FTX Tokenized Stock & Arbitrage Research Report | November 2021

Welcome to the November 2021 edition of STM’s exclusive Tokenized Stock & Arbitrage report! Coming to you from sunny Miami, FL, join research analysts Aneesh Shinkre and Sam Sachs with all the latest action in cryptocurrency arbitrage.

FTX Seeing All-Time High Volumes in Q4 2021

It’s been quite an action-packed November for FTX Tokenized Stocks, with $GBTC and $TSLA leading the pack. Although down from last month’s record-shattering $94M of volume, these volumes are still up +362% from September’s $16M of volume. Given the surge in cryptocurrency derivatives trading in late 2021, this value is very well-justified.

And in fact, in the next few months we would only expect these FTX volumes to keep increasing.

Why, exactly?

First off, traditional markets could see significantly more volatility going into 2022. However, that’s actually great news — more volatility means more arbitrage opportunities for traders. Given we’re on the cusp of a potential one-two punch from a Delta-Omicron winter surge, paired with a possible 2022 interest rate hike, it’s tough to tell what the future of our capital markets looks like. One thing is for certain, though — even if NASDAQ and NYSE stock markets were to perform poorly in 2022, hedge funds and traders alike can leverage the power of security tokens to arbitrage price inefficiencies via FTX Tokenized Stocks.

Without further ado, let’s dive in.

$TWTR Arbitrage Opportunity: Trading the CEO’s News Announcement

There is no denying that Twitter ($TWTR) struggled in November. Along with many other social media companies, earnings numbers were weak, and investors became wary of the tech markets’ sustained growth prospects as a whole. With all of this being said, it does not take a company in an uptrend to profit from volatility and not fully efficient markets. On November 29, 2021, Jack Dorsey announced that he was stepping down as CEO of Twitter to pursue Block (formerly Square, $SQ) full-time. When traditional trading markets opened, Twitter initially pushed upwards before closing on the near lows of the day. As seen in the bolded candles above, the tokenized market provided multiple signals and arbitrage opportunities leading up to and on the announcement day.

First, let’s look at November 28, the Sunday before Dorsey officially stepped down. We can see the candle open just below $47.50 before pushing to nearly $52.50. Sunday’s whipsaw price action ended up with Twitter closing near $45.50. Who cares, right? Well, there may be more to this than immediately meets the eye. When analyzing candles, specific shapes signify potential future moves. Sunday showed what is called a topping tail. Topping tails often suggest that there is downside to come in the future.

Why?

When bulls push the price up to a certain point, but bears can close it far below the highs, the momentum is in the bears’ favor.

Why does this matter in this instance?

If traders saw this action before the Monday open, they would know that the initial surge upwards may be unwarranted and that either staying away or shorting the push would be the best move. A short from these highs could net an investor upwards of $5 per share if they covered at the end of the trading day — a close to 10% move.

Were insiders pushing the price up early just to dump it at the end of the day? Did someone know something? We do not have the answers to those questions, but we can be certain that hints were given in the tokenized markets.

The Correlation “Sweet Spot”: Just Enough, But Never Too Much!

One might think that FTX tokenized stocks are perfectly correlated to their Nasdaq counterparts. After all, shouldn’t Lay’s chips from Walmart be the same price as Lay’s chips from Target?

Answer: Yes, but that’s not always the case. Maybe Target stays open on holidays, where there’s more in-store demand. Maybe Walmart did more bulk and wholesale buying that month, lowering their prices. Just because the labeling is the same does not mean that the product has to be. Remember, just like Lays chips, tokenized stocks may represent the same thing but they are not mirrored. In sum, there are hundreds of variables that could impact the price of the same exact stock traded on different exchanges. The main topic that deserves our attention, however, is 24/7 and after-hours trading. Given the Nasdaq is dormant from 12:00a.m. — 9:30a.m. and 4:00p.m. — 12:00a.m. while FTX isn’t, this will cause frequent price mismatches across 28 different tokenized stocks.

As noted by the correlation chart on the left, the FTX-Nasdaq correlations often sway positive — meaning, when an FTX tokenized stock goes up, typically so does its Nasdaq counterpart, and vice versa. This is great news, because it suggests tokenized stocks are mostly tracking their Nasdaq counterparts. However, there’s even better news — none of the correlations are exactly 1.00. The closest is Moderna ($MRNA) at 0.88.

Why is this correlation number so important?

Because if the correlations were all 1.00, then all arbitrage opportunities would fail to exist. This sweet spot of “Not-Perfect-But-Still-Positive” correlation tells retail traders and hedge funds all they need to know: arbitrage exists, and it is here to stay. There have been thousands of times this month that FTX and Nasdaq exchanges have had price mismatches. And when they do, it’s up to the arbitrageur to work their magic and collect a handsome profit.

Tokenized Winners & Losers

It’s been quite the shakeup in the leaderboards this past month. Pfizer ($PFE) tops us off at +25% on promising vaccine booster data, with Beyond Meat ($BYND) bottoming us out at -34% on a poor quarterly earnings report paired with a grim Q4 2021 revenue outlook.

Overall, November was a shaky month for overall market returns. We saw more bears than bulls, fueled by an Omicron-induced selloff. The median return this month was -9%, in stark contrast to last month where over 75% of stocks finished positive in green territory.

Although returns were mostly negative this month, the arbitrageur has little to fear. Market corrections can be some of the most exciting times to profit — whether that be from major announcements, earnings, and price mismatches, as seen with Twitter, Inc. ($TWTR) and many other tokenized stocks.

Arbitrage Appendix

This is just a sneak peak…..

Want more data and hourly arbitrage opportunities for all 28 tokenized stocks? Reach out to aneesh@stomarket.com on pricing for exclusive access to 24/7 arbitrage trading data.

Everything in this report is for informational purposes. Nothing in this report should be taken as financial advice or as an inducement to purchase or sell any security. Nothing in this market report should be used as legal advice. Always do your own research before making any decisions regarding financial transactions of securities.