Blockchain
FTX’s $16B Cash Distribution Could Boost Bitcoin and Solana
Sun 07 Jul 2024 ▪ 5 min read ▪ by Fenelon L.
The FTX bankruptcy could have unexpected effects on the cryptocurrency market. As the defunct exchange prepares to redistribute $16 billion to its aggrieved customers, experts are predicting significant buying pressure on Bitcoin and Solana. This massive injection of liquidity could very well energize a market that has been declining for several months.
A Welcome Influx of Capital for Bitcoin and Solana
The distribution expected by FTX represents a significant boon to the cryptocurrency ecosystem. According to researcher Xremlin, a significant portion of this $16 billion is expected to be reinvested in digital assets. Investors, who are already familiar with this market, may actually be tempted to bet on cryptocurrencies again.
This massive influx of liquidity it happens in a bear market environment. Bitcoin has lost more than 20% of its value in the last month, while Solana shows a 22% decline. The injection of new capital could therefore act as a catalyst and restart the bullish momentum that investors have been eagerly awaiting.
Furthermore, this distribution could counterbalance the selling pressure exerted by the German governmentThey have in fact made significant sales of cryptocurrencies in recent weeks, weighing down prices.
The distribution process of FTX funds is set in a particular context. The key dates to remember are August 16, 2024, the deadline for the vote of creditors, and October 7, 2024, for the final approval of the liquidation plan.
If the schedule is met, payments should begin by the end of Q3 2024. This period coincides with the US elections, which traditionally mean greater volatility in financial markets. The influx of liquidity from FTX could therefore amplify price movements, especially for Bitcoin and Solana.
The potential approval of a Solana ETF, following Van Eck and 21Shares’ request in late June, could also be an additional factor in volatility. However, Bitget CEO Gracy Chen remains cautious:
SOL still has some problems:
- First, there is the stability and security of the Solana network. Since its launch, the Solana network has experienced outages almost every year. The most recent outage occurred on February 6th of this year due to a glitch in the program loading mechanism and lasted 4 hours and 46 minutes. As a high TPS blockchain, a downtime of more than 4 hours could potentially impact a huge amount of data waiting to be recorded on the blockchain.
- Second, there is the upcoming large-scale unlock: FTX is expected to unlock 8.29 million SOL tokens (equivalent to approximately $1.4 billion) in March 2025. This could potentially impact the price stability of SOL tokens.
- Third, there is the centralization of validator nodes: Solana currently has 5,440 validator nodes, of which approximately 37% are located in the United States, which introduces a certain risk of centralization. If US regulators take unfavorable measures against Solana, it could significantly impact the Solana network and the price of the SOL token. Conversely, it also suggests that the United States has significant control over the Solana network, which could impact the SEC’s decision to approve a SOL ETF.
Considering these factors, excluding political elements, I think the likelihood of the application for a SOL ETF being approved is low. Other tokens, such as DOGE and SHIB, have relatively small market capitalizations and face high price volatility and potential market manipulation risks. Therefore, I think it is unlikely that the US will launch any more crypto ETFs in 2024.
In conclusion, the distribution of FTX funds could well mark a turning point for the cryptocurrency market. While Bitcoin and Solana are going through a difficult phase, this injection of new capital could give new life to the sector. Investors remain cautious, however, aware of the intrinsic volatility of these assets.
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Fenelon L.
Passionate about Bitcoin, I like to explore the intricacies of blockchain and cryptocurrencies and share them with the community. My dream is to live in a world where privacy and financial freedom are guaranteed for everyone, and I have understood that Bitcoin is the tool that can make this possible.
DISCLAIMER
The views, thoughts and opinions expressed in this article are solely those of the author and should not be construed as investment advice. Do your own research before making any investment decisions.