FTX, the bankrupt cryptocurrency exchange, has obtained approval from a U.S. Bankruptcy Judge, John Dorsey, to liquidate its cryptocurrency assets. This move aims to enable the repayment of customers in U.S. dollars while mitigating the risks associated with cryptocurrency price volatility.
Under the approved proposal, FTX can sell up to $100 million worth of cryptocurrency per week and engage in hedging and staking agreements to minimize price volatility risks and generate passive income from mainstream crypto assets like Bitcoin and Ether.
The request by FTX received support from the official committee representing its customers in the bankruptcy proceedings, as well as an ad hoc committee representing non-U.S. customers with deposits on FTX.com’s international exchange.
During the hearing, concerns were raised by two FTX customers who feared that the sale of FTX assets could lead to a crash in cryptocurrency prices and questioned whether FTX truly owned all the crypto in its accounts.
FTX acknowledged the potential market impact of its asset liquidation and took steps to manage the risk, including hiring U.S. crypto firm Galaxy as an investment advisor. This was done partly to address the risk of “information leakage” causing short-selling and price declines. However, FTX also highlighted that maintaining its current crypto portfolio carried its own risks, potentially locking the exchange into holding assets as their values decline.
Judge Dorsey allowed FTX to increase its liquidation pace to up to $200 million per week if both creditors’ committees agreed.
FTX reported owning $3.4 billion in cryptocurrencies, including $1.16 billion in Solana, $560 million in Bitcoin, and $192 million in Ether.
FTX filed for bankruptcy in November 2022 following allegations of misusing and losing billions of dollars worth of customer crypto deposits. The exchange has since recovered over $7 billion in assets to repay customers and is pursuing further recoveries through lawsuits against FTX insiders and other parties that received funds from FTX prior to its bankruptcy filing.
FTX’s founder, Sam Bankman-Fried, has pleaded not guilty to charges of defrauding FTX customers by using their funds for his own high-risk investments. Several former FTX executives have pleaded guilty to criminal charges.
By FCCT Editorial Team
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