The now-defunct exchange will be able to fully reimburse all its users. But there’s a catch…
FTX collapsed in November 2022 amidst concerns over solvency. Within a matter of days, the popular exchange founded by Sam Bankman-Fried went under, leaving users fearing the loss of their funds. However, recent reports indicate that all users will indeed be fully refunded. But how is this possible?
FTX’s downfall coincided with the depths of the crypto winter. At the time, the price of bitcoin hovered around $15,500, determining the dollar value of FTX’s debts. Therefore, users holding 1 bitcoin in their accounts were slated to receive $15,500 from FTX. When FTX went under, it left a gap of $8 to $10 billion in its books, leading most customers to believe they’d never see their money again.
The new CEO of FTX, John Ray III, had the task of recovering as much money as possible for the creditors. Thanks to FTX’s investments in startups and its holdings of cryptocurrencies, it was able to capitalize on the recent crypto market recovery. Bitcoin’s price now sits above $45,000, more than triple its value at the time of bankruptcy.
FTX also held significant shares of the Grayscale Bitcoin Trust (GBTC), which traded at nearly a 50% discount in December 2022. GBTC recently transitioned into an ETF, eliminating this discount entirely. FTX sold all its GBTC shares for around $1 billion after the ETF launch. Just a year earlier, this investment was worth less than $165 million. The remarkable recovery of bitcoin and the elimination of the GBTC discount thus provided a significant windfall.
FTX also held a substantial amount of Solana tokens. In December 2022, Solana reached a low of just under $10, but its price has since surged to around $110. Other cryptocurrencies held by FTX also experienced strong recoveries. As a result, the company made substantial profits from selling these coins.
FTX invested heavily in startups. In 2022, for example, it invested $500 million in Anthropic, an AI startup and competitor of OpenAI, known for ChatGPT. During the latest funding round in December 2023, Anthropic was valued at $18 billion. FTX’s stake is thus worth around $1.4 billion.
In addition to these financial windfalls, John Ray III managed to recover a significant amount of money. This included real estate purchased by FTX for top executives and funds spent on sponsorships. Donations to politicians were also reclaimed. Since this money ultimately belonged to customers and its misuse constituted fraud, it could be reclaimed. The recipients were never entitled to this money.
Customers are now being told they’ll receive their full deposits back. However, this is based on the dollar value of their assets at the time of the snapshot in late 2022. Given the significant increase in crypto prices, customers have missed out on these gains. So, someone who had 1 bitcoin in their account will now receive around $15,500 for it. While better than nothing, it’s certainly much less than what 1 bitcoin is currently worth.
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