Up to 16 billion dollars: Former FTX users will be almost fully compensated

Compensation for former FTX users is set to begin this fall. With up to $16 billion, this could provide a significant liquidity boost to the struggling market. However, the U.S. Securities and Exchange Commission (SEC) might still pose obstacles to the payout.

Currently, the price of Bitcoin and other cryptocurrencies doesn’t look very promising. But now, some good news is on the horizon – surprisingly from FTX, the exchange that with its bankruptcy at the end of 2022, effectively ended the bull market.

The bankruptcy administrator of FTX has recovered approximately $14-16 billion and plans to start paying these funds out to users from or in the fall and winter of 2024. Unlike with Mt. Gox, the compensation will not be in Bitcoin or other cryptocurrencies that could flood the market, but in „cash“ – i.e., US dollars.

While a selling pressure looms with Mt. Gox as Bitcoins hit the market, a buying spree is promised with FTX because people will receive dollars.

However, the American stock exchange regulator, the SEC, is now complicating the repayment plan. The FTX bankruptcy administration intended to disburse the billions through bank transfers or stablecoins. The SEC questions the legality of this.

The reason is that, under existing securities laws, the legality of such transactions in stablecoins is unclear. It is not definitively established if stablecoins are merely a type of digital cash – essentially dollars – or if they count as securities, which must be regulated differently.

This objection from the SEC could delay or complicate the return of the funds. Given a worldwide customer base, it is many times more difficult to make payments in dollars than in stablecoins. However, this will not halt the payout.

In May, the bankruptcy administrator submitted a plan to compensate most customers. The payouts are based on the cash value of the crypto holdings at the time of the collapse in November 2022, including 9% annual interest. For many users, this will still mean a loss since the price of Bitcoin has doubled or tripled since then.

The assets FTX can now access come from an „exceptionally diverse collection of assets“ held by FTX and its sister company Alameda. Some of these assets, such as the company’s own FTT tokens, have rapidly lost value or nearly disappeared. However, other assets, such as shares in AI startups or Solana tokens, which FTX held extensively, have significantly increased in value. The appreciation of these individual tokens allows FTX, contrary to initial expectations, to pay out all customers.

Overall, this is quite good news for the market. Some fear that FTX might first need to sell off crypto holdings to disburse dollars, which could initially send the market into a downturn.

However, firstly, it is unclear which cryptocurrencies this involves. It is unlikely to be Bitcoin and Ethereum, as FTX held only a fraction of its assets in these accounts, making Solana more probable. Secondly, it is also unknown if FTX has already sold these tokens and converted them into cash. The relatively precise mention of „$14-16 billion“ suggests that at least the majority of the money is no longer held in volatile cryptocurrencies.

Thus, approximately $16 billion will likely be paid out from the fall and winter, without preceding massive selling pressure. These $16 billion will certainly not be fully invested back into cryptocurrencies like Bitcoin or Ethereum – but a significant portion will likely be. Just ask yourself what you would do.

The crypto markets will receive a tremendous liquidity boost, much larger than Bitcoin sales by Sachsen, and significantly bigger than the payouts by the Mt. Gox bankruptcy administrator. This could indeed become the long-awaited launchpad for the next bull market, fittingly due according to previous cycles in 2025.