Melting Crypto Winter
For the majority of claimants, logging in to claims.ftx.com was an experience reminiscent of the days and moments leading up to their money being frozen, coming under the control of teams of lawyers and interests — yet as the September 29 deadline for claims to be filed approached, claimants had a renewed sense of optimism.
The Backboard
The optimism comes as prices for claims on the exchange have continued to move higher since the initial failure nearly one year ago. The chart below shows the near 300% increase in the dollar value of an FTX claim:
The estate balance most recently reflected in court filings marked tangible assets just above $7 billion, while liabilities range between $11 billion and $13 billion. Taking a hopeful angle on the recent news surrounding Anthropic AI, the true value of the FTX balance sheet could be closer to $10 billion.
As the asset recovery continues and the illiquid components such as the venture portfolio, real estate portfolio, and other smaller investments are sold and marked as liquid, the value of claims looks poised to continue steadily rising, above $0.40 per claim.
Limit Up
Crypto traders in recent months have fantasized of a bid coming back to the market and breaking through the $1.5k <> $2k ETH and $25k <> $30k BTC purgatory. Now, they may not have to look far to see a source.
The combination of increased claim value and increased appetite in buying large claim sizes has brought forth a unique boost for capital trapped in the FTX estate. Assuming an average of $0.30 per dollar of claim value, the market can reasonably expect up to $3 billion in thawed-out capital to be distributed back to claim holders as they’re paid out in fiat. Given FTX’s uniquely crypto-native user base and skew toward ultra-high networth traders, there is reason to believe a sizable majority of those with trapped capital in the estate will be looking to reenter markets in a major way. Assuming just half of the capital reinvests in crypto, we’d see a capital injection of roughly $1.5 billion towards the industry. For reference, the US government’s seized Silk Road assets of 50k+ BTC sold throughout the year are of a similar size.
Bet more?
The question that comes to mind for speculators is: “Why sell now if recovery has been going so well?”. As with most positive news, there’s a catch. Claimants must weigh their newfound optimism in a full return against the ever-rising costs associated with the estate’s bankruptcy proceedings (~$600 million annually in fees paid to lawyers and operators) as well as the market’s song of opportunity cost in quickly depreciating dollars that are held frozen in the estate’s balance. The case can be made for an “optimal” point of sale, given each individual’s outlook on costs and opportunities missed.
This coupled with recent news that the estate is planning on limiting the clawback period to only 9 days prior to FTX’s collapse and further limiting total clawbacks on clean claims to only 15% of the total value of preference risk, adds a limiting factor to the upside of claim values over the course of the next few months.
Finally, claims holders also have to consider tax implications and consider tax-loss harvesting claims before the end of year 2023 in order to lock-in tax benefits for US specific claims holders (which, arguably make up a large portion of claimants).
Finale
The implosion of FTX has arguably been the single greatest setback for the crypto industry. It would be enough to have native participants lose in excess of $10 billion to the exchange but to add insult to injury, the thieves at the top of the FTX organization roped in politicians, celebrities, and major investors, ultimately leaving the worst impression of crypto possible to the masses… yet there is hope. Even as Michael Lewis’ latest book comes out, whitewashing the intentional fraud and theft from the FTX leadership, the future is brighter.
It’s only fitting that the end of the bear market, the cold, depressing crypto winter, is represented by the thawing out of the FTX iceberg. The billions of dollars of creditor capital, stuck in legal hell at the jaws of competing interests, are finally seeing a glimmer of hope in the claims market.
In Collaboration with Velo Data and Thomas Braziel
Disclaimer: I’ve sold my own claim, as an FTX Creditor.
Disclosure: Posts are written in an informative manner and are NOT intended to be financial advice of any kind.
