Market contagion from the rapid collapse of crypto exchange FTX has spread to a key digital asset: Bitcoin, a widely used clone of the largest cryptocurrency.
According to a new report from crypto analytics firm Kaiko, Wrapped Bitcoin (WBTC), the largest wrapped version of Bitcoin on the Ethereum blockchain, has been trading at a discount to Bitcoin’s price since Sam Bankman-Fried’s struggling FTX exchange on 11/11.
Kaiko said WBTC’s discount fell to just 1.5% on Friday after investors responded to questions posted on Twitter about whether WBTC was fully endorsed. The rumor was based on data from Messari’s dashboard on Dune Analysis stating that FTX’s sister company, Alameda Research, was a top WBTC trader by number of tokens minted.
Chen Fang, Chief Operating Officer of BitGo, WBTC’s official custodian, was quick to clarify that each WBTC is “1:1 secured and verifiable across the chain.”
Friday’s rumors “appear to be unfounded” as Alameda should have sent all BTC to BitGo, meaning the now-defunct exchange “never took custody of the BTC itself,” according to the Kaiko report.
“Alameda was a ‘WBTC trader’ meaning they accepted BTC from customers and sent them to BitGo to mint WBTC,” tweeted crypto influencer Udi Wertheimer. “Alameda has NEVER held BTC themselves!”
Despite the clarification, WBTC’s rebate is still 0.5%, according to Kaiko.
Packaged assets like WBTC are said to be tied to the value of the original asset. They are commonly used for trading, lending, and borrowing on decentralized finance (DeFi) platforms.
Bitcoin (BTC) price recently traded at $16,143 on Monday while WBTC was changing hands at $16,112.
FTX’s fallout resulted in what Kaiko analysts have previously dubbed the “Alameda Gap” — a drop in liquidity across various crypto assets in the market, and altcoin liquidity has been hit harder.
Kaiko said that market makers are providing liquidity “asymmetrically, with spreads widening much more for higher-beta altcoins.”
The story goes on
Comparing the average daily spreads for the top altcoins by market cap on the Binance and Coinbase exchanges in the weeks before and after FTX filed for bankruptcy protection, Kaiko found that spreads on Solana’s SOL token had widened the most, ” tripled from 2.1 basis points (basis points) to 7.4 basis points on Binance.”
The data chart shows that altcoin liquidity is deteriorating in the post-FTX fallout. (Caiko)
SOL’s price has fallen sharply given its close ties to FTX/Alameda — down 59% over the past month. CoinDesk first reported Alameda’s balance sheet on Nov. 2 that the company held $292 million in unlocked SOL, $863 million in locked SOL, and $41 million in “SOL collateral.” .
“Alameda has been one of the key market makers for some small-cap altcoins, while other large market makers have posted losses and are likely to review their risk controls, which could impact liquidity in the near term,” Kaiko’s report states.
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