The liquidation process of the bankrupt crypto exchange FTX is nearing completion, as the court has recently approved the proposed liquidation plan.
This means that former FTX customers will soon receive part of their lost funds, thanks to the $16 billion collected by the trustee. For many, this marks a significant step toward recovery after the dramatic collapse of FTX in November 2022.
Repayments Following a Long Waiting Period
It has long been known that FTX, due to a combination of financial windfalls and successful asset liquidations, would be able to repay a substantial portion of customers’ lost funds. Under the approved liquidation plan, clients with crypto holdings valued at less than $50,000 will be prioritized for repayment. The court anticipates that approximately 98% of these customers will receive their funds within the next 60 days.
This relatively swift repayment process has been made possible by settlements FTX reached with various creditors, including the U.S. government. As a result, FTX has been granted the right to prioritize returning money to its customers before addressing claims from other creditors.
Dollar-Value Repayments
While customers will receive their funds back, the repayment amounts will be based on the dollar value of their crypto assets at the time of FTX’s bankruptcy in November 2022. This means that the payouts will reflect the exchange rates from that period. For many customers, this is disappointing, particularly for those who held cryptocurrencies like Bitcoin. At the time of FTX’s collapse, Bitcoin was priced at only $15,500, whereas its value has since quadrupled to over $63,000. Consequently, customers will receive significantly less than what their crypto holdings would be worth today.
Many customers are understandably frustrated by the missed gains, as the value of their crypto assets has surged since FTX’s bankruptcy. However, given the circumstances, the fact that such a large portion of the funds will be returned is a positive outcome. At the time of its collapse, FTX had only 0.1% of the Bitcoin it was supposed to hold in custody for its clients, a fact that shocked many in the crypto world.
The Sale of Assets
The success of these repayments can largely be attributed to the sale of valuable investments and assets held by FTX. Among these, FTX had a stake in the AI startup Anthropic, whose value has skyrocketed recently due to growing interest in artificial intelligence technologies. Additionally, FTX owned a substantial amount of Solana coins, which have appreciated significantly in value. Other valuable assets, such as real estate properties and various venture investments, were also sold to free up the funds needed for customer reimbursements.
One notable sale involved FTX’s stake in LedgerX, a regulated derivatives exchange, which was sold for over $50 million, along with other investments in gaming and blockchain companies like Mysten Labs. FTX also had a lot of GBTC shares that were converted into the Grayscale spot bitcoin ETF. FTX sold about $1B of this exchange-traded fund. All these successful liquidations have helped bolster the recovery efforts for FTX customers.
Regulatory Scrutiny and Industry Impact
The collapse of FTX and the subsequent liquidation process have had a profound impact on the broader cryptocurrency industry, prompting heightened regulatory scrutiny. Governments and regulators around the world are now focused on tightening regulations in the sector to prevent similar collapses in the future. The U.S. Securities and Exchange Commission (SEC) has already launched numerous investigations into the operations of FTX and other crypto platforms, which could lead to new regulatory measures aimed at improving transparency and protecting consumers.
For many in the industry, FTX’s downfall also served as a stark reminder of the risks involved in centralized cryptocurrency exchanges, leading to a renewed focus on decentralized finance (DeFi) solutions and self-custody of digital assets.
The $16 billion repayment to former FTX customers marks a crucial milestone in resolving one of the largest bankruptcies in the history of the crypto industry. Despite the disappointment of missed gains due to the dollar-value-based repayments, this substantial recovery offers some relief to thousands of affected customers. Thanks to successful asset liquidations and settlements, the long-awaited payouts are finally within reach, bringing closure to a tumultuous chapter in the cryptocurrency sector. However, the FTX saga serves as a lasting reminder of the importance of regulation and transparency in the rapidly evolving digital asset landscape.
