FTX clients seek larger payouts as crypto prices jump

abdelaziz Fathi

Several clients of the now-defunct cryptocurrency exchange FTX are disputing the method the company plans to use for valuing their deposits in the ongoing bankruptcy proceedings.

FTX founder and former CEO Sam Bankman-Fried

These clients have appealed to a U.S. bankruptcy judge, arguing against FTX’s plan to base cryptocurrency values on prices from 2022, a move they claim prevents them from benefiting from the recent surge in crypto prices.

The dispute centers around a motion filed by FTX’s debtors, stating that if the court finds crypto deposits are not property of the estate, these assets must be returned “in kind” to customers. The value of the cryptocurrencies has appreciated by over $5 billion since FTX filed for bankruptcy.

FTX’s bankruptcy plan involves reimbursing customers in U.S. dollars based on the crypto prices at the time of its bankruptcy filing in November 2022. Customers argue that this method undervalues their assets due to the recent market recovery.

The Official Committee of Unsecured Creditors believes that a collective estimation of claim values is the most efficient and expeditious way to reconcile claims and proceed with the Chapter 11 confirmation. However, FTX creditor activist Sunil Kavuri, through his lawyers Moskowitz and Boies, raised objections to this approach, advocating for customers to receive “at least the value of crypto back,” given unresolved property rights.

Before the Thursday deadline, FTX customers globally submitted numerous letters to the U.S. bankruptcy court, challenging FTX’s valuation method. The court is expected to review FTX’s list of cryptocurrency prices in a hearing on January 25 in Wilmington, Delaware. Critics of the proposal argue it is unfair to holders of volatile assets like Bitcoin, Ether, and Solana, whose values have risen significantly since FTX’s bankruptcy. They also oppose FTX’s decision to value its equity shares and token, FTT, at $0, which would erase over $700 million in FTT and FTX equity held by customers.

In its defense, FTX stated that using bankruptcy petition-date prices is the only practical method for kicking off customer repayments. The exchange cited precedents where courts allowed other bankrupt crypto firms like Celsius Network, BlockFi, and Voyager Digital to use petition-date prices for assessing customer claims.

The debate follows the court’s earlier authorization for FTX to liquidate nearly $3.4 billion in cryptocurrency assets. To mitigate potential adverse impacts on the market, the court directed that these assets be sold in tranches, with each batch not exceeding $50 million to $100 million in value.

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