Cryptocurrency markets could see a massive infusion of capital in the coming months as FTX creditors are set to receive more than $12 billion in compensation. The influx of funds expected from a court-approved repayment plan raises the question of whether the massive amount of money can revive the currently depressed market.
FTX creditor payment could spark crypto market recovery
In June, the bankrupt exchange reported that it had $12.6 billion to return to customers, a figure it expected to rise to $16.5 billion as more assets were liquidated. The initial distribution totals about $1.1 billion, a relatively small amount, but is expected to provide a much-needed boost to the cryptocurrency market, especially Bitcoin.
As this process progresses, FTX creditors will benefit from this payment plan. Alex Thorn, head of research at Galaxy Digital Holdings, pointed out that these payments may drive liquidity back into the market. This will serve as a catalyst for the price movements of major cryptocurrencies.
Recently, Judge John Dorsey formally approved the bankruptcy plan and set a clear repayment schedule. Under the approved plan, initial distributions to FTX creditors will begin in December for smaller claims, and larger claims will begin in the first half of next year.
This structured payment plan ensures that FTX creditors will receive their funds gradually, and the entire process may take up to three years to resolve all claims. The controlled release of funds is seen as a strategic move to prevent sudden fluctuations while also limiting potential direct market impact.
Impact on cryptocurrency volatility and market dynamics
The cryptocurrency market has been dormant, with an index of the top 100 tokens showing a 3% decline for the month. October is typically a strong period for digital assets, but this year it did not spark the expected rally. In contrast, the market experienced a massive sell-off in cryptocurrencies during the first week of the expected Uptober rally.
However, the upcoming payments to FTX creditors could change that narrative by reintroducing liquidity to the market. Benjamin Celermajer, co-chief investment officer at Magnet Capital, commented,
“We may well see some of this capital flow back into crypto, providing a potential price catalyst in an illiquid market.”
Additionally, research firm K33 estimated “potential demand from FTX reallocators” at around $2.4 billion. However, they also warned that since the payments were made in batches, the impact on the cryptocurrency market could be muted and spread into next year.
While the immediate changes may not be drastic, the gradual infusion of funds may help stabilize and boost market valuations in the coming months.
