Posted October 7, 2024 at 4:21 PM ET.
A U.S. bankruptcy court on Monday approved a reorganization plan for bankrupt cryptocurrency exchange FTX, with $14.7 billion to $16.5 billion of recovered assets to be distributed to FTX creditors.
Many investors expected these distributions to quickly lead to increased demand and higher prices for cryptocurrencies, as creditors use the recovered funds to reinvest in digital assets. However, the reality is much more complex.
Kyle, who is known as an advocate for FTX’s creditors, said that even if U.S. Bankruptcy Judge John Dorsey approves the reorganization plan, distributions will not be made immediately. mr purple First, the court must set an implementation date for the plan, known as the effective date, currently estimated to be October 31st.
Read more: FTX Bankruptcy Foundation reveals up to $230 million set aside for certain shareholders
“Given (the debtor’s) track record, we expect (the schedule) to be a little delayed,” Kyle said. “The plan’s effective date will likely be sometime in November, perhaps the end of November, at which point the debtor will be able to actually begin the distribution process.”
What is the distribution schedule?
Once the effective date arrives, the debtor has 60 days to make distributions to the so-called “convenience class” (consisting of individual customer claims of less than $50,000). Approximately $1.2 billion in recovered assets will be distributed to this class, taking into account debtor recovery estimates.
Iesha Yadav, a law professor at Vanderbilt University, said in an email to Unchained that the redistribution schedule is still in the works and subject to logistics.
“The current payment schedule is gradual, with smaller creditors with debts of less than $50,000 scheduled to be repaid early, while larger creditors may have to wait until next year to receive their dividends. “There is,” Yadav said.
Read more: Caroline Ellison sentenced to 2 years in prison for role in FTX fraud
Kyle said payments to a group of large creditors known as the “entitled class” would likely be completed by February next year at the earliest. The group has about $9 billion in debt, and Kyle said those creditors will be paid 100 cents to 110 cents on the dollar next spring, followed by interest on unpaid portions until the debts are collected. He said he expected it to happen. Fully paid, additional distributions will come from a $12.7 billion settlement between FTX Real Estate and the Commodity Futures Trading Commission (CFTC). FTX Real Estate estimates the ultimate recovery rate for the title class to be between 129% and 143%.
John, an FTX creditor and debt buyer who requested anonymity due to concerns about retaliation from debtors, said the bankruptcy estate has not met all the deadlines it has given the public so far.
“I think the convenience class will probably receive the money next year, around April or May, and it will be phased out, not all at once,” John said. Thomas Brazil, co-founder of troubled investment firm 117 Partners, said payments could come in waves, based on his experience in other bankruptcies involving crypto companies such as Mt.Gox, Celsius and Voyager. I agreed that it was highly sexual.
How does distribution affect the market?
Experts note that each distribution is unlikely to be a major liquidity event for the crypto market, where creditors use recovered funds to drive up crypto prices. This is because the debt buyers and the investment company in financial crisis played an extremely important role in this bankruptcy case.
Hedge funds Attestor, Beaupost, and Farallon are the largest holders of FTX bonds, with claims worth $520 million, $518 million, and $346 million, respectively, according to a March report in Fortune magazine. is held. In February, price broker Cherokee Acquisition noted that the top six FTX debt holders were distressed debt companies, accumulating $1.3 billion in positions.
In total, about half of the claims listed in the lawsuit documents, or between $6 billion and $7 billion, are from distressed companies, Braziel said. Mr. Kyle arrived at a similar number and is one of the ad hoc groups (mostly made up of claims buyers, but not representative of all claims buyers in this case) It noted that it manages claims totaling approximately $6 billion.
Read more: After the initial “Lectover”, will Bitcoin price “Uptober” return in earnest?
“I can say with great confidence that very few (insurance buyers) are going to redeploy to crypto,” Kyle said. “Many of them would not be forgiven even if they wanted to. Several of the purchasers of claims are funds with limited partner agreements that are not crypto investors.”
Brazil helped broker many insurance claims transactions and also purchased portions of insurance claims for clients through his investment company. In that case, distributions would go back to the customer, who would decide how to invest the money, Brazile said.
“Most of them are crypto bigwigs and already have a lot of crypto. They’re not going to redeploy into crypto,” Brazil said.
John, an FTX creditor and small claims buyer who works in cryptocurrencies, said it is “a long way off” that all of the distributions will go to cryptocurrencies. “Everything feels a little overpriced,” he said.
However, not everyone is keeping their distance. Cryptocurrency investment firm Sol Strategies told The Block that it intends to purchase more Solana tokens with the funds recovered from FTX. And some of the members of the class of rights in this case are institutional crypto companies that traded on FTX, Brazil said.
The convenience class is seen as the most likely to reinvest profits into cryptocurrencies, as it is primarily made up of retail investors, but Kyle said he was skeptical that would happen.
“It’s going to be less than a billion dollars coming to market in December or January. That’s the real number,” Kyle said. “Anyone trading thinking this is a big liquidity event is going to make a big mistake.”
Another consideration in all of this is that many of the major crypto bankruptcy foundations, such as Celsius and Voyager, are selling crypto assets recovered in bankruptcy proceedings as a way to repay creditors, which could lead to selling pressure. This means that it has become. In the cryptocurrency market.
“I actually think the most bullish thing for the crypto market is the fact that all these assets are basically done,” Brazil said. “There are some close ones, but for the most part they sold a lot of the bag (in crypto parlance).”
