“Kroll Restructuring Administration LLC”, the company tasked with restructuring the now failed cryptocurrency exchange FTX, obtained approval yesterday from a Delaware bankruptcy court to liquidate assets from the Grayscale and Bitwise trusts for a value of approximately 873 million dollars.
With the new liquidity coming in, the possibility of a restart for FTX is getting closer, which was considered impossible a year ago.
However, it is not yet certain that these assets will be liquidated immediately: in fact, given the recent rallies in the crypto market and the recent decrease in discounts on the NAV of the trusts in question, it is likely that Kroll administrators will wait a few weeks before monetizing everything.
The effects of these potential sales on the prices of Bitcoin and Ethereum are completely negligible.
Let’s see all the details below.
FTX obtains judge’s approval to sell its Grayscale and Bitwise trust companies
Yesterday, a bankruptcy court in Delaware approved the request of “Kroll Restructuring Administration LCC”, a corporate restructuring company appointed to handle FTX’s bankruptcy, to sell some assets owned by the exchange such as the trusts issued by Grayscale and Bitwise.
We still don’t know if and when these assets will be liquidated to make room for alleged maneuvers of FTX reopening, which was discussed a month ago when the broker received 3 different acquisition proposals.
Kroll is not obliged to sell all the trusts on the market, but has only received the necessary approval to do so.
In Judge John Dorsey’s statement, which accepted a motion in early November, it can be clearly read that:
“Debtors are authorized, but not obligated, to execute the sale of trust assets, according to their reasonable business judgment, in accordance with the following sales procedures”
According to a previous court statement dated October 25, 2023, the Bahamas-based organization of Sam Bankman Fried held a balance of approximately 744 million dollars in six cryptocurrency funds, including the names of Grayscale Bitcoin Trust, Grayscale Ethereum Trust, Bitwise 10 Crypto Index Fund, Grayscale Ethereum Classic Trust, Grayscale Litecoin Trust, and Grayscale Digital Large Cap Trust.
The most massive participation is on Grayscale funds, GBTC and ETHE, where we count a total of 684 million dollars.
As of today, the value of these trusts has increased to a total amount of 873 million dollars, which could be collected soon by FTX.
However, the bullish conditions of the crypto market could influence Kroll’s decision to monetize these assets: Grayscale’s funds on Bitcoin and Ethereum have grown by 123% and Bitwise’s fund on the top 10 crypto market index has increased by 117% in the last 6 months.
The goal of FTX’s restructurers is to maximize the liquidity held by the exchange to evaluate any potential restarts, which according to recent testimonies could occur as early as Q1 2024.
What seemed to be a disastrous financial situation just a year ago now seems to have really improved.
Some major FTX creditors received OTC offers a few days ago on their claims, amounting to 60-65 cents per dollar of credit, up 30% from a month ago.
The market believes that the company that went bankrupt during the November 2022 storm may return to a stable economic condition, ensuring a 100% compensation for all remaining debts.
Some major FTX creditors are being offered up to 0.60-0.65 dollars per dollar, marking an increase of up to 30% compared to about a month ago.
At the end of October, some over-the-counter (OTC) transactions of credits towards FTX creditors closed at over 0.50 dollars per dollar.
The credit specialist at FTX, Thomas Braziel, stated that he believes the prospects could continue to improve. “The claims for compensation should approach the horizon of recovery, which is likely to be between 80% and 90% and beyond,” he said.
Discount on GBTC and ETHE NAV at multi-year lows: FTX liquidations may have a negligible impact
As already mentioned, the bullish conditions of the cryptocurrency market could delay or even prompt a reconsideration of Kroll’s decisions regarding the liquidation of Grayscale and Bitwise assets, still present in FTX’s balance sheets.
Not only that, while the prices of Bitcoin, Ethereum, and many other altcoins are growing rapidly, we must consider the decrease in the discount on the Net Asset Value (NAV) of some trusts.
The NAV, in jargon, indicates the net asset value of an investment fund, which by its nature can easily differ from the price of the underlying asset to which it refers and can therefore price at a discount or premium compared to the latter.
In the case of the Grayscale Bitcoin Trust (GBTC), it currently records a NAV of -13%, but in December of last year it had reached -48.5%.
As for the Grayscale Ethereum Trust, here too we can observe the same situation, with the discount on NAV that has decreased significantly in recent months, going from -60% to -20%.
This situation is definitely influenced by the dynamics related to a probable future conversion of Grayscale trusts into spot ETFs, subject to approval by the Securities and Exchange Commission.
In practice, as the chances of SEC approval for offering Michael Sonnenshein the opportunity to convert his funds increase, the discount on the NAV of the trust will tend more and more towards zero.
For this reason, FTX renovators may wait to liquidate the remaining trust assets on the balance sheet, as if things go well, they would be worth much more than they are now.
There is a possibility that with the latest motion presented to the court, Kroll is only preparing for a hypothetical approval of a long series of spot ETFs by the federal entity, which on one hand would push up the price of the underlying cryptocurrencies of the funds, and on the other hand would decrease the discount on NAV potentially transitioning to a premium.
Any liquidations would still have a limited effect on the price action of BTC and ETH: the spot volumes recorded in the crypto market in recent days and the open interest of positions opened on derivative instruments indicate that investor interest is high at this time.
