Recently, the cryptocurrency exchange FTX and its creditors filed a motion in the Delaware bankruptcy court, which was a big step. In fact, the motion represents a milestone that could potentially shape the course of their financial restructuring and recovery process.
They have requested permission to sell certain trust assets and funds owned by Bitwise and Grayscale, believed to be worth $744 million, through an investment adviser.
This calculated action is a part of FTX’s continuous efforts to turn its digital assets into cash, with the ultimate objective being the repayment of the creditors impacted by the exchange’s financial difficulties.
As per the filing:
“The Debtors’ proposed sale(s) or transfer(s) of the Trust Assets will help allow the estates to prepare for forthcoming dollarized distributions to creditors and allow the Debtors to act quickly to sell the Trust Assets at the opportune time.”
It’s also added that sales made in accordance with the Sale Procedures will save money and time by eliminating the need to file separate motions for each proposed sale, as the Debtors may sell the Trust Assets to one or more bidders in one or more sales.
Edgar W. Mosley II, a managing director at Alvarez & Marsal North America, one of FTX’s current financial advisers, stated that the proposed sale will enable the Debtors to move swiftly to sell the Trust Assets at the right time and assist the [FTX] estates in getting ready for upcoming dollarized distributions to creditors.
As of October 25, 2023, the market value reveals that one Bitwise-managed trust holds $53 million, while five Grayscale Trusts hold an estimated $691 million. Investors may gain exposure to digital assets through trusts without actual ownership.
“The debtors’ judgment is that proactively mitigating the risk of price swings will best protect the value of the Trust Assets, thereby maximizing the return to creditors and promoting an equitable distribution of funds in the debtor’s’ plan of reorganization,” the filing stated.
The court had previously authorised the liquidation of around $3.4 billion in cryptocurrency holdings, prior to the FTX debaters’ most recent request for the selling of trust assets. In order to prevent a market dump, the court mandated to sold asset in lots of $50 million and $100 million.
Before going bankrupt in November of last year, FTX was one of the biggest cryptocurrency exchanges in the world.
A jury this week found FTX founder Sam Bankman-Fried guilty of cheating his lenders and clients. The date of sentencing would be March 28, 2024. While the maximum sentence could be 115 years in prison, experts estimate that he could only serve 15 to 20 years in prison.
In addition to hiring an investment adviser, the debtors suggested forming a pricing committee with representatives from each stakeholder group. Prior to the asset sale, the investment adviser must also get at least two bids from various counterparties.
In June this year, FTX new CEO, John Ray III, officially announced FTX reboot bidding process.
Also, at a recent court hearing in Wilmington, Delaware, Kevin M. Cofsky, the investment banker from Perella Weinberg Partners representing the company, mentioned that FTX will make its decision by mid-December. Cofsky explained that the company is in discussions with investors to potentially formalize proposals.
He informed US Bankruptcy Judge John Dorsey that FTX’s options include a complete sale, including a valuable customer base of over 9 million, seeking a strategic partner to aid in the recovery process, or even contemplating a solo relaunch of their trading platform.
Be it as it may, the collapse of FTX is a lesson for the cryptocurrency space, demonstrating that even large firms can have trouble handling problems with liquidity and regulatory scrutiny. For FTX and its creditors, the proposed asset sale represents a turning point that might establish a precedent for bankruptcy filings in the cryptocurrency industry.
According to a November 28 court order , FTX has been authorized to sell off certain “Trust Assets” that were previously pledged as collateral.
“The debtors are authorized…to execute sales of the Trust Assets in their reasonable business judgement,” the order states. FTX has enlisted the help of an outside investment adviser to value and market these assets, which include cryptocurrencies and equity shares in other companies.
A special three-member “Pricing Committee” will oversee the sales process. This committee includes representatives from FTX, as well as the official creditors committee and an ad hoc group of FTX customers. The order mandates that sales must be conducted through registered broker-dealers to ensure appropriate oversight.
This latest move comes nine months after FTX first filed for Chapter 11 bankruptcy protection amid allegations of corporate fraud. Various creditors have been battling for prioritized repayment, while FTX’s founders face ongoing investigations.