FTX Decides to Dump ALL assets on the Open Market: Caution Ahead

On Inleo we have closely been following the FTX situation as liquidators were attempting to reboot the Centralised Exchanges (CEX) however, they were in two minds of the option with the consideration of also liquidating all assets to repay investors.

The caution of their decision was the fact that FTX is the largest holder of Solana with the danger being should the liquidators decide to offload their assets this could potentially cause a massive decline to the valuation of Solana. Not to mention a large number of other assets and it could further potentially cause another market devaluation bringing down the entire crypto currency sector for a second time after their initial turbulence.

Unfortunately liquidators have made a decision and one we might not like, FTX, the crypto currency exchange founded by Sam Bankman-Fried has abandoned its plans for a reboot and has instead decided to liquidate all assets to repay investors.

The decision comes after months of negotiations with potential bidders and investors, highlighting the challenges and risks associated with the troubled exchange. This decision now once again puts significant risk and sell pressure on the entire crypto community and it might even set 2024 back quite a bit while the exchange dumps it’s holdings onto the open market. Let’s delve deeper into the situation.

FTX's Failed Reboot and Legal Woes

FTX attorney Andy Dietderich revealed in a recent bankruptcy court hearing in Delaware that the exchange's efforts to restart its operations were futile. The failure to attract sufficient capital from investors has caused a deeper issue and highlighted that FTX was never built on a solid foundation. Dietderich asserted that Sam Bankman-Fried, the founder of FTX never established the necessary technology or administration to run the exchange as a viable business.

Furthermore, Bankman-Fried has been convicted on fraud charges related to his operation of FTX, facing potential decades in prison. The allegations include siphoning "stolen funds" to enrich himself, covering high-risk investments and indulging in extravagant spending unrelated to FTX operations. The collapse of FTX in November 2022 was attributed to a liquidity crisis caused by the lending of customer funds to Alameda Research FTX's sister hedge fund without informing the customers.

In the wake of these setbacks, FTX has shifted its focus to liquidating its assets to repay customers whose crypto currency deposits were locked when the company filed for bankruptcy. The exchange claims to have recovered over USD 7 billion in assets for repayment and has reached agreements with government regulators to prioritise customer repayments before addressing approximately USD 9 billion in claims.

However, the repayment strategy has faced criticism from customers who argue that using November 2022 crypto currency prices for calculations is unfair. The crypto currency market has experienced significant fluctuations since then, with the price of bitcoin rising from USD 16,872 to USD 43,300. This has led to concerns that customers might be shortchanged in the repayment process.

Legal Battles and Objections

FTX's legal team has assured the court that customers and unsecured creditors with legitimate claims will eventually be paid in full. However, the process involves restructuring advisers assessing claims to separate legitimate from illegitimate ones. While the company initially proposed reimbursing customers in USD based on the values at the time of the bankruptcy filing, objections from former customers led to a reconsideration.

Judge John Dorsey emphasized that bankruptcy law dictates values should be based on the date of bankruptcy, even though crypto currency prices have surged since then. FTX's Chapter 11 bankruptcy plan does not include any expectations of recoveries from restarting the exchange, as no investor is willing to commit the necessary capital and there is no buyer for the exchange as a going concern.

A Warning for Market Instability

The recent decision to liquidate all of FTX assets serves as a caution for the crypto currency market, FTX seems to have been built on shaky foundations and operated by individuals facing legal troubles. This new development puts us all at risk of another Crypto collapse as the former exchange moves to dump assets on the open market.

The abandonment of reboot plans and the decision to liquidate assets shows the challenges of rebuilding trust and financial stability in the aftermath of such failures. As investors navigate the volatile crypto currency landscape, FTX's demise serves as a stark warning emphasizing the need for due diligence and caution to avoid potential market instability.

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