Alameda Research's balance history on FTX confirms death blow happened during LUNA collapse, expert says

  • Will Clemente has concluded that Alameda Research's ultimate collapse may have trickled down from Terra saga in May 2022.
  • His assumption comes after observing the hedge fund's balance history on FTX, going back to early 2022.
  • The expert attributes the fall to long leverages heading into the event or an ill-advised move to absorb toxic flow for FTX.

Alameda Research's balance history on its sister firm and cryptocurrency exchange, FTX, confirms that the hedge fund's death blow goes back to May 2022, when the Terra Luna ecosystem imploded. This is the opinion of Twitter user Will Clemente, a renowned crypto analyst and the founder of digital asset investigator Reflexivity Research.

Also Read:  Justin Sun of Tron contemplates an offer for FTX's holding tokens as crypto markets bend to FUD.

Death blow to Alameda was LUNA (aka LUNC)

Clemente’s comments came ahead of the Omnibus Hearing, set for September 13, with the researcher going through the Government exhibit showing Alameda's balance history on FTX. Recording up to $12 billion within a span of less than two months to May, the analyst says, "Death blow to Alameda was LUNA."

When the Terra ecosystem imploded, Bitcoin (BTC) price and the rest of the altcoin community, starting with Ethereum (ETH), bled, kickstarting the bear market that investors continue to maneuver from today following the depegging of the Terra stablecoin and its support coin LUNA. Needless to say, the LUNA and FTX crises were among the toughest the crypto industry has had to endure. Citing a user on X:

Luna and FTX incidents were the toughest for this industry, What a year this was in Crypto.

In a recent report, blockchain analytics company Nansen argued that the untimely collapse of the FTX exchange and its sister firm Alameda Research were associated with the Terra/LUNA stablecoin collapse. According to the report, FTX's insolvency may have been "inevitable" right from when the "two-token stablecoin ecosystem's arbitrage-based dollar peg failed." Noteworthy, the collapse saw up to $48 billion in value go down the drain, sending multiple firms to their bankruptcies as they cried "over-leveraged positions."

While reports indicated that FTX and its subsidiary Alameda imploded because of bad bets, the Nansen report contradicted this, attributing the collapse to "malfeasance" as opposed to poor management.

FTX Alameda implosion, how the trickle effect played out

Following revelations that assets reached up to $5 billion in FTT, making the bulk of Alameda's balance sheet illiquid, token holders engaged in a selling spree. FTX exchange recorded massive exchange outflows at the time. The situation worsened when Binance CEO Changpeng Zhao (CZ) hinted at the largest exchange by trading volume disposing of its $584 million FTT holdings, triggering a run.  

Cognizant that FTT tokens had a very low circulating supply, even small sales could sway the price hugely. Part of the deceit that made the situation worse is that FTX effectively controlled 80% of the FTT supply instead of the standard of less than 50%.

With Alameda and FTX holding most of FTT supply, a sell-off from one of the entities could affect the other's balance sheet.

Following the Terra/LUNA crash, FTX secretly loaned billions of dollars of customer funds to Alameda in what has been described as commingling. The Nansen report, therefore, adds credence to Clemente’s  assumption of mounted losses, making the Terra crisis "a plausible case," considering FTT was the only collateral, but then it turned illiquid, causing the exchange to pause withdrawals.

Bitcoin, altcoins, stablecoins FAQs

What is Bitcoin?

Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.

What are altcoins?

Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.

What are stablecoins?

Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.

What is Bitcoin Dominance?

Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Join Telegram

Recommended content

Recommended Content

Editors’ Picks

Bitcoin bull market is still going strong, on-chain data shows

Bitcoin bull market is still going strong, on-chain data shows

Bitcoin’s (BTC) price outlook remains positive in the short term despite its recent stabilization, on-chain data suggests, propelled by easing selling pressure by long-term holders and activity from large-wallet investors. 

More Bitcoin News

Dusk price sets the stage for a 20% rally

Dusk price sets the stage for a 20% rally

Dusk price is currently being rejected at around $0.426 level. The on-chain metric suggests DUSK growing network and dormant wallets are moving upwards again. A daily candlestick closing below $0.286 would invalidate the bullish thesis.

More Cryptocurrencies News

Digital asset inflows reach record high year-to-date

Digital asset inflows reach record high year-to-date

CoinShares' weekly digital asset flows, released on Tuesday, reveal that digital assets recorded a three-week consecutive rise in inflows, amounting to a record high of $14.9 billion already this year.

More Cryptocurrencies News

Bitcoin long-term holders begin re-accumulation after Semler Scientific and Mt Gox make major whale moves

Bitcoin long-term holders begin re-accumulation after Semler Scientific and Mt Gox make major whale moves

Bitcoin declined briefly from the $70,000 mark on Tuesday as Semler Scientific and Mt Gox made notable whale moves. Glassnode also shared key on-chain insights that breathe clarity into the market's current state.

More Bitcoin News

Bitcoin: BTC struggles, but $80K is at striking distance Premium

Bitcoin: BTC struggles, but $80K is at striking distance

Bitcoin (BTC) price is in a good position to resume the bull rally despite the recent struggle. Optimism will restart if BTC overcomes a critical hurdle and flips it into a foothold. In such a case, the pioneer crypto will be slated to push to a new all-time high (ATH). 

Read full analysis