Sam Got Fried By CZ

The kings of crypto throw down and prices follow

Nov 08, 2022

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Cheat Sheet -

Support and resistance levels and our daily, weekly and monthly bias on BTC, GOLD, OIL, ES, and NQ as well as our favorite altcoins

New here? Learn how to read the cheat sheet.

What We Are Watching

We further breakdown our case for these cryptos here : What We Are Watching

Crypto News

Decentralized search startup Sepana raises $10 million (The Block)
Founders of short-lived NFT investing game Visionrare raise $1.5 million for web3 job network: Exclusive (The Block)
FTX Token Plummets as Market Fears Possible Alameda Contagion (CoinDesk)
Bitcoin, Ether Slide as Protective Puts Draw Demand Amid Sell-Off in FTX's Token (CoinDesk)
Japan’s largest mobile operator to establish Web3 consortium (CoinTelegraph)
Ethereum Shanghai upgrade: EIP-3651 to cut gas fees for key network participants (CoinTelegraph)
US Government Now Has More BTC Than Largest Crypto Holders (Blockworks)
Is Crypto to Blame for Tech Companies’ Woes? (Blockworks)
Alameda Responds to BitDAO Allegation, Proves 100M BIT Token Holdings (Decrypt)
Dogecoin, SHIB Plummet as Crypto Market Sheds $44B Overnight(Decrypt)

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BTC Outlook

So, the alleged rumors are that Alameda research which is one of the companies owned by SBF (Sam Bankman Fried), the CEO of FTX, has many billions of outstanding debt and these loans are all collateralized by FTT the token created by the FTX exchange. If you follow the logic, it’s not too dissimilar from LUNA/TERRA using LUNA tokens to buy billions worth of Bitcoin. Its puts a lot of pressure on the token to represent some intrinsic value which FTT while staked earns a fee share from trading activities on the FTX exchange. However, if there is fear of insolvency a vicious circle is created as funds leave FTX there are no longer as many fees to be earned by FTT stakers.

To add fuel to the fire, CEO of Bianance (the world’s largest crypto exchange), announced publicly they would be reducing their exposure to the FTT tokens which they had acquired sometime ago as part of a deal they had done with FTX. Alameda Research’s CEO responded saying they would buy all the tokens from CZ over the counter at $22 at token. Well he called her bluff and at the time of writing this FTT is currently trading at $17 a token.

What’s important, is that because of the thin nature of the current bear market in crypto, the combination of people fleeing FTX’s exchange and Alameda liquidating its other assets in order to support the FTT price has caused wide selling across crypto. This is because Alameda and others are being forced to sell good assets (Bitcoin) to prop up the bad (FTT). This is exactly the same behavior we saw during the Terra/LUNA collapse.

So, is the selling over? Or will this create another leg down in Bitcoin? Well, if you look at the chart above you’ll notice that Bitcoin quickly fell away from the 20 week moving average in red and slammed downward into the 50 day moving average in blue. You’ll also notice that the price briefly traded under the 50 day MA but then quickly recovered to hold it as support. It would be very strange if the 50 day MA fails again this week and Bitcoin doesn’t put in a new low for the year. One thing is clear, how to trade this particular moment. See the possible courses of action. Basically, if the prices don’t bounce a few hours after reading this or at the latest tomorrow then getting flat or shorting is probably the best move for the coming weeks.

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Possible Course of Action

Long here with stop loss at $19000
Short if price falls below last night’s low around $19400 depending on the exchange
Do nothing and wait for price to move back above 20 week MA before getting long

The Bulls’ Defense:

Bitcoin held 50 day MA as support
US equities are still rallying short term

The Bears’ Prosecution:

Contagion could cause more selling
20 week MA acting as resistance

A Closer Look

We’ll be back on Thursday with Hal’s closer look.

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