The latest bankruptcy plan for FTX has revealed that the bankrupt crypto exchange has recovered more than enough funds to cover the losses suffered by its customers following the collapse in November 2022. Customers will receive $1.18 for each dollar’s worth of crypto assets they held on the exchange at the time of its collapse, plus interest. This outcome is unusual in the context of bankruptcies, where creditors usually receive mere pennies on the dollar. Some individuals have raised the question of whether Sam Bankman-Fried was correct in asserting that FTX was simply experiencing illiquidity problems.
Bloomberg’s Matt Levine brought attention to Bankman-Fried’s conviction that the exchange was merely facing a liquidity issue when addressing a meeting organised by the exchange’s co-founder Gary Wang regarding the $8bn shortfall in the company’s balance sheet ahead of FTX’s bankruptcy on 11 November 2022. Bankman-Fried attempted to secure funding from various sources, including Silicon Valley venture capitalists, Saudi financiers, and rival CEO of Binance, Changpeng Zhao, who later withdrew from a proposed acquisition deal following a review of FTX’s finances. Bankman-Fried’s belief appears to be that FTX possessed sufficient resources, albeit illiquid.
Following the beginning of his media tour and culminating at his trial, Bankman-Fried repeatedly maintained that FTX’s downfall resulted from a mistake in accounting, specifically concerning a confusing internal account. Bankman-Fried’s unwillingness to accept responsibility for his crimes led to his lengthy sentence, with Judge Lewis Kaplan remarking that he had never witnessed a performance comparable to Bankman-Fried’s during the sentencing hearing, citing his evasiveness and lack of remorsefulness.
However, it should be acknowledged that believing something does not render it factual, regardless of how many articles or spreadsheets are produced. According to current FTX CEO John J. Ray III, who is managing the bankruptcy, since the events that took place seventeen months ago, the company has recuperated anywhere from $14.5bn to $16.3bn in assets that were not on the exchange at the time of its collapse. Whilst it is probable that the legal team has played a significant role in recovering these funds, it is unlikely that these amounts amount to billions and billions of dollars. Anthropic, one of Bankman-Fried’s fortunate bets in AI, generated a return of $884m, which may be the highest single sale FTX has made apart from cryptocurrency. The company also sold off 38 properties in the Bahamas for approximately $199m, and it is expected to generate another $4.4bn over the following few months through additional sales.
The estate sold off $1.9bn worth of significantly discounted SOL recently, and it still owns approximately $7.5bn worth of locked-up tokens. These tokens were worth less than $500m at the time of FTX’s collapse. In total, FTX raised roughly $5bn by selling tokens, and it anticipates generating another $4.4bn over the next few months. This leads the author to suspect that FTX was not truly solvent at the time of its collapse and that it could have repaid the $8bn in missing client funds if only Bankman-Fried had the ability to promptly sell off all of its possessions, investments, and cryptocurrency without causing prices to plummet further. Nevertheless, due to the subsequent bull run, FTX has become solvent again.
Customers will receive refunds based on the value of their cryptocurrency holdings at the time of the collapse, rather than their actual digital assets. This is because the cost of Bitcoin has risen sufficiently to compensate for the loss. Nonetheless, it should be emphasized that Bankman-Fried did not profit from this circumstance, as he did not have the opportunity to wait several months to determine whether cryptocurrency would rebound from the ashes.
Ultimately, it remains uncertain whether Bankman-Fried was accurate in maintaining that FTX only had an illiquidity issue. His contentions appear to be spurious.
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