Crypto market leaders bitcoin (BTC) and ether (ETH) shed their relative calm and faced selling pressure early Tuesday as FTT, the original token of cryptocurrency exchange FTX, plunged to a 21-month low amid ongoing balance sheet concerns. from trading company Alameda.
At 4.30 UTC, bitcoin traded 4.3% lower at $19,700 on the day, while ether changed hands at $1,480, marking a 5.5% drop, data from CoinDesk shows. FTX’s FTT token fell 20% to $17, its lowest since February 2021, extending its 13% slide from the past week.
Options data showed renewed demand for bearish put options linked to bitcoin and ether. The bearish shift in sentiment may reflect investor fears that the ongoing FTX-Alameda drama could lead to a Terra-esque crypto collapse.
“We have seen renewed demand for downside protection following the negative news flow related to FTT,” Patrick Chu, director of institutional sales and trading at over-the-counter crypto derivatives technology platform Paradigm, told CoinDesk.
“The short-term skew, in particular, has turned in favor of puts as we have seen downside 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 on or before a specified date at a predetermined price. A put option gives the right to sell. Options skew measures prices for bullish calls versus bearish puts.
The controversy surrounding Alameda’s balance sheet started last week after CoinDesk reported that the trading company is holding large amounts of locked or illiquid FTX tokens, making the two entities unusually close to each other. (Alameda and FTX are sister companies).
Since then, the FTT has crashed 40% and the stock market has seen large draws at an alarming rate.
Much of the fear comes from the FTX app (formerly Blockfolio), which has a generous ‘earning program’ of about ~5% to $100K. As expected, a lot of capital is being pulled out, which some observers are trying to frame as a ‘bank run’. “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.
“In addition, a 5% rate (not far from US rates) isn’t as blatant as what Anchor or Celsius did. But we don’t have a view of fund repurposing or liquidity mismatches (which doesn’t mean it doesn’t exist).” Solot added.
Both short term and long term bitcoin call put skews have fallen from zero this week. The one-week skew fell from -1% to -12%, the lowest since late September, according to digital asset data provider Amberdata.
In other words, puts are in demand again.
A similar pattern is observed in ether call-put skews.
The one-week ether call put skew has fallen to close to -20%, pointing to the strongest bias for bearish puts since mid-September.
Options traders’ expectations for price turbulence in the coming week and month have increased. Ether’s seven-day implied volatility, or expectations for price volatility, jumped to 98% YoY, its highest in two months. The one-month meter ticked higher to a two-week high of 84%.
“The market seems to be panicking, given that the LUNA event is not that long ago,” said Martin Cheung, an options trader with Pulsar Trading Capital, referring to the rise in implied volatility.
Terra’s stablecoin UST and native token LUNA crashed in May, destroying billions of dollars of investor wealth. The crash brought down several lenders, including Celsius.
According to Solot, the problems of FTX and Alameda are unlikely to crash the market.
“FTX is a systemically important player in the crypto ecosystem, so any problem or loss of trust – even if it is temporary – will have an inordinate impact,” Solot said.
“That said, there’s a lot less leverage in the system right now, so there’s a higher chance that any problems could be contained more easily – or at least that losses will be concentrated rather than widespread. Indeed, the spillover to other tokens is very lenient so far,” Solot noted.
UPDATE: (November 8, 08:12 UTC): Adds quotes from Ilan Solot of Marex and Martin Cheung of Pulsar Trading Capital and a note about an increase in implied volatility.