Insights Analysis FTX Case Closed: Investors Fully Compensated

FTX Case Closed: Investors Fully Compensated

May 13, 2024 Analysis
BITmarkets | FTX Case Closed: Investors Fully Compensated

The infamous story of the defunct crypto exchange FTX, which collapsed eighteen months ago, is now nearing resolution. The founder and former CEO, Sam Bankman-Fried, was recently sentenced to 25 years in prison for stealing approximately $11 billion from FTX customers.

On May 8th, the FTX debtors filed their anticipated Plan of Reorganization and accompanying Disclosure Statement with the U.S. Bankruptcy Court. The documents state that all creditors and customers will be repaid in full, including interest.

It is expected that 98% of FTX creditors will receive 118% of their allowed claims within 60 days of the plan's effectiveness. Other creditors are slated to receive 100% of their allowed claims, plus billions in compensation for the time value of their investments.

How and why can FTX afford to pay out with interest?

The previously mentioned documents claim that between $14.3 billion and $16.4 billion is available for distribution. Even after filing for bankruptcy, FTX managed to secure the necessary funds and more by monetizing a diverse collection of assets, most of which were investments held by Alameda Research or FTX Ventures, or were from litigation claims.

However, these claims may not be entirely accurate. The court has used a single currency, the US dollar, to denominate all claims. However, FTX is also repaying individuals who held cryptocurrency on its exchange. This practice is common in other crypto bankruptcy cases but is not straightforward.

For instance, if a customer owned 1 Bitcoin on the exchange, they will be paid the value of 1 Bitcoin at the time of FTX's collapse, which was approximately $18,000. Therefore, the customer will not receive 1 Bitcoin but approximately 0.3 BTC, which, had the customer retained until now, would have appreciated by about 300%.

For now, the Bankruptcy Court must determine the valuation date for these claims. This payback may also inject some liquidity into the market, as relieved customers with their long-awaited funds may opt to purchase more Bitcoin.

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