Photo by Bybit on Flickr/ CC BY 2.0
According to a Wednesday report by digital assets platform Matrixport, the market value of bankruptcy claims against crypto exchange FTX has more than tripled this year. This comes ahead of the founder and CEO Sam Bankman-Fried’s impending criminal trial set to begin next week.
The FTX bankruptcy has been a complex affair, racking up over $200 million in legal fees. But in the over-the-counter markets, where bankruptcy claims are traded, prospects for creditors have recently improved dramatically.
Once perceived as a high-risk asset, FTX claims are now being dubbed as the most sought-after tickets by investors focused on distressed assets.
#FTX bankruptcy claims soar as #MtGox\'s trustee extends the repayment deadline to October 2024, raising concerns that users might have to wait a decade to recover their investments, yet the potential for additional value from #Binance, an investment firm linked to a former… pic.twitter.com/JLCPiPnFq7
— Matrixport (@realMatrixport) September 26, 2023
FTX’s Bankruptcy: A Brief Recap
In late 2022, FTX filed for Chapter 11 bankruptcy, creating one of the most complicated bankruptcy cases in U.S. history. Data from Matrixport indicates that the expected payout for FTX creditors has risen to an average of 37 cents on the dollar, up from just over 10 cents at the beginning of the year.
John Ray III, a veteran Wall Street bankruptcy lawyer, has been steering FTX through the bankruptcy process. Under his leadership, FTX has managed to recover $7.3 billion of assets. These include $3.4 billion in crypto, $1.1 billion in cash, and $200 million worth of real estate in the Bahamas.
Another factor contributing to the optimism is FTX’s $500 million stake in AI startup Anthropic. The crypto exchange had acquired the stake using customer funds, making it a subject of creditor claims.
Amazon’s recent announcement of its intention to invest up to $4 billion in Anthropic could boost the value of these claims even higher.
The Prospect of FTX 2.0
A potential relaunch of the exchange, often referred to as FTX 2.0, could also play a pivotal role in the claims market. If the exchange manages to restart successfully, every creditor could become an equity owner, adding another layer of value to their claims.
10 months since #FTX Bankruptcy, claims are being bought at 30 to 40% – this is what many thought would be the outcome 7 years later!
Certain funds are getting very competitive in claim purchasing,
Unless under financial duress, would pay to hold your claim and vote FTX 2.0 pic.twitter.com/0u4t3NIVQa
— Sync23 (@Sync_Legend) September 23, 2023
The market for FTX claims has been so active that Thomas Braziel, co-founder and managing partner of distressed asset investment firm 507 Capital, stated that investors are “clambering over each other for claims.”
The guide price for these claims currently hovers between 35-40 cents on a dollar, according to Claims Market, operated by distressed asset investor Cherokee Acquisitions.
What’s Ahead for Creditors and Investors?
The increase in expected payouts for FTX creditors is a major turn of events. While this is promising news, it’s worth noting that several factors could still influence the final outcome.
These include ongoing legal proceedings and the potential for additional asset recoveries, such as a $2.1 billion claim against crypto exchange Binance and another $700 million claim from investment firm K5.
The court’s recent update about the $7.3 billion in recovered assets was a critical moment, leading to increased competition among claims buyers, according to Brian Ferrara, director of Cherokee Acquisition’s Claims Market.
Markus Thielen, Matrixport’s head of research and strategy, pointed out that the actual price of a claim might still vary based on several factors like jurisdiction and the size of the claim.
The FTX bankruptcy case has evolved into a paradoxical beacon of opportunity in the distressed assets market. What was once seen as a sinkhole of legal complexities and risks has become a hot commodity for a niche group of investors.
This shift doesn’t just reflect a change in the perception of FTX’s bankruptcy claims; it also shows the volatile nature of value in the industry. Traditional metrics of valuation can be upended overnight by new asset recoveries, strategic investments, or even the hint of a successful relaunch.