FTX's restart dream is shattered, and FTT has become a "virtual currency"

Recently, there is new news about FTX, which is deeply involved in debt disputes.

As we all know, the FTX bankruptcy in October 2022 almost ignited the entire media and investment circle, but this year, except for the creditors who are still paying close attention to its court trial, as FTX's various shady operations surfaced, other people in the industry mentioned this institution with a rather contemptuous and judgmental attitude.

This news is closely related to the creditors. The creditors finally got what they wanted recently. In the latest court meeting, FTX said that it is expected to repay the creditors in full, and the funds are expected to be paid before the end of the second quarter of 2024. The bad news is that compensation will not be paid at the current price. On the other hand, unlike the previous statement, FTX said that there is no hope of restarting, which is also difficult for FTT holders to accept.

In this sense, the news this time is just like the usual encrypted news - some are happy and some are sad.

FTX, the hidden secret of the crypto market

In the crypto world, FTX is undoubtedly an absolute star company. Before October 2022, it could be called the upper-class representative of the crypto world. But after October, it became a malignant tumor that everyone in the crypto world wanted to kill.

Regarding the FTX bankruptcy incident, I will not go into details here, but I will briefly mention its total debt. On November 11, 2022, FTX, then the world's second largest cryptocurrency platform, issued an announcement through its official social media account, announcing that FTX Trading Company, FTX US, Alameda Research Company and approximately 130 other subsidiaries have begun voluntary bankruptcy proceedings in the Delaware District Court in accordance with Chapter 11 of the U.S. Bankruptcy Code. At the time, the Wall Street Journal stated that FTX's funding gap was about $8 billion. However, as the trial continued to deepen, the total amount of claims continued to grow, and ultimately more than 36,000 claims were made, with a total amount of claims of approximately $16 billion.

The high amount of debt has a far-reaching impact on the crypto community. In fact, throughout 2023, the crypto market is still digesting the negative impact of FTX. The most significant price performance is that Bitcoin once fell to $16,000 in 2023. One year after FTX's bankruptcy, the trading volume of market makers was almost halved, and the trading volume of various exchanges was also reduced by half accordingly. In addition, external effects such as the continuous tightening of supervision and the continued deepening of party games have emerged. It can be said that FTX has played a key role in shaping the current crypto landscape.

Even after the ETF is approved, FTX's selling of claims still has a significant impact on the price of Bitcoin and other currencies, but as the selling progresses, the impact is gradually decreasing from the data. As of January 22, 2024, FTX has liquidated all of its 22 million GBTC shares, including about 20,000 BTC.

FTX public holdings data at the end of August 23, source: coingecko

Precisely because of its far-reaching impact, FTX's restart has attracted so much attention. Although it has many problems of its own, the key reason why its cash flow is difficult to sustain is the liquidity environment under the previous macro-tightening. As the former second largest exchange, it once had 9 million customer data, and restarting is not nonsense.

FTX’s “Wolf is Coming” Reboot: FTT “meme” is beginning to emerge

Discussions about restarting began as early as January 2023, when FTX's newly appointed CEO John J. Ray III said in a public interview that a special operations group had been established and that he was open to restarting the exchange's business, and that customers recognized FTX's technology. Of course, FTX had been bankrupt for less than three months at the time, and the news did not make any splash in the market.

Subsequently, there were continuous news about the restart. Not only did the law firm of the FTX Unsecured Creditors Official Committee hold several seminars on the restart, but some creditors also said they were positive about the restart. In the FTX court records, financial details related to the "restart" can also be seen. However, the creditors' optimism was mostly seen by the market as a way to unwind the position. At that time, the outflow of more details of FTX once again deepened its impression of fraud and disrespect for investors, and the market still expressed high doubts about its restart.

The reversal came from the trial in April. In the early morning of April 12, Andy Dietderich, a lawyer from Sullivan Cromwell, the law firm representing FTX, stated at a court hearing in Delaware that FTX had recovered $7.3 billion in assets, including $2 billion in cash, $4.3 billion in Class A cryptocurrencies, $300 million in securities, and $600 million in receivable investments. He also mentioned in court for the first time that FTX is considering reopening its exchange business at some point in the future, and that FTX's creditors are expected to convert their claims into shares of the reopened exchange.

As mentioned before, the market rumored that FTX’s funding gap was $8 billion, and it had recovered $7.3 billion in April, which undoubtedly gave the market a shot in the arm. Influenced by this news, FTT rose rapidly, breaking through 3 USDT at its highest point that day, an increase of more than 90%.

Due to FTX's previous highlight moments, some investors firmly believe that it can start over. In this context, FTX's reorganization is undoubtedly a huge boon to the platform currency FTT, and its once glorious historical price has made investors full of imagination. Since then, restart has become a keyword for FTT holders. As long as the news of restart is released, FTT will show a rising trend, and the meme nature of FTT has begun to emerge. FTX has lived up to expectations and has successively reported good news.

