FTX's $7.1B Liquidation Approved by US Court Amid Concerns Over Market Stability
Summary:
The US Bankruptcy Court for the District of Delaware has approved the liquidation of $7.1 billion in assets by bankrupt crypto exchange FTX. It includes various cryptocurrencies led by Solana (SOL), Bitcoin (BTC) and Ether (ETH). However, sales are only permitted after a 10-day notice to the U.S trustees. A phased and planned liquidation strategy led by Galaxy Digital has taken measures to ensure crypto market stability. Former CEO Sam Bankman-Fried's legal troubles continue as his team negotiates special conditions before the trial.
The bankruptcy case surrounding FTX made notable progress in mid-September when the US Bankruptcy Court for the District of Delaware authorized the sale of $3.4 billion in cryptocurrency assets. Additionally, the court sanctioned the use of $1.3 billion recovered from brokerages and the government, along with $2.6 billion in liquid cash, totaling up the sum of liquid assets to $7.1 billion. Of all the cryptocurrencies primed for liquidation, Solana (SOL) holds the highest worth at $1.16 billion, followed by Bitcoin (BTC) valued at $560 million. At Aug. 31 prices, the remaining assets to be liquidated include Ether (ETH), Aptos (APT), Tether (USDT), XRP (XRP), Biconomy Exchange Token (BIT), Stargate Finance (STG), Wrapped Bitcoin (WBTC), and Wrapped Ethereum (WETH).
Sale of Bitcoin, Ether and insider-linked tokens can only occur following a 10-day advance notice to US trustees, appointed by the Department of Justice. The court also allowed risk mitigation strategies for these assets. This is significant since FTX can employ assorted financial instruments to compensate for losses.
The judgment caught the attention of the entire industry owing to the sizable quantity of crypto assets sanctioned for sale, which raised concerns about its possible influence on the cryptocurrency market.
Legal firm Ketsal's partner Joshua Garcia, who specializes in Web3, told Cointelegraph that assessing if liquidation was the correct strategy is difficult. He emphasized that bankruptcy courts primarily focus on what benefits creditors. Consequently, it's their priority to recover funds rather than the possible decrease in asset prices being liquidated.
The revelation of billions in liquid assets brought a sense of relief to numerous creditors involved in the case. Asset protection attorney Blake Harris believes this find could be pivotal in the FTX bankruptcy case, offering creditor relief and increased asset management flexibility.
Market analysts anticipate that following liquidation, Solana and Aptos prices will most likely experience price instability due to their daily trading volume.
The court has enforced measures to assure that liquidation of FTX assets won't destabilize the crypto market. The court order allowed FTX to sell digital assets weekly via an investment adviser based on set rules. Galaxy Digital has been tasked with liquidating the assets to maximize returns for FTX's creditors and maintain market steadiness.
For the initial week, the cap on asset sales stands at $50 million, which could potentially escalate to $200 million weekly, granted that creditors and the ad hoc committee provide prior written consent and receive court approval.
Regarding the varied liquidation approaches for BTC and ETH, Anthony Panebianco suggests that the court-approved risk mitigation arrangements for both are subject to certain investment guidelines.
Amongst all the crypto assets FTX holds for liquidation, Solana has sparked plenty of discussion due to a balance of $1.1 billion of the asset in the bankrupt crypto exchange.
24% of the total $1.16 billion Solana tokens have been unlocked so far. Adding to this, Aptos tokens are entirely locked and will be progressively released over the upcoming years.
According to Coinbase's analysis, the phased and scheduled liquidation will maintain market stability.
While this reassures investors about market safety amidst FTX's liquidation, the exchange's saga is not over. The trust in the crypto ecosystem has been significantly weakened due to the exchange's alleged illicit activities, and former CEO Sam Bankman-Fried's legal team battles with prosecutors over special conditions in the run-up to the trial.
Published At
9/29/2023 1:03:22 PM
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