is trading at a premium of 4.5 percent. In this middle, SOL is trading at a premium of about $2, i.e. 11. For example, a premium is seen in FTX-based perpetual futures contracts tied to BTC and ETH.
According to Markus Thielen, head of research and strategy at Matrixport, the premium comes from FTX-based traders switching from cash and stablecoins to major cryptocurrencies after clients avoid direct custody of crypto and fiat funds and signal potential bankruptcy. Thielen used the following terms:
While FTX pricing may no longer be compatible with other exchanges, classic bankruptcy procedures always favor asset holders over cash holders. Because assets are assigned to users. Mixed or not. As a result, users with assets they cannot withdraw in FTX may be investing their money in large tokens in hopes of getting some measure of ‘recovery value’ as their name must be assigned to that asset. That’s why ETH is trading at a premium.
This means that users are more likely to acquire a measure of value if they hold crypto assets rather than cash or their cash equivalents. This likely causes FTX-based traders to hoard cryptocurrencies, subsequently leading to relatively higher prices on the exchange.
FTX issues persist
Koindeks.com As we reported, FTX’s problems began earlier this week when Binance took action to liquidate its FTX token (FTT) in response to a report showing that FTX’s sister company Alameda is holding a largely illiquid FTT token on its balance sheet. On Tuesday, Binance offered to save FTX. But late on Wednesday, the agreement was broken. FTX CEO Sam Bankman-Fried told investors that without an injection of cash, the company may have to file for bankruptcy.
According to some observers, the FTX premium in perpetual markets is due to customers “withdrawing synthetic money” from the exchange. It is pointed out that users perform a synthetic or paper money withdrawal process by purchasing ETH, SOL contracts on FTX. It is then assumed to create a neutral position in the market by equally selling or short selling coins on Binance. In this form, users get custody of their funds, at least on paper. They are protected against a long price drop.
Expert commented: “Synthetic withdrawal games”
“This is a synthetic withdrawal game,” said Lewis Harland, portfolio manager at Decentral Park Capital. According to the argument, if FTX goes down, the markets go down. Even if the FTX balance becomes free, users are paid for shorts other than FTX. Earlier this year, crypto hedge fund Galois Capital, which predicted the Terra irregularity, offered an example in a thread of tweets. “Losses in FTX aren’t worth much when it comes to word of mouth failure of the acquisition process. Because you cannot withdraw your money again, but in the case of short Binance you will win,” he said.
The assumption here is that a potential FTX bankruptcy will trigger another type of panic selling in the market. However, these two situations are not absolute. After Binance withdrew from a bailout settlement, investors may have priced in a potential bankruptcy. After the bankruptcy is confirmed, the markets can bounce and cause losses in short selling situations outside of FTX.
According to Galois Capital, the strategy seems best suited for a token like SOL that will often fail in both positive and negative situations. Also, a trader may be liquidated on both exchanges due to high volatility. Liquidations occur when the market opposes a bullish/bearish situation, leading to margin gloom.