By Jack
On September 13, in a significant development, the bankrupt cryptocurrency exchange, FTX, received approval from a U.S. court to proceed with the liquidation of its cryptocurrency assets. This decision was made with the intention of enabling the company to repay its customers in U.S. dollars and mitigate the risks associated with the volatile cryptocurrency markets.
U.S. Bankruptcy Judge John Dorsey gave the green light to FTX’s proposal during a court hearing held in Wilmington, Delaware. This approval allows FTX to sell cryptocurrency assets worth up to $100 million each week. Additionally, it permits the exchange to engage in hedging and staking agreements aimed at reducing the impact of price volatility while earning passive income from mainstream cryptocurrencies such as Bitcoin and Ethereum.
Notably, FTX’s request had garnered support from the official committee responsible for representing its customers in the bankruptcy proceedings, as well as from an ad hoc committee representing non-U.S. customers with deposits on FTX.com’s international platform.
During the hearing, concerns were raised by two FTX customers who worried that the sale of FTX’s holdings could lead to a significant drop in cryptocurrency prices. They also questioned whether FTX actually possessed all the cryptocurrencies it claimed to hold in its accounts.
In response, FTX stated in court documents that it was acutely aware of the potential market impact of its liquidation efforts. To manage this risk, the company had enlisted the services of U.S.-based crypto firm Galaxy as an investment advisor. This move was intended to mitigate the risk of “information leakage” that could lead to short-selling activities and sudden price declines in the cryptocurrency market. Nevertheless, retaining its current cryptocurrency portfolio also posed risks, as it could potentially lock FTX into holding assets whose values were decreasing.
Judge Dorsey granted FTX the flexibility to increase its liquidation rate to as much as $200 million per week if both creditors’ committees reached a consensus on this matter.
FTX disclosed in a court filing on the preceding Monday that it held cryptocurrency assets amounting to $3.4 billion. This included $1.16 billion in Solana, $560 million in Bitcoin, and $192 million in Ethereum.
The backdrop to FTX’s bankruptcy filing dates back to November 2022 when allegations surfaced that the exchange had misappropriated and lost billions of dollars’ worth of its customers’ cryptocurrency deposits. Since then, FTX has managed to recover over $7 billion in assets to repay its customers and has pursued legal actions against FTX insiders and other defendants who had received funds from the exchange before it declared bankruptcy.
Founder Sam Bankman-Fried has pleaded not guilty to charges of defrauding FTX customers by using their funds to support his own high-risk investments, while some former FTX executives have pleaded guilty to criminal charges.
