Good news: FTX is making efforts to provide full compensation, but the bad news is that FTT may go to zero.
(Background:
Cashing out at the peak of 500 million pounds, avoiding bankruptcy… The biggest beneficiary of FTX’s collapse is a judo champion?)
On Wednesday, January 31, local time in the United States, bankrupt cryptocurrency exchange FTX stated to the court that it expects to fully repay its customers. This announcement was made through a court hearing, and US bankruptcy judge John Dorsey has preliminarily approved this date, although a considerable number of creditors disagree.
According to the court process, FTX has abandoned its plan to restart its platform and instead focuses on fully repaying its former customers. According to the court process, FTX abandoned its plan to restart its platform due to a lack of buyers. Advisors have conducted a thorough search in the market to find investors willing to restart FTX, but no one is willing to provide the cash required to restart the exchange.
FTX lawyer Andrew Dietderich stated that the compensation process will require claimants to submit evidence to verify that they indeed held and lost assets on FTX. This process will be reviewed by restructuring advisors.
Is there still any use for the platform token FTT?
FTX’s native token FTT briefly rose after the company announced this plan, but then sharply fell. A few days ago, the price of FTT fluctuated around $2.65 briefly, but now it has reached around $1.91, with a lowest point of $1.65, a decrease of 27.04% in 7 days.
The market reaction was actually expected. According to the previous expectation of the restart scenario, the appreciation of FTT was based on the possibility that FTX would still be able to use FTT as its native token after restarting or exchange a certain proportion of FTT for issuing new native tokens. However, this expectation was shattered when FTX announced that it would not restart. After giving up the restart, FTT has actually found no new use, and its value will inevitably further decline as FTX continues to liquidate assets to compensate customers.
In the worst-case scenario, FTT may eventually become like Luna Classic after the collapse of Terra, becoming a memecoin in fact, fluctuating with the emergence of relevant news, but it is highly unlikely to return to its previous high point.
Full compensation: Good news, but at what time point will the assets be compensated?
FTX previously reported that there were over 36,000 claims totaling approximately $16 billion. Last year, it stated that it could only compensate about 90% of its customers. Now, the plan to fully compensate customers is naturally better news, but there is a subsequent question: FTX is likely unable to compensate customers based on the original types of tokens. So, if compensation is based on the value in US dollars, what time point will it be based on?
If it is based on the time before FTX’s collapse, the value of Bitcoin was around $20,000. If it is based on the time FTX announced bankruptcy, the value of Bitcoin was around $16,000, and now it is around $43,000, with a huge difference. “Many of these claims were made based on the significant drop in the value of the currencies during that turbulent period,” said Kris Hansen, a lawyer for the FTX creditors committee, at the hearing on Wednesday.
According to Bloomberg, US bankruptcy judge John Dorsey ruled that the scale of each claim will be based on the amount owed to customers or creditors by FTX on the day it applied for bankruptcy. Dorsey also approved rules for estimating the amounts owed to each creditor and customer. Some customers complained that fixing their claims at the end of 2022 prices would cause them to miss out on the opportunity for digital asset price increases. Dorsey ruled that bankruptcy rules require the company’s debts to be linked to the date it applied for court protection. So, this is similar to the previously reported proposed claim value by FTX, which is based on the price of Bitcoin at around $16,000, and this will undoubtedly cause significant losses to the creditors.
On the positive side, if it weren’t for this round of bull market starting in 2023, the remaining cryptocurrency assets after FTX’s bankruptcy might not be enough to repay all investors. In other words, it is almost impossible to repay based on recent prices, but this round of appreciation makes it possible for FTX to compensate based on the price in November 2022.
“I hope the court and interested parties understand that this is not a guarantee but a goal,” said Dietderich. “There is still a lot of work and risks between us and this outcome. But we believe this goal is achievable, and we have strategies to achieve it.”
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