Assessing the Impact of Possible Bitcoin Price Suppression by FTX and Alameda Research
Summary:
In October 2022, former Alameda Research head Caroline Ellison disclosed in court that she was directed by FTX's CEO, Sam Bankman-Fried, to sell Bitcoin when it surpassed $20,000. Assessing the impact of this alleged price manipulation is difficult due to limited data about the timing and size of the trades. Comparatively, Alameda's potential sale had minuscule impact on overall Bitcoin volume across major exchanges, suggesting it's unlikely that a single entity could significantly manipulate Bitcoin price. Furthermore, considering their limited reserves, their pressure on Bitcoin price below $20,000 probably had limited consequences for periods longer than a month.
Prominent figure Caroline Ellison, ex-chief of the fallen Alameda Research, startled the cryptocurrency community on October 11th, when she told a U.S court that Sam Bankman-Fried, FTX's co-founder and CEO, instructed her to initiate Bitcoin (BTC) sales when the price exceeded the $20,000 mark. Examining the influence of this potential price suppression is fraught with difficulty, especially due to insufficient details about the timing and scale of these trades. The probable window for these operations is believed to be September and October 2022, shortly before the downfall of Alameda and FTX.
The most accurate public data we have to refer to are the BTC wallets that essentially made up the exchange's reserves, which according to information from Glassnode, amounted to not more than 47,000 Bitcoin by September 2022. It's not entirely impossible that additional wallets existed that Alameda Research directly managed, but given the company's extensive debt, it's improbable they had any liquid assets to spare.
We shouldn't be quick to assume that FTX exploited their entire Bitcoin stack from customers, as they maintained operating client processes up until they ceased operations on November 8, 2022. Any abrupt movements of these assets would surely raise eyebrows, likely hastening their bankruptcy.
A comparison can be drawn between Coinbase and FTX's monthly Bitcoin volume. FTX claimed a Bitcoin volume of $30 billion as of July 2022, which breaks down to $1 billion daily on average. It's wise to take these figures with a grain of salt due to the exchange's prior mishandling of data, an example being their fraudulent insurance fund calculation techniques.
Should we believe Ellison's sales assertion actually took place on FTX, a BTC order figuring at 4,000 (valued at $80 million at that time) would only constitute a meager 8% of the exchange's mean daily volume. When you take into account the entirety of the Bitcoin volume derived from leading exchanges, the alleged size of Alameda's order seems almost irrelevant.
Based on facts derived from Messari's "real volume" approach, which ignores wash trading, the total Bitcoin volume fell beneath $3.5 billion daily between September and October 2022. Even if Alameda tried dumping 25% of their 47,000 BTC holding in a single day (equal to around $240 million), this would only take up 7% of the daily volume across major exchanges.
In comparison, MicroStrategy declared the purchase of 4,167 Bitcoins in April, averaging around $45,714 each and accumulating to about $190 million. Although likely conducted towards the end of March, Bitcoin's price saw a 6% increase, moving from $44,580 to $47,270.
Mulling over this wider context illuminates that Bitcoin was trading proximate to $39,500 in the two weeks preceding and following MicroStrategy's actions, making it implausible that a single entity, even Tesla offloading $936 million in Bitcoin or Alameda liquidating FTX client deposits, could effectively manipulate the price over more than a week.
To put things into perspective, as of August 2022, Binance was confirmed to have 623,000 Bitcoin in reserves, with Coinbase nearly holding 690,000 BTC. These two exchanges collectively possessed 28 times the amount of Bitcoin FTX had. This information highlights the negligible impact of Bankman-Fried and Ellison's operation concerning effective firepower.
In conclusion, there may have been fleeting instances where Alameda successfully exerted pressure, enabling them to depress Bitcoin's price below $20,000 for a few days. Yet given their restricted reserves and the market behavior of similarly scaled orders, such an event is likely inconsequential when considering a period longer than a month.
This feature aims to provide general guidance and should not be considered legal or investment advice. All views, opinions and thoughts here belong exclusively to the author and do not necessarily represent the beliefs and viewpoints of Cointelegraph.
Published At
10/16/2023 9:07:48 PM
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