FTX Bankruptcy Proceedings: Customers Receive Less than Expected

November 11th, 2022 went down in crypto history as the day the crypto exchange FTX and its affiliated companies  filed for bankruptcy. A good year later, the FTX insolvency proceedings are slowly coming to an end and the situation is complicated. 

The bone of contention is the insolvency administrator’s plan, which was sent to the responsible court , not to compensate the former FTX customers in crypto, but to pay out US dollars at the value of the cryptocurrencies at the time.

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The problem: The million or more damaged ex-customers of FTX had often invested Bitcoin and Co. with FTX. 

In total, the equivalent of more than $8 billion in customer money is said to be affected by the FTX bankruptcy. But as of November 11, 2022, the crypto markets were in a deep trough, Bitcoin (BTC)  as the reserve currency was trading at around $17,000 and has since recovered to currently over $40,000. 

The market capitalization of Bitcoin and thousands of altcoins combined was only around $0.85 trillion in November 2022 and is now more than $1.6 trillion again. If compensation was paid in cash, the FTX victims would miss out on the profits that the price curves of many cryptocurrencies have shown over the last 13 months.

Resistance to the FTX insolvency administrator’s proposed approach is also gathering on X (formerly Twitter). User Sunil, for example , writes that FTX customers owned crypto assets according to the terms and conditions. 

Others agree with him and make it clear: We want our assets back in crypto and not to be fobbed off with US dollars at the value at the time. Whether this demand is still realistic seems questionable. As far as is known, the FTX insolvency administrator began selling billions worth of crypto from the insolvency estate in September.

Conclusion: FTX bankruptcy proceedings lead to trouble

Apparently FTX victims should still be given the opportunity to agree to or reject the plan to resolve the bankruptcy. But there will probably be no individual solutions; the principle known in US law as “ cram-down ” should apply, which enforces a unanimous settlement of claims for all FTX creditors. 

Incidentally, on secondary markets such as the “ Claims Market ”, the claims on FTX are now traded for well over 60 percent of the nominal value. Other news reports  have also recently shown that 100% compensation no longer seems impossible when calculated in US dollars. Whether this is enough for the victims of FTX is also a theoretical question – because otherwise the crypto markets could have continued to develop downwards since November 2022.

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(Featured image by Mariia Shalabaieva via Unsplash)

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