A U.S. bankruptcy judge has approved FTX’s plan to repay creditors up to $16.5 billion, marking the end of the exchange’s two-year bankruptcy process and potentially injecting billions back into the crypto ecosystem.
What Happened: Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware approved the reorganization plan, which will see 98% of creditors receive full repayment of their losses, plus additional compensation, DL News reported on Tuesday.
FTX expects to distribute between $14.7 billion and $16.5 billion, which John Ray, the executive leading the bankruptcy process, described as “the largest and most complex bankruptcy estate asset distribution in history.”
Judge Dorsey addressed the contentious issue of FTT tokens, declaring them worthless. “I have no evidence today that the value of FTT tokens would be anything other than zero,” he stated, overruling requests from creditors who held the token at the time of FTX’s collapse.
Despite this ruling, FTT’s market value surged 20.1% to $4.60 following the hearing, puzzling many observers. Brian Glueckstein of Sullivan and Cromwell emphasized, “FTT has no fundamental value because it has no utility outside of operating the ftx.com exchange.”
The repayment plan has faced criticism from some creditors who argue they should receive the current value of their lost crypto assets, which have appreciated significantly since FTX’s bankruptcy filing in November 2022. At that time, Bitcoin was trading below $20,000, compared to its current value of around $62,400.
Steven Coverick of Alvarez & Marsal highlighted the rationale behind cash repayments, stating that in-kind distributions “would mean the debtors would have to purchase that cryptocurrency on the open market in order to make in kind distributions,” potentially causing market disruptions.
Despite these controversies, the majority of creditors supported the reorganization plan in a previous vote. Judge Dorsey concluded the hearing on a positive note, saying, “This is a model case for how to deal with a very complex Chapter 11 bankruptcy.”
K33 analysts Vetle Lunde and David Zimmerman estimate that payouts will commence late this quarter and continue into early 2025. They note, “Debtors will have 60 days to repay individual customers with claims under $50,000, representing approximately $1.2 billion worth of assets. Larger creditors (entitlement class) are expected to receive their $9 billion payouts in February 2025.”
The analysts project that of the $14.4 billion to $16.3 billion in total claims, approximately $8 billion could be eligible for repayment after accounting for credit fund purchases and claims from sanctioned entities or unverified individuals. They estimate that 20% to 40% of this amount, or about $2.4 billion, could flow back into the crypto market.
The K33 team attributes this potential reinvestment to the nature of FTX’s user base, stating that “FTX’s trader base consisted of crypto-native aggressive risk takers.” However, they caution that the impact may be gradual, noting, “this will likely unfold in multiple waves throughout the next year, meaning its overall impact on the crypto market may be soft.”
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