Wrapped Bitcoin becomes the latest victim of FTX’s contagion
The fallout from the collapse of Sam Bankman-Fried’s FTX crypto empire has spread to a new corner of the digital-asset market.
Traders’ focus has turned to the price disparity between Bitcoin and a derivative of the largest cryptocurrency called wrapped Bitcoin, which can be used on the rival Ethereum blockchain. Wrapped Bitcoin is backed 1-to-1 by the token, which is held in custody by the digital-trust firm BitGo. While it normally trades on par with Bitcoin, a “persistent" discount emerged in mid-November, according to blockchain-data firm Kaiko.
Wrapped Bitcoin, which is ranked as the No. 23 cryptocurrency by total market value, gained popularity during the peak of the decentralized finance boom. The version provides Bitcoin holders an easy way to trade, buy and sell these tokens in DeFi. The Bloomberg Galaxy Crypto Index has tumbled more than 25% since Binance chief Changpeng “CZ" Zhao raised concern about FTX three weeks ago.
The discount has been sparked by concern that the wrapped Bitcoin is not fully backed, given that Alameda Research -- the trading desk co-founded by FTX’s Bankman-Fried -- was once the biggest merchant to issue the offshoot. Executives at BitGo dismissed the speculation, saying via Twitter that all of the derivative is backed 1-to-1 by Bitcoin held in custody by the firm.
“Everyone is afraid of everything these days," said Evgeny Gaevoy, founder and chief executive of crypto fund Wintermute.
“The whole point of using a custodian behind wrapped Bitcoin is to prevent the type of failure like FTX," Mike Belshe, chief executive officer of BitGo, said in an interview. “Now, I realize there’s a little bit of market slippage on the price because of some concerns, which is probably healthy, but it
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