Jul 11, 2022 04:17 AM ET
By: AnalysisWatch
The centralized exchange FTX could be one of the biggest sources of selling pressure on Ethereum and other cryptocurrencies, as it funds traders willing to offer their coins in exchange for a high APR. Such a strategy creates massive pressure on an asset that is already struggling to stay above local support levels.
Essentially, FTX "pays" users to lend their Ethereum, which is later made available to short sellers on the FTX trading platform. Such loans are a direct way to devalue any type of asset, including Ethereum.
The interest rate is based on the demand for long-term and short-term assets on the platform. For example, when Terra (LUNA) went into a death spiral with the UST stablecoin, FTX offered up to 18,000.0% APY to those who deposited some LUNA that could be used for short selling.
Clearly, such a plan would fuel the sell-off in the market as more selling volume would be injected into the market as short-sighted traders think it is better to get an extremely high APY than to put further pressure on an already struggling asset.
As expected, LUNA's price fell to 0, which could be the fate of any asset that falls into a similar death spiral that is spun even further with the help of platforms like FTX.
Previously, users had noticed FTX-related wallets receiving millions of worth of Ethereum in a short period of time, suggesting that additional selling pressure will be added to the market.
The lack of inflows and buying power in Ethereum, as well as the crypto market in general, are two major factors preventing ETH from entering a market recovery rally. At press time, the second largest cryptocurrency is trading at $1,142.