The Pulse: FTX’s Path to Recovery Could Reflect Recent Market Trends; Ethereum Faces Canary Disappearance
With the rise in cryptocurrency prices, the bankruptcy proceedings of FTX have come under increased scrutiny.
The main issue at stake is whether customers should be compensated with the cryptocurrency holdings they had on the platform or the equivalent value in dollars.
Despite the surge in cryptocurrency values, with Bitcoin hitting new peaks, Ethereum approaching previous highs, and Solana making significant gains, FTX’s legal team has predominantly favored compensating claims in dollars.
This has led customers to question why they shouldn’t receive their payouts in cryptocurrency instead.
Paying creditors in cryptocurrency isn’t unprecedented. The Mt. Gox case, although prolonged over a decade, plans to reimburse creditors in both Bitcoin and cash.
Similarly, BlockFi has already started compensating its creditors in cryptocurrency, with Celsius planning to do the same.
Despite FTX’s argument of possessing limited quantities of certain cryptocurrencies, it holds substantial amounts of others, which could influence the total compensation claims significantly.
For example, Bitcoin holders could see their claim’s dollar value rise significantly, which means they might recover a larger portion of their investment, though not the full increased value, benefiting other claimants like shareholders and government agencies instead.
Several creditors are advocating for compensation in the original cryptocurrency form. Legal firms representing creditors in class action lawsuits against FTX’s bankruptcy team have contested the valuation of claims based on the exchange’s insolvency.
Notably, FTX creditor advocate Sunil Kavuri, leading a committee with claims over $680 million, supports this view.
Recent developments suggest a potential shift in the proceedings, with a proposal that prioritizes customer claims over governmental ones and introduces the possibility of additional compensation reflecting the increased value of their cryptocurrency holdings since FTX’s bankruptcy.
This new proposal hints at a surplus potentially exceeding $4.5 billion over dollarized claims, at current market values.
This surplus, which could have been distributed if payments were made in cryptocurrency, might now benefit shareholders and other entities.
However, any remaining funds after settling all claims might still be returned to customers.
The possibility of a substantial surplus and the completion of creditor repayments have contributed to the decision against relaunching the exchange, despite the availability of interested buyers.
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