FTX Investors to Receive Compensation, But with a Catch

The defunct cryptocurrency exchange FTX has managed to raise over $10 billion in funds, which will be used to compensate investors who lost money when the exchange collapsed in November 2022. Investors will receive full compensation, plus interest, which is a rare occurrence in the cryptocurrency industry and even in US bankruptcy proceedings.

FTX, founded by SBF, was once a leading cryptocurrency exchange that offered various cryptocurrency derivatives trading. However, it was later discovered that the exchange had misused customer funds and manipulated the market.

After filing for bankruptcy, SBF fled but was eventually arrested and extradited to the US, where he was sentenced to 25 years in prison and ordered to pay a fine of up to $11 billion. But what about the investors who were harmed by FTX?

After filing for bankruptcy, FTX was taken over by a bankruptcy committee, which collected various funds. According to the statement, once all of FTX's assets are sold, the committee will have up to $16.3 billion in cash to distribute, and over 2 million customers and other non-government creditors will receive full compensation and interest.

The bad news is that investors will not be able to recover their full losses, as their claims are fixed at the time FTX filed for bankruptcy in 2022, which means they will be compensated based on the cryptocurrency prices at that time.

For example, if an investor had 1 bitcoin in their FTX account at the time of bankruptcy, their claim would be fixed at $17,000, which is the price of bitcoin on November 12, 2022. Therefore, the investor would only be able to recover around 27% of their assets, and the gains from the subsequent price increase of bitcoin and other cryptocurrencies would not be taken into account.

The ability to raise funds may be due to the surge in cryptocurrency prices:

FTX has not revealed where it obtained the over $16.3 billion in assets, but it appears that the assets were frozen by the bankruptcy committee after FTX's collapse. Excluding the properties and luxury goods purchased by SBF, it's likely that the assets were frozen cryptocurrency assets that surged in value during the recent bull market, allowing the committee to sell them for cash.

This may also be why investors can only be compensated based on the 2022 prices. If the compensation were calculated based on the number of lost bitcoins and other tokens, it would be clear that FTX would not be able to complete the compensation.

However, for FTX investors, this situation may already be a relatively good outcome. Most cryptocurrency bankruptcy cases leave investors with nothing, and although the actual compensation of around 27% is still very low, it's better than getting nothing at all.