FTX, the infamous bankrupt cryptocurrency exchange, has received approval to sell approximately a whopping $873 million worth of trust assets. Whatever proceeds will be gained from this sail will be utilized to pay off the creditors who were impacted by the sudden collapse of the crypto exchange in 2022. Delaware Bankruptcy Court disclosed this decision in a filing made on November 29, 2023.
The $873 million in assets will be derived from FTX’s holdings in various trusts issued by Grayscale Investments, a crypto asset manager with a valuation of $807 million, and Bitwise, a custody service provider, with a valuation of $66 million. It’s worth noting that the court document refers to a total of $744 million in assets, but this valuation is as of October 25, 2023, and the assets have appreciated since then.
FTX debtors filed a motion a few weeks ago, on November 3, 2023, where they requested that six crypto trusts be sold so that they could pay off the affected parties. The cryptocurrency trusts included Grayscale Bitcoin Trust(GBTC), Grayscale Ethereum Trust (ETHE), and Bitwise 10 Crypto Index Fund.
FTX currently holds over 22 million units of GBTC, which are valued at $691 million, and 6.3 million shares of ETHE, which are now valued at around $106 million. The three additional trusts that FTX is authorized to sell for the recovery of funds for impacted customers include Grayscale’s Ethereum Classic Trust, Litecoin Trust, and Digital Large Cap Trust.
The administrators of FTX, led by John J. Ray III, have been actively working to recover assets since the collapse of Sam Bankman-Fried’s former empire in November 2022. Approximately $7 billion in assets has been recovered so far, with nearly half of it coming from cryptocurrencies ($3.4 billion).
In June, FTX’s debtors estimated that the total amount of misappropriated customer assets was $8.7 billion. Meanwhile, Sam Bankman-Fried was convicted on seven fraud-related charges on November 2 and is scheduled to be sentenced on March 28, 2024. He is currently held at Brooklyn’s Metropolitan Detention Centre.
Will FTX distribute the recovered funds to affected Customers?
There is an article on Investopedia that refers to FTX’s plan to distribute the recovered funds to its customers. The report states that: ”FTX proposed a plan this week to refund up to 90% of distributable assets to customers. Distributable assets are funds FTX has been able to recover, not the actual amount of funds lost by customers. Actual recovery for customers could be lower, according to some FTX creditors.”
Distributable assets refer to the funds that FTX has been able to recover since it filed for bankruptcy. This includes cash, cryptocurrency, and other assets that the company still has possession of.
The actual amount of funds lost by customers refers to the total amount of money that customers were owed by FTX when the company filed for bankruptcy. This includes the value of cryptocurrency holdings, as well as any outstanding deposits or withdrawals that were not processed before the bankruptcy filing.
Actual recovery for customers could be lower, which means that the amount of money that customers receive back may be less than 90% of the distributable assets. This is because several factors could reduce the amount of money that is available for distribution to customers. These factors include:
- Legal fees and other administrative expenses: The bankruptcy process is expensive, and the costs of administering the bankruptcy estate will be deducted from the distributable assets before any money is distributed to customers.
- Claims from creditors: FTX has several creditors to whom the company owes money. These creditors will have a priority over customers in terms of receiving distributions from the bankruptcy estate.
- Clawback claims: If any customers withdrew large amounts of money from FTX in the weeks leading up to the bankruptcy filing, they may be required to return some of that money. This is known as a clawback claim.
As a result of these factors, customers may only receive a fraction of the distributable assets. The exact amount that each customer gets will depend on the specific circumstances of their case.
