FTX Real Estate will distribute billions of dollars, but price impact will be smaller than some investors … [+]
As the FTX saga and long shadow continue to dominate the cryptocurrency discussion, the recent news that the long-awaited bankruptcy distribution has been approved has understandably become a headline-generating event. Nearly two years after the exchange implosion, one year since Samuel Bankman Fried's criminal indictment and conviction, and the release of $14 billion to $16 billion from his bankruptcy estate, market analysts are The stock price target has been revised upward. With reports that 98% of FTX creditors will receive approximately 119% of their allowed bankruptcy claims, there is understandable optimism about what these distributions will mean for the broader crypto market. Masu.
One important note to note up front is that these distributions, including the widely reported 119% of claims number, are based on claims filed in November 2022. It means that there is. Since the bankruptcy, Bitcoin has gained about 260%, matching the broader range. -Broader increases in asset prices during the same period. In other words, investors whose holdings/deposits on FTX were denominated in Bitcoin or other crypto assets missed out on the recent bull market and made profits that they would have made had the exchange not collapsed due to criminal activity. This means that only a portion of the amount can be recovered. Bankman Fried.
This and two other reasons are why these distributions won't cause a spike in prices as some market observers are predicting.
Distribution occurs over time
The bankruptcy estate acknowledged the fact that the deadline previously set during the bankruptcy proceedings had passed, and the expected date (set by the court) for the implementation of the plan is October 31st. Once the effective date arrives, the debtor (FTX) has 60 days to make distributions to a class of creditors known as the convenience class. For this distribution, the class includes individual customer claims of less than $50,000. The total amount to be distributed to this class is approximately $1.2 billion, but the payment schedule has not yet been determined following the determination of the effective date. While $1.2 billion may seem like a large number to individual investors, this total is relatively small compared to the daily trading volume of Bitcoin and other crypto assets.
Large creditors, also known as the rights class, are likely to start receiving dividends in early 2025. These creditors hold approximately $9 billion in claims and will receive initial payments and interest payments on the unpaid portion of their claims when due. Claims will be paid in full. Additionally, payments will be distributed from the $12.7 billion settlement between FTX Real Estate and the CFTC. Overall, FTX Real Estate estimates recovery rates for this creditor class to be between 129% and 143%.
In other words, even if there are billions of dollars in debt and slated to be distributed to FTX creditors, 1) investors (retail) who are most likely to reallocate to crypto in the first place will have a relatively small amount; 2) larger investors will only begin to receive it. Incremental distribution at some point in 2025.
Large creditors may not circulate in virtual currency
While the distribution timeline is worth monitoring, market analysts and policy experts may be more interested in the possibility of these funds being reallocated to the crypto sector in terms of price impact. . Based on Fortune's March report, these projections may be too optimistic. A closer look at the report reveals that the largest individual holders of FTX bonds are hedge funds Attestor, Beaupost, and Farallon, with total holdings of about $1.3 billion. Additionally, approximately 50% of the total claims (totaling $6 billion to $7 billion) are related to distressed asset companies.
Because of this concentration, the likelihood that these redistributions will be introduced into cryptoassets immediately or at all is lower than would otherwise be expected. The reasons for this are: 1) the asset manager may have reached a desired level of exposure to cryptocurrencies; 2) limited partner agreements may make reallocation of cryptocurrencies difficult; 3) Rising prices have made redeployment at current prices less attractive. A risk and return perspective.
Simply put, billions in redistributed proceeds from FTX real estate will go to asset management firms specializing in distressed assets, rather than to dedicated crypto funds or investors, and these funds will , with limited ability and interest in actively redistributing these distributions into crypto assets.
While FTX will likely continue to dominate the crypto-related conversation for years to come, the recent announcement that billions of dollars will be redistributed to creditors has caused some investors in the crypto market to It may not bring in the high prices you expect.
