FTX, once a cryptocurrency powerhouse, now grapples with daily losses of over one million dollars due to mounting charges. This financial debacle has severe implications for the creditors left to foot the bill, raising pertinent questions about compensation formats.
The proposed Chapter 11 restructuring plan, unveiled on December 16, suggests valuing creditors’ claims based on market prices from November 11, 2022. This comes amid creditor complaints over unrealized profits amid Bitcoins surge as the market’s subsequent nosedive and the discrepancy in valuation could leave creditors facing substantial losses.
The cryptocurrency market’s collapse, exacerbated by FTX’s bankruptcy filing, saw values plummet. The proposed valuation date may lead to significant losses for creditors. For instance, Bitcoin, valued at $17,500 on November 11, 2022, has quadrupled since, potentially translating to an approximate $24,000 loss per Bitcoin for creditors.
FTX’s Exorbitant Legal Expenses
Amidst the financial chaos, FTX has incurred staggering legal and consulting fees, reaching $350 million. Alvarez and Marshall topped the billing charts, while Sullivan & Cromwell and AlixPartners featured prominently. The exorbitant hourly rates and extensive expenses underscore the complexity of FTX’s bankruptcy proceedings.
FTX creditors express discontent, claiming the restructuring plan overlooks the platform’s Terms of Service, asserting that digital assets belong to users. Creditor Sunil Kavuri points to discrepancies, highlighting potential legal challenges ahead.
FTX Debtors have filed the reorg. Plan
Most importantly they have ignored FTX TOS that states Digital Assets are the property of Users and not FTX Trading
The plan says that Digital Assets are valued at Petition Date conversion rates (prices) pic.twitter.com/WTj07nlOP5
— Sunil (FTX Creditor Champion) (@sunil_trades) December 16, 2023
While FTX faces financial turmoil, Galaxy Digital, led by billionaire Mike Novogratz, experiences a surge in assets under management (AUM). Galaxy’s role in selling FTX’s assets contributes to this growth, marking a financial turnaround for the crypto financial services group.
Galaxy Digital eyes additional asset sales from bankrupt digital asset companies after successfully handling FTX’s assets. The company’s interest extends to acquiring assets from other bankrupt firms, including FTX’s diverse venture capital portfolio.
Galaxy Digital Persuing FTX Assets
Galaxy Digital aims to acquire struggling digital asset firms following substantial asset growth attributed to the sale of FTX’s assets. The Financial Times reported that Galaxy Digital’s assets surged from $1.7 billion to over $5 billion within a year, quadrupling its controlled assets. This growth was propelled by the firm’s role in selling, hedging, and staking FTX’s Bitcoin, Ether, and Grayscale shares to repay creditors.
Galaxy Digital adhered to court-mandated limits to avoid market disruption while gradually selling FTX’s tokens on the open market. Galaxy Global’s Head of Asset Management, Steve Kurz, expressed interest in acquiring assets from bankrupt companies, viewing it as a success. Kurz highlighted FTX’s venture capital holdings, including companies like Anthropic, as potential targets, leveraging Galaxy’s crypto venture capital subsidiary’s extensive knowledge.
According to Andrew Bond, a senior research analyst at Rosenblatt Securities, the FTX agreement marked a significant milestone for Galaxy Digital, creating opportunities for advantageous bankruptcy mandates. However, the approval of such agreements in FTX’s bankruptcy court remains uncertain.
Galaxy Digital has also focused on expanding its presence in the exchange-traded fund (ETF) market, collaborating with Invesco and CBOE Global Markets to compete for a Bitcoin ETF. Steve Kurz anticipates the realization of a spot Bitcoin ETF in 2023, driven by positive discussions with the SEC, rising Bitcoin values, and support from major institutions like BlackRock. As part of its cryptocurrency company’s expansion, Galaxy Digital plans to shift its stock listing from Toronto to the Nasdaq, as reported by FT.
The ripples of FTX’s downfall continue to affect the broader cryptocurrency market, triggering regulatory scrutiny and price fluctuations. The company’s actions, from liquidating assets to proposing restructuring plans, shape the evolving narrative of cryptocurrency exchanges and their governance.
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