Bankrupt Crypto Exchange FTX Receives Court Permission to Liquidate Cryptocurrency Assets
By Dietrich Knauth
NEW YORK (Reuters) – Bankrupt crypto exchange FTX has received U.S. court permission to liquidate cryptocurrency assets. This move will allow the company to repay customers in U.S. dollars and minimize risks related to price volatility in crypto markets.
Permission Granted by U.S. Bankruptcy Judge
U.S. Bankruptcy Judge John Dorsey approved FTX’s proposal at a court hearing in Wilmington, Delaware. The approval allows FTX to sell up to $100 million in cryptocurrency per week. Additionally, FTX can enter into hedging and staking agreements to minimize the risk of price volatility and earn passive income on more mainstream crypto assets like bitcoin and ether.
Support from Customer Committees
FTX’s request was supported by the official committee appointed to represent its customers in the bankruptcy. It was also supported by 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 believed that FTX sales could cause crypto prices to crash. They also questioned whether FTX owned all the crypto it held in its accounts. However, Dorsey overruled these concerns.
FTX acknowledged the risk of moving crypto markets through its liquidation efforts. To manage this risk, FTX hired U.S. crypto firm Galaxy as an investment advisor. Galaxy’s role includes managing the risk of “information leakage” leading to short-selling activity and sharp declines in crypto prices. FTX’s court papers also highlighted the risks of holding certain assets as their prices decline.
Potential Increase in Liquidation Pace
Dorsey allowed FTX to increase its liquidation pace to up to $200 million per week if both creditors committees agree.
FTX’s Cryptocurrency Holdings
In a court filing, FTX stated that it owns $3.4 billion in cryptocurrencies. This includes $1.16 billion in Solana, $560 million in bitcoin, and $192 million in ether.
Background on FTX’s Bankruptcy
FTX filed for bankruptcy in November 2022 following claims of misusing and losing billions of dollars worth of customers’ crypto deposits. The company has recovered over $7 billion in assets to repay customers. It is also pursuing additional recoveries through lawsuits against FTX insiders and other defendants who received money from FTX before it went bankrupt.
FTX founder Sam Bankman-Fried has pleaded not guilty to charges of defrauding FTX customers by using their funds for his own risky investments. Other former FTX executives have pleaded guilty to criminal charges.
Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and David Gregorio