WBTC depegs from BTC: The fear is real

Bitcoin-backed Wrapped Bitcoin (WBTC) tokens have been trading at a discount compared to their Bitcoin backing ever since the fall of major crypto exchange FTX.

Market data provided by Done shows that Wrapped Bitcoin has been consistently trading at a discount compared to the value of the underlying Bitcoin ever since the fall of major crypto exchange FTX. WBTC’s price broke under the full value of a Bitcoin on Nov. 12 and its value compared to Bitcoin has seen a sharp increase in volatility ever since.

WBTC has reached its peak discount compared to Bitcoin on Nov. 26, when it was worth nearly 1% less than Bitcoin despite its supposed one-to-one BTC backing. As of press time, WBTC is trading at a 0.19% discount compared to the underlying Bitcoin.

One possible reason for this discount is that the fall of FTX generated a significant — and healthy — degree of distrust towards custodial solutions that resulted in a significant increase in the WBTC selling pressure. This idea is further backed by Messari data showing an 8.82% decrease in WBTC supply from 238,000 on Nov. 12 down to 217,000 as of press time.

Looking at more data shows that the role of FTX’s bankruptcy — which also brought down its sister investment firm Alameda Research down with it — is much more direct than just causing panic. Dune data shows that Alameda research is both the top WBTC minter and burner, meaning that the bankrupt institution created more and destroyed more Wrapped Bitcoin than any other entity.

Alameda Research minted 101,746 WBTC and burned 29,435 WBTC to withdraw the underlying BTC — exercising negative market pressure on both WBTC and Bitcoin. Furthermore, Alameda Research also has 72,310 WBTC to burn and — consequently — Bitcoin to sell while trying to recover assets to pay off its creditors.