A hard place to close! An article on the FTX hard-to-sell mystery
The recent crypto asset sale of FTX is one of the hottest topics in the crypto community. The walled-off SBF and the once third-ranked crypto asset exchange have become the talk of the town for everyone’s amusement.
Many readers of the intricate process may be difficult to understand, then this article will provide you with a detailed compendium of the development of this event, and hope that you judge the project, the market and the market, some inspiration.
I. Using chronological order, sort out the events of FTX’s asset sale
On August 24, the defunct FTX hopes to begin selling off more than $3 billion in crypto asset positions and has hired Galaxy Asset Management as an advisor to help.
FTX seeks to return funds to its creditors in fiat currency rather than BTC or ETH, believing that prudent trading can avoid as much damage to its crypto assets as possible. FTX is concerned that selling all of its positions at once could cause the price to plummet, and is currently seeking advice from market experts to avoid this, such as weekly selling limits. Additionally, FTX hopes that the interest on its cryptocurrency reserves will increase the inventory it can distribute to customers still waiting for refunds. The company, which is currently managed by restructuring expert John J. Ray III, is concerned that a one-time sale could cause prices to plummet, benefiting short sellers and other market participants.
On September 10, FTX filed a motion in August for a plan to sell, pledge and hedge over $3 billion in crypto asset positions. A hearing on FTX’s proposed plan motion is scheduled for September 13th. In court documents filed on Sept. 7, The U.S. Trustee (The U.S. Trustee) objected to FTX’s proposed plan.
Subsequently, various rumors and rumblings of FTX selling its crypto assets began to appear in the market, and the crypto market declined during the evening of September 11.On the same day, September 10, crypto analyst The DeFi Investor posted on the X platform that the market may face significant selling pressure next week, and that FTX’s proposed plan is likely to be approved at a hearing on September 13.The DeFi Investor also said that the crypto analyst’s plan is likely to be approved at the hearing. As of April, the FTX exchange held $3.4 billion worth of cryptocurrencies. Under the proposed plan, FTX would sell up to $200 million worth of cryptocurrencies per week.
On September 12, crypto services provider Matrixport noted that alternative cryptocurrencies could take a hit as FTX seeks to sell its $3.4 billion in digital assets. A hearing on FTX’s proposed plan motion is scheduled for September 13, with a ruling
On September 12, the FTX 2.0 Coalition, a coalition of FTX users, posted on Platform X that the FTX 2.0 Stalking Horse Bid will be announced on October 16th.The bidding deadline for FTX 2.0 is September 24th. A False Horse Bid is an action in which a buyer selected by a Chapter 11 filing company makes an initial public bid to acquire the business. a call for proposals will be made in the first or second quarter of 2024, with confirmation of its target plan in the second quarter of 2024. Since May 2023, the FTX has contacted at least more than 75 bidders to evaluate the possibility of restarting the exchange. The process is designed to consider different potential structures, including acquisitions, mergers, recapitalizations or other transactions, to relaunch the FTX.com or FTX US exchanges. The False Horse Bid is being used as a starting bid or the lowest acceptable offer to the seller, and other potential acquirers will have to bid higher if they wish to be successful.
In summary, we can see that after the news of FTX’s desire to sell $3.4 billion in crypto assets, all kinds of rumors related to it appeared in the market, and people associated the crypto market drop on September 11 with the FTX asset sale event, causing the market sentiment to go into a panic.
And in fact, FTX’s sale of its crypto assets will need to go through a court hearing on September 13th, and it can’t sell its crypto assets without the court’s approval, and even if it does, it will need to act less quickly, taking into account numerous issues such as process handling time and market liquidity.
Next, let’s take a look at the current reality of FTX.
II. FTX’s assets and liabilities at a glance: A piece of cake
On Sept. 11, a 42-page court document shed light on FTX’s assets and liabilities, as combed through the chart below:
The details are as follows -
1. Non-customer claims situations:
FTX’s non-customer claims totaled $65 billion. Of these, the IRS had the highest claim amount at $43.5 billion, or nearly 67% of the total. In addition, FTX’s Bahamian subsidiary, FTX Digital Markets (FDM), had claims amounting to $9.2 billion, but this portion was found to be invalid and redundant. Other major claimants included Genesis ($4.1 billion) and Celsius ($2 billion).
2. Status of customer claims:
Through August 24, 2023, FTX has received approximately 36,075 customer claims totaling $16 billion. It is important to note that FTX customers have until September 29, 2023 to submit proof of claim if they dispute a scheduled claim.
3. FTX’s legacy assets:
FTX currently has approximately $7 billion in legacy assets, including:
The $800 million in assets seized by the U.S. Attorney’s Office for the Southern District of New York.
3.4 billion in Class A crypto assets secured and managed by the Debtors, this includes $1.162 billion in SOL, $560 million in BTC, $192 million in ETH, and more.
1.5 billion in cash assets identified, secured and managed by the debtor.
FTX also holds more than 1,300 Class B assets totaling approximately $506 million, including $362 million in SRM, $309 million in MAPS, and $164 million in OXY.
4. Investment in FTX:
By the date of the bankruptcy filing, FTX had made 438 investments totaling approximately $4.5 billion. These investments included cash, cryptocurrencies, and other transferable assets. Of these investments, FTX’s Portfolio has the highest percentage of equity investments, amounting to 73% of the remaining funded venture portfolio, with an average investment size of $14 million. In addition, FTX owns 38 properties in the Bahamas, which have a combined value of between $185 million and $214 million.
