The latest developments in FTX's bankruptcy proceedings are disappointing, with creditors being able to recover only 10% to 25% of the value of their digital assets. According to documents related to the bankruptcy proceedings, creditors will receive a refund in fiat currency, an amount that will be calculated based on the value of the cryptocurrency at the time the application was submitted, when the price of Bitcoin was about $16,000. This situation has sparked strong protests from creditors, many of whom believe that this repayment ratio is far lower than they expected.
Key points of the repayment plan
Refund ratio: Creditors are expected to receive only 10% to 25% of the value of the digital assets they held on the exchange before bankruptcy.
Payment Method: Refunds will be paid in fiat currency based on the value of the cryptocurrency at the time of application submission.
Creditors’ dissatisfaction: Creditors protested that refund amounts were lower than expected and expressed disappointment at the difference in current market prices, believing that they had suffered additional losses.
FTX also plans to pay 18% (up to $230 million) of the $1.19 billion in funds confiscated by the government to preferred shareholders, a decision that also sparked dissatisfaction among creditors.
Creditors' demands and feelings
Creditor Sunil Kavuri publicly expressed his frustration with the current situation, highlighting the severe financial and emotional difficulties many debtors face following bankruptcy. He noted that many creditors have lost their life savings and are desperate to recover their lost assets.
Kavuri also mentioned that Sam Bankman-Fried, former CEO of FTX, allegedly violated the exchange’s terms of service and used customer funds to repay debts and acquire Robinhood shares. On September 6, 2024, FTX’s bankruptcy administrator reached an agreement with Emergent Technologies, a company co-founded by SBF, to use $600 million in Robinhood shares as collateral to compensate creditors.
Objections and legal challenges to restructuring plans
FTX's restructuring plan faces challenges from multiple aspects. Last August, U.S. trustee Andrew Vara objected to FTX's restructuring plan, arguing that the plan gave too much legal protection to the bankruptcy estate administrator and that there were unusual circumstances compared to other similar bankruptcy proceedings. In addition, the U.S. Securities and Exchange Commission (SEC) also expressed concerns about the plan, especially if the method of repaying creditors involves the use of stablecoins, the SEC may object to the plan.
Future Outlook and Hearing Arrangements
The next court hearing to confirm the reorganization plan is scheduled for Oct. 7. If the plan is approved, creditors with claims of less than $50,000 could start receiving payments by the end of 2024, while creditors with higher claims might have to wait until the first or second quarter of 2025 to receive distributions.
Lessons and future directions of the crypto market
The FTX bankruptcy case is not only a heavy blow to its investors, but also a profound lesson for the entire cryptocurrency market. As the legal process progresses, how to protect the rights of creditors has become a common concern in the industry and beyond. In this context, investors need to be more cautious when participating in the crypto market and remain highly vigilant about the flow of funds to avoid repeating the same mistakes.
In future developments, we must examine the regulatory mechanisms of the crypto market and how to enhance legal protection for investors. Follow us for more in-depth analysis of market dynamics and investment risks!
