Empire Newsletter: FTX’s bankruptcy isn’t the success you think it is

FTX creditors missed a bigger payout

Read any mainstream media article about FTX and you’ll see headlines like: 

• New York Times: “FTX Customers Poised to Recover All Funds Lost in Collapse”
• WSJ: “Crypto Exchange FTX Is the Rare Financial Blowup That Will Repay Victims in Full”
• Bloomberg: “FTX Plans to Repay Customers in Full”

The narrative being pushed is that the bankruptcy proceedings have been a huge success. 

But if you dig a little deeper, the reality is more complex.

FTX creditors will receive more than 100% of their claims. However, in real terms, they will get back only a fraction of the original crypto value. 

When FTX went under, most of their assets were tied up in crypto. Because of US bankruptcy laws, John J. Ray and law firm Sullivan & Cromwell fixed the value of these assets in dollars based on their price on the day of the bankruptcy filing date — Nov. 11, 2022. 

Since then, nearly all crypto assets have risen in value. Bitcoin has quadrupled and Solana, one of the primary assets held by FTX, has risen ten-fold. 

If FTX and their legal teams had held these assets instead of liquidating them, the value of those holdings could have increased significantly. This means that the customers could have seen their investments multiply several times over.

Let’s say you had 1 BTC and 100 SOL on FTX. At the time of the bankruptcy, these were worth roughly $16,000 for 1 BTC and $14 for 1 SOL. The bankruptcy process would result in you receiving $16,000 for the BTC and $1,400 for the SOL. 

But if the company had held the assets, you would now have $70,000 for the BTC and $18,000 for the SOL. 

That’s a difference of $88,000 vs. $17,400. 

Naturally, creditors are pissed. 

But Sullivan & Cromwell, which has already made some $180 million from the bankruptcy, is smart — they’ve pursued a tactful PR strategy to get ahead of the negative creditor narrative.

The goal: convince the mainstream media that paying customers back at 118% represents a success.

And as you can see in the articles above, this strategy is working.

— Jason Yanowitz

Data Center

• After a healthy rally, the Ethereum Foundation again boasts the largest treasury (not counting self-issued tokens), now with more than $1.1 billion ETH.
• Runes and Ordinal volumes are yet to bounce back, with BTC transfers making up more than 80% of all transactions over the past two weeks.
• BSC has fallen out of the top-three for weekly DEX volumes, eclipsed by Arbitrum with almost $6 billion.

— David Canellis

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