In May, John J. Ray III confirmed the FTX 2.0 plan and put the restart on the timeline; in June, a court document list showed that many companies including Nasdaq, Ripple, BlackRock, etc. were interested in restarting FTX 2.0. Then on October 25, Bloomberg reported that FTX was negotiating with three undisclosed bidders to restart its trading platform.

According to people familiar with the matter, FTX, which has 9 million customers, received attention from more than 75 institutions during the auction, but after several rounds of negotiations and considerations, three potential buyers finally stood out. The three are Bullish, a cryptocurrency exchange operated by Tom Farley, a former president of the New York Stock Exchange, under Block.one, Figure Technologies, a financial technology startup, and Proof Group, a crypto venture capital company that participated in the bankruptcy acquisition of Celsius and invested in Aptos and Sui. The acquisition offer will be submitted to the Delaware Bankruptcy Court for review and will be finalized in mid-December 23.

On November 9, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), publicly stated that it is possible to restart FTX within the legal framework. Under a series of favorable stimuli, FTT quickly rose 40% within an hour that day. After the acquirer disclosed the information, OTC users were also eager to move. At that time, community news said that FTX might pay 50% of the price on November 11, the day it filed for bankruptcy, and pay a handling fee of about 5%.

Supported by various news, the price of FTT continued to remain above US$2. Even the news of the liquidation of the Bahamas entity in December was seen by investors as a precursor to restart. On December 11, FTT rose to a high of US$5.54.

Some communities are confident about the restart. Source: Binance Square

The dream of restarting was shattered, but creditors received good news

But FTT’s beautiful dream ultimately came to an end.

In the latest court documents released on January 28, the documents showed that FTX's compensation was in the second quarter of 2024, but it was not enough to fully repay all the losses of creditors. Currently, some cryptocurrencies have not yet been liquidated and are waiting for or being liquidated.

It is worth noting that the document clearly describes the recovery of FTT, indicating that the basic value of FTT is zero. The court believes that FTT is only a utility token and has no value outside of the currently non-existent operating exchange, and any current FTT market price is speculative. In other words, FTT is a virtual currency, and there will be no FTX exchange with FTT as the platform currency in the future. Even if FTX is restarted as a 2.0 platform, FTT will not have any relationship. In fact, from the perspective of US regulatory requirements, compliant exchanges should not issue coins, which is why Coinbase chose the capital path of listing.

FTX court record, source @Phyrex_Ni

More cruel news followed. On January 31, at the latest court hearing, FTX lawyer Andrew Dietderich said that FTX does not plan to restart the platform. The companies acquired by the platform at a cost of hundreds of millions of dollars have proven to have no real value, and there are not many interested buyers. He also said that although FTX has a large number of customer resources, the team still cannot find investors willing to invest huge amounts of money to restart the exchange.

Hit by the news that there was no hope of restarting, FTT suffered a heavy blow, falling to $1.65 at one point and now trading at $1.73, a drop of 37.44% in 7 days.

FTT price drops rapidly. Source: Binance

But unlike the sadness of FTT holders, creditors' claims received good news.

As the crypto market continues to rise in recent months, FTX has stated that it expects to have sufficient funds to pay in full all approved customer and creditor claims. Based on the value of FTX's previously announced Top 10 holdings, as of February 1, this portion of recovered assets has exceeded US$7.83 billion.

Of course, although the assets are sufficient for compensation, it is clear that creditors will not compensate according to the highest market value, but according to the value of the application date when the claim is submitted, which is concentrated around November 22. For example, when FTX declared bankruptcy, most currencies had experienced a huge depreciation, and BTC was quoted at about $16,000, but now, BTC has reached $43,000. Creditors obviously cannot compensate at the highest price, but can only use the price they submitted for recovery as a benchmark. In addition, compensation is based on US dollars. US Bankruptcy Judge John Dorsey ruled that the size of each claim will be based on the amount owed to customers or creditors on the day FTX filed for bankruptcy.

The currency standard has been changed to the dollar standard. Naturally, some creditors are dissatisfied with this compensation method. But at least it is precisely because of the current market improvement that FTX has enough capital appreciation to compensate for the debts in the bear market. Even if the compensation is not the highest amount, it is undoubtedly a blessing in disguise for creditors. However, according to lawyers, full compensation is not a guarantee, but only a goal. Whether it can be compensated still depends on the specific circumstances.

Looking back at SBF who has been imprisoned, perhaps if he can only hold on for another three months, the outcome will be completely different. However, time cannot be stopped, and things cannot be repeated. The market will eventually bring down the hammer on investors who do not respect users and do not follow objective laws. Just recently, the flow of $400 million in cryptocurrencies on the day FTX announced bankruptcy was also discovered. The thieves were a large-scale SIM card criminal gang, not SBF as everyone had previously speculated. Coupled with the news of FTX's repayment, I wonder how SBF, who is facing a 115-year sentence, will feel.

As for FTT? The hype should also come to an end, because whether it is restarted or not, the currency has been declared worthless, not to mention that it has been confirmed that it will not be restarted. But in the end, FTT may not return to zero, but remain as a meme symbol. After all, in the crypto market, everyone can be a meme, animal coins can run rampant, and the legendary FTT, doesn’t it meet the standard better?