Notes 12/22: FTT and BNB, Ether Prices Decline

Crypto observers say there is one more scandal – a massive one that will shake its foundations – yet to occur in its ecosystem. It might come to light soon enough with the arrest and extradition of disgraced FTX chief executive officer Sam Bankman-Fried (SBF). After some spending a couple of nights in a Bahamas jail, he is back in the United States.

His former colleagues Caroline Ellison and Gary Wang have already pleaded guilty and are cooperating with government agencies. Ellison, who was CEO of Alameda Research – the trading firm and market maker founded by SBF, turned on her former boyfriend and is “rattling him out” to the authorities. The Securities Exchange Commission (SEC) filed a complaint against Ellison and Wang yesterday, charging them with defrauding investors.


Among other highlights, the complaint states that the FTT token is a security and was sold as an investment contract. This means that investors in the token expected future profits from their purchase.

FTT’s characteristics and mechanisms – limited supply, periodic buybacks (or burns, to use crypto terminology), its use as a discount tool and collateral for derivatives, are similar to those for Binance’s BNB token.

Alameda Research inflated FTT’s price by creating fake demand through purchases. BNB, as I’ve written earlier, does not seem to have any utility outside its own ecosystem. The token’s “demand” and, consequently, its price are manufactured algorithmically through fake volumes occurring at its primary trading venue – Binance. The inflated price for BNB rewards investors in the token.

FTX’s collapse occurred because FTT’s price crashed and the value of Alameda’s collateral at FTX went down to zero. While BNB is used as a collateral for derivatives, we don’t know the counterparties to those trades.

Wall Street Asset Ethereum and Crypto Markets Fall

Ethereum’s native ether, which was touted as a “Wall Street asset” after the blockchain’s Merge fell by 2% this morning to $1,189.18. Its price decline occurred even as social media platform Twitter added support to display ether prices. Ether’s current price movement – volatile and random – means it will be a long stretch before it becomes a credible asset for Wall Street. That is, if it does at all.

As of this writing, its price remains relatively unchanged. Bitcoin price and broader crypto markets are also trending lower.

The reasons for those declines remain unclear. One could make a case that SBF’s arrest and the filing of a proper case against FTX has made investors wary of the asset class. Or one could simply look at trading markets for the top two cryptocurrencies – Bitcoin and Ethereum. The top trading markets for both are located at Binance and involve trades against Tether’s US dollar-pegged stablecoin USDT and Binance’s own BUSD.

Tether has been accused earlier of manipulating price through an increase or decrease of its supply. It is difficult to redeem Tether and the stablecoin does not hold onto a 1:1 peg because its management charges a redemption fee. The stablecoin’s unproven reserves have also made it risky to to hold the stablecoin for long periods. The next best thing to do with it, then, is to use it for algorithmic trading that manipulates prices.

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