Collapsed cryptocurrency exchange FTX enters a new phase as customers will receive nearly $16 billion after a two-year unraveling process. The court has approved a repayment plan for former clients.
A Long Road to Recovery
FTX collapsed in November 2022 amid a liquidity crisis, leaving over a million customers without access to their digital assets. Former CEO Sam Bankman-Fried, charged with fraud and sentenced to 25 years in prison, left behind a financial maze for bankruptcy experts to navigate. Initially, prospects for creditors were bleak, with cryptocurrency prices plummeting, leading to expectations that customers would recover only a fraction of their assets. However, a surge in cryptocurrency prices and diligent asset recovery efforts have dramatically changed the narrative.
$16 Billion in Customer Repayments
As of June 2024, FTX advisors have secured $12.6 billion in assets, potentially rising to $16.5 billion once all remaining assets are liquidated. This remarkable recovery was driven by strategic deals with creditors and a booming crypto market. For example, Bitcoin has nearly quadrupled in value since FTX's collapse, significantly aiding customer repayments. Despite the successes, the repayment plan has sparked controversy: customers will receive their cash rather than cryptocurrency, frustrating those who hoped for appreciation in the value of their digital assets. Furthermore, FTX's utility token, FTT, will hold no value for customers.
A Slice for Shareholders?
In an unusual development, FTX's preferred shareholders could also benefit, which is rare in Chapter 11 cases. This could be possible due to $1 billion in assets seized by federal prosecutors, including $626 million from the sale of Robinhood Inc. stock. However, if no agreement with the Justice Department is reached, shareholders may receive nothing.
While the court has approved the repayment plan, the process isn't over. FTX must establish a trust to oversee the distribution and appoint a firm to manage the payout process. FTX's collapse underscored the risks of cryptocurrency investments, but this recovery effort provides hope for those who lost funds.