FTX users can get 40% back on their deposits, only if…

  • FTX users can get half of their deposit back
  • They will need to be patient because the bankruptcy process can take a long time to complete

Sam Bankman-Fried (SBF) officially filed for Chapter 11 bankruptcy of FTX, FTX US and Alameda Research on Friday, November 11, 2022. According to reports, FTX’s creditors may reach 1 million. Adding an FTX user, or about a million users to the total, raises doubts about whether everyone can be covered and compensated.

According to Messari, FTX users can recover quickly 40-50% of their deposits if they are sorted first. Using FTX’s preliminary balance sheet published by the Financial Times, Messari indicated that FTX customer deposits total $8.4 billion.

Compared to the $4 billion in realizable FTX assets, the sales of these assets, which include stablecoins and bitcoin holdings, can help customers recover about 50% of their deposits.

Source: Messari

The above analysis by Messari makes three assumptions to reach his conclusion. Presumably, some FTX-related assets, such as Serum (SRM) and FTT, will be zero. It also assumes that FTX users (“customers”) will be paid first and that the initial balance sheet used is error-free.

The initial assumption that FTT and SRM would be zero is reasonable, given current research and development. While we can’t confirm the integrity of the initial balance sheet, it is certain that FTX users will not be paid first.

Bankruptcy proceedings can complicate things for FTX users

Every cash-strapped company can choose the type of bankruptcy procedure that best suits its needs. FTX elected to take Chapter 11.

The procedure chosen gives secured creditors a high priority. In second place are the unsecured creditors, that is, individuals or companies that lend money without having a guarantee of their credit. Finally, the shareholders can receive their claims upon satisfaction of the first creditors.

These depend on the bankruptcy court and how it ranks each group. By comparison, Voyager account holders are classified as “Unsecured creditors in general. This means that it can only be submitted when the creditors with the highest priority have been sorted out.

Celsius and FTX users may fall into the same category during the Chapter 11 bankruptcy process. Therefore, FTX users are likely to be the last, if not the second, to be included in the claims process.

In addition, bankruptcy procedures take a long time to complete. For example, the bankruptcy proceedings of Mt. Gox, a former Bitcoin exchange based in Japan, started in 2014. It was in October 2022Eight years later, the court began pushing suits.

Additionally, users’ blocked assets are valued differently over time. Users can only get what they get when the day of reckoning comes. In short, the present value of realizable assets, which Messari’s analysis suggests can cover customer deposits, can either fall or rise over time.

The FTX bankruptcy filing gives creditors, investors, and users of the FTX platform an opportunity to recover their investments and crypto assets. But the process is not easy and may take longer.

If anything, the Voyager bankruptcy gave crypto investors an unforgettable Bankruptcy Code 101. In most cases, you’ll be on the very last end for compensation with no guarantees. This is why it’s important to remember that “it’s not your keys, it’s not your encryption”.

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