FTX Debtors recently filed an amended Chapter 11 reorganization plan on December 16th, which has raised concerns about potential financial losses for the defunct crypto exchange’s creditors. The plan proposes valuing the creditors’ claims at the crypto prices on November 11th, 2022, the day FTX filed for bankruptcy. This decision seems questionable, especially considering the downward spiral of the crypto market in the days leading up to the FTX collapse. Regrettably, this means that creditors will face substantial losses due to the significant difference in crypto prices between the bankruptcy petition date and the present.
Bitcoin, being one of the most prominent cryptocurrencies, serves as a fitting example of the potential losses that FTX creditors might experience. On November 11th, 2022, Bitcoin’s price hovered slightly above $17,500 based on CryptoSlate data. However, over the past year, Bitcoin’s price has more than doubled, currently priced at $41,649.57. Consequently, FTX creditors could suffer a loss exceeding $24,000 per BTC. Similarly, Ethereum’s price has increased from approximately $1,284 on November 11th to $2,214 at the time of writing, signifying a potential loss of nearly $1,000 per ETH for the creditors of the defunct exchange.
A closer examination of the reorganization plan reveals a questionable oversight. Sunil Kavuri, a creditor of FTX, highlighted in a post on X that the new plan dismisses FTX’s Terms of Service, which explicitly state that “Digital Assets are the property of Users and not FTX Trading.” By ignoring the terms laid out in their own service agreement, FTX debtors seem to be jeopardizing the rights and claims of their creditors. This oversight raises concerns about the fairness and integrity of the reorganization process.
It is essential to note that certain classes of creditors will have the opportunity to vote on the reorganization plan before its finalization. Considering the potential magnitude of the losses faced by these creditors, their votes hold significant weight in determining whether the plan will be approved or rejected. The outcome of this vote will undoubtedly shape the future of FTX and the financial well-being of its creditors.
The amended Chapter 11 reorganization plan filed by FTX Debtors has the potential to inflict substantial losses upon the defunct exchange’s creditors. The decision to value claims based on crypto prices from November 11th, 2022, fails to consider the significant growth in cryptocurrency prices since that date. Moreover, the dismissal of FTX’s own Terms of Service further undermines the fairness of the reorganization process. The creditor vote on the plan will play a critical role in determining the outcome and the potential financial recovery for the creditors. Ultimately, this situation underscores the importance of careful scrutiny and evaluation when dealing with financial matters in the crypto space.