FTX Debtors recently submitted an amended Chapter 11 reorganization plan, presenting a worrisome scenario for the creditors of the now-defunct cryptocurrency exchange. This plan, if approved, could potentially result in significant financial losses for the creditors. The proposed valuation of the creditors’ claims is based on cryptocurrency prices from November 11, 2022, the same day FTX filed for bankruptcy. It is crucial to note that during this period, the crypto market experienced a downturn, triggering a bear market lasting several months into 2023. Therefore, the cryptocurrency prices on November 11th last year were considerably lower than the current market prices.
The discrepancy in cryptocurrency prices between November 2022 and the present will inevitably lead to substantial losses for FTX’s creditors. To illustrate this, let us consider the case of Bitcoin (BTC). On November 11, 2022, Bitcoin was valued slightly above $17,500, according to data from CryptoSlate. However, it has more than doubled in value over the past year and is currently priced at $41,649.57. Consequently, FTX creditors stand to lose over $24,000 per BTC. A similar situation occurs with Ethereum (ETH), which has seen its price rise from around $1,284 on November 11 to $2,214 at present, resulting in potential losses of nearly $1,000 per ETH for the creditors of the defunct exchange.
Sunil Kavuri, an FTX creditor, expressed concerns about the new reorganization plan neglecting FTX’s Terms of Service. According to these terms, digital assets are deemed the property of users and not FTX Trading. However, the proposed plan fails to consider this crucial aspect, potentially disadvantaging the creditors further.
Before the reorganization plan is officially approved and implemented, specific classes of creditors will have the opportunity to vote on its terms. The outcome of these votes will determine the final version of the plan and its potential impact on the creditors. It is essential that the interests of the creditors are taken into account during this process to ensure a fair and just resolution.
FTX’s amended Chapter 11 reorganization plan presents a challenging situation for the creditors of the defunct cryptocurrency exchange. The proposed valuation of their claims based on November 2022 cryptocurrency prices, a time of market downturn, implies significant potential losses for the creditors. The significant appreciation of Bitcoin and Ethereum prices since then only exacerbates these losses. Moreover, the plan’s disregard for FTX’s Terms of Service raises further concerns about the fairness of the proposed resolution. As the voting process commences, it is crucial that the creditors’ best interests are taken into account to mitigate the impact of this reorganization plan.