Market leaders bitcoin (BTC) and ether (ETH) lost their relative calm and faced selling pressure early on Tuesday as FTT, the native token of the cryptocurrency exchange FTX, fell to 21-month lows amid ongoing concerns about the balance sheet of the Alameda trading company.
At 4:30 UTC, bitcoin traded 4.3% lower on the day at $19,700, while ether changed hands at $1,480, representing a 5.5% drop, according to CoinDesk data. FTX token FTT fell 20% to $17, the lowest since February 2021, extending last week’s 13% slide.
Options data showed renewed demand for bearish put options linked to bitcoin and ether. The bearish shift in sentiment perhaps reflects investor fears that the ongoing FTX-Alameda drama could lead to a Terra-like cryptocurrency collapse.
“We have seen renewed demand for downside protection following the negative news flow related to the FTT,” Patrick Chu, director of institutional sales and trading at OTC crypto derivatives technology platform Paradigm, told CoinDesk.
“In particular the short-term bias has moved in favor of positions as we have seen bearish protection in both BTC and ETH with strong demand for late November/December expirations,” Chu added.
A call option gives the buyer the right, but not the obligation, to buy the underlying asset at a predetermined price on or before a specific date. The put option gives the right to sell. The biased option measures the prices for bullish calls relative to bearish puts.
The controversy surrounding Alameda’s balance sheet began last week after CoinDesk reported that the trading firm holds large amounts of locked or illiquid FTX tokens, painting the two entities unusually close to each other. (Alameda and FTX are sister companies).
Since then, FTT has crashed 40% and the stock market has seen large withdrawals at an alarming rate.
“Much of the stress comes from FTX’s (formerly Blockfolio) app, which has a generous ‘profit plan’ of ~5% up to $100,000. As expected, a lot of capital is being withdrawn, which some observers are trying to characterize as So far, I have no indication that investors are having trouble withdrawing cash,” Ilan Solot, co-head of digital assets at London-based financial services platform Marex, said in an email.
“Furthermore, a 5% rate (not too far from US rates) is not as outrageous as what Anchor or Celsius did. But we have no visibility into capital reallocation or liquidity mismatches (which does not mean that no it doesn’t exist), added Solot.
Both the short-term and long-term volatility of bitcoin have declined from zero this week. The one-week divergence narrowed from -1% to -12%, the lowest since late September, according to digital asset data provider Amberdata.
In other words, sales are back in demand.
A similar pattern is seen in ether call skews.
The one-week variance for call-put ether has fallen to nearly -20%, indicating the strongest bearish bias since mid-September.
Options traders’ expectations for price volatility next week and month have risen. Ether’s seven-day implied volatility, or expectations of price volatility, jumped 98% year-on-year, the highest in two months. The one-month index hit a two-week high of 84%.
“The market seems to be panicking given the fact that the LUNA event was not too long ago,” said Martin Cheung, an options trader at Pulsar, referring to the rise in implied volatility.
Terra’s stablecoin UST and native token LUNA collapsed in May, destroying billions of dollars in investor wealth. The crash collapsed several lenders, including Celsius.
According to Solot, the FTX and Alameda issues are unlikely to crash the market.
“FTX is a systemically important player in the crypto ecosystem, so any problem or loss of trust – even temporary – will have a huge impact,” said Solot.
“That said, there’s a lot less leverage in the system right now, so there’s a greater chance that any problem could be contained more easily – or at least that losses would be concentrated rather than spread widely. Indeed, spillover to other tokens has been very mild so far,” noted Solot.
UPDATE: (November 8, 08:12 UTC): Adds quotes from Marex’s Ilan Solot and Pulsar Trading Capital’s Martin Cheung and a note on a rise in implied volatility.