FTX Gets Green Light to Liquidate $3.4B Crypto Funds
US Bankruptcy Court approves FTX's sale of crypto holdings to repay creditors, estimated at $3.4B. FTX can sell $100M in crypto per week to avoid market impact.
In recent hours, the US bankruptcy court for the Delaware district, which is directly handling the FTX case, has allowed the exchange to sell or invest its cryptocurrency holdings to repay creditors. This decision was made by Judge John Dorsey, who approved the motion presented by FTX's lawyers. This allows the CEX to access a significant liquidity source, estimated at around $3.4 billion. This plan is supported by the exchange and various customer committees, who can now hope for a minimum refund.
FTX had submitted a request for authorization to manage this part of the business last August. However, it clashed with the bankruptcy arm of the US Department of Justice regarding the terms of the sale. On one hand, there's a strong desire to maximize returns, and on the other, an attempt to dilute sales according to a public plan. Most likely, in the end, FTX might start selling about $100 million in crypto per week to avoid significantly impacting the market.
The Delaware Bankruptcy Court approved the sale of FTX's digital assets on September 13th. Major changes were made to the draft order authorizing the sale just a day prior. FTX will be allowed to sell digital assets, excluding Bitcoin, Ether, and "certain insider-affiliated tokens," in weekly batches through an investment adviser under pre-established guidelines. The limits are set at $50 million for the first week and $100 million for subsequent weeks. There's an option to increase these limits with prior written approval from the creditors and ad hoc committees or raise the limit to $200 million weekly with court approval.
Bitcoin, Ether, and insider-affiliated tokens can be sold through a separate decision by FTX after giving a 10-day notice to the committees and the US trustee appointed by the United States Department of Justice. These sales will also be conducted through an investment adviser, with information about the sales being subject to professional eyes only and confidentiality restrictions. A redacted version will be accessible to the public. The sales will be subject to written objection by the committees and the US trustee. If there are objections, the sales will be delayed until they are resolved or the court orders a sale.
The conditions for these sales were added in the draft submitted on September 12th. They are considered precautionary measures to ensure market stability during the influx of FTX assets. However, some observers have noted that these sales will represent only a small portion of the trading volume and might not heavily impact the market. According to a recent shareholder update, FTX holds $833 million worth of Bitcoin and Ether.
FTX can also enter into hedging arrangements using Bitcoin and Ether with the prior approval of the committees and can use them for staking. The FTX Token (FTT) cannot be sold without further court authorization.
Another issue is the identification of the creditors themselves, as only some agree on the matter. Lawyers for the interested parties, for example, claim that the assets are all in a single pool and cannot be traced back to individual clients. Given this challenging context, the exchange has reportedly sought to hire Mike Novogratz of Galaxy Digital as a consultant.
As we have already pointed out, it's worth noting that FTX holds a total of $1.16 billion in SOL and another $560 million in BTC. Therefore, Solana might be the most affected crypto due to the decisions of the CEX.