Industry Updates

Crypto ETPs in turmoil following collapse of FTX

‘Liquidity disappearing in the system’

Theo Andrew

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The collapse of Sam Bankman-Fried’s FTX empire has caused cryptocurrency exchange-traded products (ETPs) to tank this week in yet another seminal moment for the crypto industry.

Concerns over FTX’s capital and its relationship with affiliated company Alameda Research caused investors to withdraw their cryptocurrency from the exchange, leading to a “significant liquidity crunch” and sending shockwaves across the crypto market.

The Securities and Exchange Commission is now investigating Bankman-Fried’s company into how the exchange handled its customer funds, a number of media outlets including Bloomberg and Reuters confirmed.

Rival exchange Binance’s decision to pull out of a rescue deal for FTX, citing due diligence and the US probe into the exchange, further compounded the misery on Wednesday, leading to additional uncertainty in the markets.

In a statement, Binance said: “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of”

Bitcoin fell 22.9% on Wednesday, dipping below $16,000 for the first time since 2020 and 64% down from its March peak, while ether followed to hit its worst prices since July at just over $1,100.

However, three ETPs are tracking the FTX token that will likely be hardest hit by the latest fallout as the cryptocurrency heads toward zero.

The VanEck FTX Token ETN (VFTX), the 21Shares FTX Token ETP (AFTT) and the CoinShares FTX Physical FTX Token (CFTT), have all experienced significant losses on the news.

Another crypto to be significantly impacted is solana. The digital asset has fallen 55.5% over the past seven days as speculation around its connection to the FTX exchange intensifies.

On Wednesday, 21Shares said in a statement its 21Shares Solana Staking ETP (ASOL) could be indirectly impacted due to FTX’s large position in the token, which it may sell in a bid to raise liquidity.

However, the situation is likely to have massive ramifications on the whole market.

In a note, Saxo Bank said: “The contagion in the crypto and equities we mentioned yesterday is already here and getting worse as the latest developments suggest that Binance backed away from its earlier pledge.

“According to a research note from JPMorgan the crypto market is right now facing a cascade of margin calls and liquidity disappearing in the system.”

The downfall of FTX is the latest saga in a tumultuous year for the industry, starting with the collapse of terra in May.

The event caused chaos in the crypto market, leading VanEck and 21Shares to suspend their respective terra ETPs, while Valour delisted its product altogether.

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