In November 2022, the crypto exchange FTX closed its doors and went bankrupt.
At that point, in fact, all exchange users lost all the funds they had deposited.
However, they closed their doors as soon as they realized they did not have enough funds to process all withdrawals, when the “run on the banks” occurred, in the end the exchange still had some funds in the cash register.
Summary
FTX: The value of the funds of the crypto exchange after bankruptcy
Once the bankruptcy procedure started, the fiat currency values of the funds that their users had deposited at the time of the bankruptcy were calculated, but since then the fiat currency value of cryptocurrencies has risen significantly.
For example, the price of Bitcoin has gone from $20,000 at the beginning of November 2022 to around $62,000, with a gain of over 200%, while ETH has gone from $1,500 to $3,000 with a gain of 100%.
Furthermore, FTX did not declare bankruptcy on the day it closed withdrawals, but a few weeks later, when the price of Bitcoin had dropped below $17,000 and that of ETH below $1,200.
So the funds in cryptocurrencies held by the exchange after the closure of withdrawals have actually appreciated significantly over time, to the point that their current total market value exceeds that calculated at the time of the bankruptcy declaration.
The refund of funds
Simply thanks to this now FTX can proceed to reimburse users by giving them a fiat currency amount higher than the fiat value of their cryptocurrencies at the time of the failure.
Today the company presented a plan that involves returning funds for a total amount ranging from 14.5 billion to 16.3 billion dollars.
The company has stated that 98% of its creditors will receive a refund in fiat currency equal to 118% of what they requested. In other words, almost all creditors will receive back both the requested amount and an additional 18%.
It must be emphasized once again that these figures were requested by the creditors after the bankruptcy, and were calculated in fiat currency at the time of the bankruptcy.
This means that if they were to receive back an equal amount of cryptocurrencies (and not fiat currencies) compared to what they had in custody at the exchange at the time of closure, they would receive funds with a much higher market value. Instead, they will have to settle for a +18% in fiat currency, which is still not bad considering it’s just over a year and a half away.
The refund will be made within 60 days from the approval of the repayment plan.
The sale of FTX crypto after the bankruptcy process
According to FTX’s public statements, which is now being administered by a bankruptcy trustee, it is not 100% clear that refunds will only be made in fiat currency, but this is still what can be inferred from a specific passage of their official statement that says:
“FTX predicts that the total value of assets collected, converted into cash, and available for distribution will range between 14.5 and 16.3 billion dollars.”
This passage states both that the funds will be converted into cash and that this conversion has not yet begun.
From this, it can be assumed, with a good degree of confidence, that FTX will sell all the crypto it still has in its wallet to cash out fiat currency to be disbursed as a refund.
However, there is also another passage that turns out to be very interesting from this point of view.
They write:
“FTX has reached this level of recovery by monetizing an extraordinarily diverse set of assets, most of which were proprietary investments held by Alameda’s activities or FTX Ventures, or legal causes”.
In fact, they also declare that at the time of the bankruptcy declaration they held only 0.1% of the BTC that they were supposed to have in custody for their clients, and only 1.2% of the ETH.
So the money to be returned to former clients comes largely not from cryptocurrency sales, which probably still need to be sold, but from the sale of other assets that the FTX group had purchased using their clients’ funds. Evidently, these assets were also sold at excellent prices.
The comment
The bankruptcy trustee, John J. Ray III, stated:
“We are pleased to be able to propose a Chapter 11 plan that provides for the repayment of 100% of the amounts of bankruptcy claims, plus interest for non-governmental creditor organizations.
On behalf of the independent Board of Directors of FTX, I would like to extend our deepest appreciation to the numerous government agencies, including the United States Department of Justice, the Commodity Futures Trading Commission [CFTC], the Internal Revenue Service [IRS], and the Securities Commission of the Bahamas, for their tireless efforts, cooperation, and assistance during this complex recovery process.
I also want to thank the joint official liquidators of FTX Digital Markets, the ad hoc committee of non-U.S. clients, the class action plaintiffs, BlockFi, the official committee of unsecured creditors, and all their professionals for the hard work done in developing the Plan and the results achieved.
Finally, I want to thank all FTX customers and creditors for their patience during this process.
