The collapse of the crypto empire around FTX and Alameda Research is now sending shockwaves toward Decentralized Finance (DeFi). Because, as the analysis service Kaiko shows in a market report, Wrapped Bitcoin (WBTC) has recently been struggling with unusual price fluctuations. Actually, WBTC should always fetch almost exactly the same price as Bitcoin (BTC) itself in free trading. Because so-called wrapped tokens such as WBTC are always 1:1 secured in their concept by the underlying cryptocurrency (here: Bitcoin). If WBTC is then traded almost 2 percent cheaper than Bitcoin, as recently, the alarm sirens will sound.
The uncertainties surrounding Wrapped Bitcoin were apparently triggered by posts on Twitter that revealed that the insolvent Alameda Research is said to be storing a good 100,000 WBTC (market value just under $1.7 billion). That would be around half of all WBTC in circulation. The fear: Alameda Research could have cheated with this investment and the Wrapped Bitcoin mentioned are not sufficiently covered. This assertion is likely to have led to the sale of WBTC, even with the acceptance of a price reduction compared to Bitcoin.
In reality, the information on WBTC and Alameda Research is probably misleading. From a technological point of view, a network of crypto companies around BitGo as the publisher is responsible for Wrapped Bitcoin. BitGo CEO Chen Fang describes the critical statements about WBTC on Twitter as “fake news”. Wrapped Bitcoin cannot be manipulated by Alameda Research because only the WBTC publisher association has the ability to generate or destroy tokens. You can also view blockchain data at any time that proves that the association has at least one “real” Bitcoin for each WBTC.
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Conclusion: Speculations about Wrapped Bitcoin are unfounded
The current example of Wrapped Bitcoin is useful for understanding psychological mechanisms in crypto markets. Here, WBTC was publicly tallied, resulting in discounted sales. However, the sellers no longer thought about and researched how BTC is technologically organized. BitGo’s evidence on Wrapped Bitcoin and coverage, on the other hand, seems conclusive. In the meantime, the price curves of WBTC and Bitcoin have leveled off again with a difference of less than 0.5 percent, thus capturing the unrest. But those who were able to buy WBTC with a clear discount can look forward to profit.
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First published in BLOCK-BUILDERS.DE, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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