FTX Debtors recently filed an amended Chapter 11 reorganization plan, posing a considerable risk of significant financial losses for the creditors of the now-defunct cryptocurrency exchange. This plan, which proposes valuing the creditors’ claims based on crypto prices from November 11, 2022, the day FTX filed for bankruptcy, fails to consider the subsequent surge in cryptocurrency prices. As a result, creditors are expected to face substantial losses compared to the current market value of their assets.
In the days leading up to FTX’s collapse, the cryptocurrency market experienced a downward spiral, triggered by the exchange’s bankruptcy filing. The ensuing bear market extended well into 2023, adversely affecting the value of major cryptocurrencies. Therefore, on November 11, 2022, the same date as the bankruptcy petition, cryptocurrency prices were significantly lower compared to their current levels.
To comprehend the extent of the impending losses, let’s examine the price of Bitcoin (BTC) as an example. According to CryptoSlate data, on November 11, 2022, the price of Bitcoin stood just above $17,500. However, over the past year, Bitcoin’s value has more than doubled, currently resting at $41,649.57 at the time of writing. Consequently, FTX creditors will potentially incur a loss exceeding $24,000 per Bitcoin.
Similarly, the price of Ethereum (ETH) has also seen substantial growth, climbing from approximately $1,284 on November 11 to $2,214 at the time of writing. This signifies a loss of nearly $1,000 per ETH for the exchange’s creditors.
Sunil Kavuri, an FTX creditor, drew attention to the new reorganization plan’s disregard of FTX’s Terms of Service, which explicitly indicate that digital assets belong to users and not FTX Trading. This omission appears to be contradictory to the guiding principles of the exchange and raises concerns about potential inequitable treatment of creditors.
Before the reorganization plan is finalized, certain classes of creditors will be permitted to vote on its acceptance. This voting process aims to gauge the creditors’ preferences and ensure their interests are taken into account during the restructuring process.
The amended Chapter 11 reorganization plan presented by FTX Debtors poses a significant risk of substantial losses for the creditors of the defunct cryptocurrency exchange. By valuing the creditors’ claims based on November 11, 2022, crypto prices, the plan fails to recognize the subsequent surge in cryptocurrency values. As a result, many creditors will face considerable financial setbacks, particularly with regard to Bitcoin and Ethereum. It remains to be seen how the voting process will unfold, and whether FTX will be able to address the concerns raised by its own Terms of Service.
Leave a Reply