III, the dilemma of the FTX sale is difficult to understand
When it comes down to it, here are 4 reasons why FTX is so hard to sell successfully:
1. Multiple court applications rejected
FTX, the one-time cryptocurrency exchange giant, had its token sale case filed on September 13th for trial in Delaware’s bankruptcy court. This date is significant for FTX as it could determine the future fate of FTX.
First, it is important to understand that FTX’s history in the courts has not been a smooth one. Previously, multiple court proposals submitted by FTX and its founder, SBF, have been rejected.
For example, in June, Lewis Kaplan, a federal judge in the Southern District of New York, asked the defense team of FTX’s founders several questions about the dismissal of bank fraud, wire fraud, and campaign finance charges during a hearing. He expressed skepticism about the defense’s efforts to dismiss the bank and wire fraud charges. To add insult to injury, the judge also denied several procedurally related motions filed by the defense, which included a request for the U.S. Department of Justice to review FTX documents and materials.
2. Even if the claims are paid, the process is particularly complicated:
Even if the outcome of the September 13th trial is favorable to FTX, this does not mean that FTX can immediately sell its assets. The U.S. judicial system is complex, and even if the court approves the sale of FTX’s assets, there are a number of procedures that need to be followed.
For example, the well-known Mt. Gox Mentor case, after many delays in liquidation and several lawsuits, the theft of Mt. Gox has finally entered the payout phase. Creditors are expecting the first repayments in March this year. However, this does not mean that all the problems have been solved. The payout process is still complicated and involves several links and factors.
The method of payment was a complex issue, and Mt. Gox offered creditors two payment options: a base payment and a proportional payment. The base payout component allows for the first 200,000 yen of each creditor’s claim to be paid in yen. The proportional payment, on the other hand, offered creditors two options: “early lump sum payment” or “interim payment and final payment”. This means that creditors will have to choose between a number of options, which will directly affect the amount and timing of their payments.
In addition, the payout process involves a number of components. For example, creditors are required to complete registration and enrolment within a specified period of time, otherwise they will lose part of their rights. Moreover, the time taken to pay out will be affected by a number of factors, such as the processing speed of the exchange, legal procedures, and so on.
This means that even if FTX receives court approval, the sale of its assets could be delayed.
3. Problems facing the sale:
Liquidity is always a central topic in the cryptocurrency market. For FTX, selling its large token holdings is not a simple process. The first thing we need to consider is the sales channel for the tokens.
The limited number of compliant exchanges in the U.S. means that not all tokens have been listed on these exchanges. For example, the 24-hour trading volume of sol tokens on Coinbase is only $25 million, while the market depth is only $1 million. Such liquidity clearly cannot support a $1.1 billion sale of sol tokens.
Crypto market researcher Messari further points out that we cannot simply look at the absolute value of tokens, but should consider their active trading volume relative to each asset. For example, despite the high market capitalization of $SOL and $APT, they are mainly held by Alameda and other venture capital sectors, and the liquidity of these tokens on the open market is limited.Crypto Rand, a trader at RR2 Capital, also mentioned that the SOL tokens will be locked up until 2025, which further restricts their liquidity on the market.
While potential buyers may be interested in SOL tokens, they must follow a specific vesting schedule, which means that in the short term, the sale of these tokens is unlikely to have much of an impact on market prices.
4. Pledges and Weekly Sales Restrictions: Strategic Options for FTX
The agreement between FTX and Galaxy provides FTX with a flexible sales strategy. Under this agreement, Galaxy can sell a certain number of cryptocurrencies held by FTX for cash each week. This weekly sales limit ensures that the market will not be hit by a large number of token sales. At the same time, Galaxy will also assist FTX in managing the risk of possible price fluctuations, especially when selling large amounts of Bitcoin and Ether.
In addition to selling tokens outright, Galaxy had the right to pledge FTX’s cryptocurrencies, thereby generating additional revenue for FTX, which expected that in this way the interest income on its cryptocurrency reserves could be increased to provide more funds for those customers still waiting for refunds. This strategy not only provides FTX with more financial flexibility, but also ensures that its customers are protected.
IV. Conclusion and Reflection: Crypto Markets, Nothing Lasts Forever
FTX’s asset sale has generated a lot of attention and discussion in the cryptocurrency market. From the news of FTX’s desire to sell its $3.4 billion in crypto assets to the various rumors and reactions in the market, this event demonstrates the complexity and volatility of the crypto market. But before we delve into this event, we need to analyze the facts objectively.
First, the sale of FTX’s assets is not a simple process. It involved several considerations, including market liquidity, sales channels, and relationships with compliant exchanges. In addition, FTX’s sale plan is subject to a legal process that requires court approval. This means that while rumors and predictions about FTX’s sale of assets continue to circulate in the market, the actual sale process may be affected by a number of factors.
Second, market reactions are not always based on facts. For example, although there were rumors that the sale of FTX’s assets would result in a decline in market prices, in reality, FTX’s sale plan was subject to court approval and the sale process was subject to a number of factors. As a result, short-term market reactions may not reflect the true situation.
In conclusion, the events at FTX remind us once again that the cryptocurrency market is still a field full of uncertainties and variables. As investors and market observers, we need to remain calm and objective, and analyze market dynamics in depth rather than blindly following market sentiment.
Overall, the FTX incident provides us with an interesting case to observe and analyze the cryptocurrency market. By delving deeper into this event, we can better understand the mechanics of the market and the complexities involved.
