Altpocalypse is coming

What’s happening @ OKEx?

Alts in a month, maybe

People have mostly shaken off the OKEx withdrawal suspension news, and perhaps for seemingly good reason as BTC continues its ascent upwards.

However as of today, withdrawals are still suspended and no new information has been released. With each passing day, the chances of an Altpocalypse in the short run becomes more likely because of what may unfold under these current circumstances. (And should we really be ignoring the serious, ongoing situation?)

The idea is generally along these lines (not financial advice):

1. The longer OKEx delays withdrawals while enforcing “patience” and staying silent for its users, the less confidence users will have. We are already way past a potential “grace period” of a few days.
2. Thus, once withdrawal updates are finally announced or unsuspended, we assume a meaningful proportion of users do not want to keep their funds on the exchange anymore given the lack of transparency and negative handling.
3. A large proportion of these subset of users, especially retail users, currently holds altcoins and will look to sell or unwind positions to withdraw off the exchange (again, an assumption/opinion)
4. So, once withdrawal information is released and unsuspended after several days: it is a possibility we’ll see immediate increased altcoin sell pressure, potentially combined with reduced buy side liquidity (especially shittier alts) leading to a cascade ie altpocalypse

This is of course in the scenario that withdrawals return regularly soon. Won’t speculate on the more concerning or worst case scenarios (lost funds), as it would be clear what would happen… again, would be even more bearish on alts.

More random details/thoughts below on the idea and implications:

How much confidence has been lost?

I won’t speculate on what’s happening behind the scenes and only comment on the public perception. All that we know today is: Withdrawals have been suspended since the 16th with no updated information on why, other than that the team is now “working hard to resume withdrawals”.

How much anticipated coin-selling will happen does depend on how much we think confidence has been lost. In my view, continued recent actions have certainly exacerbated this issue.

There is obvious negative sentiment from users on the handling of the situation: Stopping withdrawals is one (big) thing, but providing no timeline & detail is another … combine this with blocking users on Telegram & social media and you have a perfect mix of distrust forming. Not sure why there isn’t anyone with a larger voice calling this out TBH

Here are a few snippets of sentiment to give you a flavor:

Disgruntled replies, as expected

Telegram shenanigans

And here’s an example of a separate exchange seeing a run on funds fully driven off the OKEX news last week

“DragonEx said that the OKEx freeze triggered a “crisis of trust” in centralized exchanges among its customers, which in turn fueled a run on funds and deteriorated the platform’s service.”

So it feels likely that no matter what exactly happens (and when) with this situation, there will be sizeable withdrawals. And as mentioned, a meaningful proportion of this will likely be an unwind of alt holdings / longs given lack of confidence. How many retail users still wants to keep their bags on there? Is it already happening?

Moreover, the longer the wait, the more significant the pain, and I think the wait right now is already much longer than originally anticipated. I’m not sure the situation can be alleviated unless they offer significant incentives to stay.

Also, it’s clear that this is fundamentally different from the Bitmex situation so they aren’t comparable (ie. if anyone thinks because Bitmex news was shaken off easily, this will be okay)

What’s the play?

So what would I do? The “safest” move is to short non-major alt/btc pairs with low leverage in the short term, given that the timeline still looks unclear. It would surprise me if there is a scenario where alt pairs rise once withdrawals were to open. Alt/usd pairs are probably a good bet in this scenario too. As I mentioned, I foresee increased sell pressure + buyside liquidity drying up on weaker alts as retail races to the exits. I wouldn’t short major alts.

I imagine if you want to stick with and trust the platform long term, you could start layering in stink bids on alts too.

It’s not clear to me how BTC plays out in this scenario (or if it matters here). Someone smarter than me can try to fill in the gaps. I imagine there will be user demand for major coins to withdraw, and the exchange will also need to deal with larger scale in/outflows of BTC, ETH etc. and that will also have an interesting dynamic on the price short term.

Fin.

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