FTX forking over as much as $16 billion in cash payouts to creditors could drive crypto prices higher at year-end and help offset selling pressures caused by other bankruptcy cases.
That’s according to analysts at K33 Research, who suggest the FTX cash payouts might balance the risks associated with crypto repayments to Mt. Gox and Gemini creditors.
“FTX’s cash repayment may be viewed as a bullish overhang,” Anders Helseth and Vetle Lunde, head of research and senior analyst, respectively, at K33 Research, wrote in a report this week.
Lunde told DL News that many FTX creditors they have spoken with say they will buy back into crypto “far more aggressively” than K33′s original assumptions.
While Lunde did not offer any amounts, FTX creditors — K33 estimates about 50% — may help offset some of the selling pressure stemming from the sale of crypto reimbursements by Mt. Gox and Gemini.
“Many creditors hit by the FTX bankruptcy are crypto natives who sought FTX to trade crypto derivatives and leverage up exposure,” Lunde said.
Those investors are still very present in the market and are “eager to amass further exposure,” partly to recover losses stemming from FTX’s collapse, Lunde added.
While some FTX creditors are likely to avoid crypto permanently, crypto natives and funds regularly trading crypto will likely prefer crypto exposure to holding cash or traditional equity investments, Lunde said.
All this reflects some of the recent complications of the FTX saga, which saw the exchange collapse in 2022.
Its founder, Sam Bankman-Fried, was found guilty on seven charges of fraud and conspiracy in 2023 and recently was sentenced to 25 years in prison.
Crypto repayments
So why would repayments in crypto have an adverse effect?
On the face of it, creditors being reimbursed $9.2 billion in crypto from the 2014 Mt. Gox collapse seems like a positive development.
Similarly, creditors are waiting to be made whole after the collapse of crypto lender Genesis saw $1.8 billion of crypto in Gemini’s Earn programme disappear.
Still, the fear is that creditors would immediately sell off the crypto assets, creating more supply and diminishing prices.
Helseth and Lunde suggest that FTX creditors being paid in cash would offset some of the market pressure because they will have the liquidity they need.
Timing is everything
The timing of the repayments could also help offset some of the risks, the researchers wrote.
Gemini’s repayments are scheduled for early June, while Mt. Gox’s repayments have an October deadline.
FTX, meanwhile, plans to pay creditors shortly after its reorganisation plan gains court approval, potentially by late in the fourth quarter.
Lunde said: “The market will have to withstand potential liquidity effects from selling pressure from the Mt. Gox estate well before FTX creditors can redeploy cash capital to the market.”
Crypto market movers
Bitcoin rose by 0.1% in the past 24 hours and is trading at $66,261.
Ethereum rose 1.1% to $3,029.
What we’re reading
Canadian ‘Crypto King’ arrested on fraud allegations amid missing $30m — DL News
Binance Develops Algorithm to Combat Address Poisoning Scams — Milk Road
Senate votes to scrap SEC’s controversial crypto custody policy. Here’s why everyone hates SAB 121 — DL News
Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.