FTX and Genesis Bankruptcy Repayment: Cash vs Crypto
The Wall Street Journal (Akiko Matsuda) published an article on 08.21.24 discussing how FTX and Genesis Global will repay customers after their bankruptcies titled “In Crypto Bankruptcies, What Does ‘Repay in Full’ Mean? It Depends on Whom You Ask.” Let’s discuss the two varying bankruptcy repayment plans how they will impact customers differently.
The Bankruptcies
FTX’s Bankruptcy
FTX Trading Ltd. is a company that formerly operated a cryptocurrency exchange and crypto hedge fund. The company filed for Chapter 11 bankruptcy on November 11, 2022. The bankruptcy was due to severe liquidity problems made worse by allegations of financial misconduct involving its founder, Sam Bankman-Fried. The company couldn’t meet customer withdrawal demands after management transferred billions of dollars for risky investments. FTX’s bankruptcy sent shockwaves through the crypto industry, sparking regulatory scrutiny and lawsuits.
Genesis Global’s Bankruptcy
Genesis Global, a crypto lending platform, filed for Chapter 11 bankruptcy on January 19, 2023. Their bankruptcy is due to liquidity issues caused by the collapse of crucial crypto partners, including FTX. The firm lent to high-risk crypto ventures that failed during the market downturn. Because of this, they faced huge losses from bad loans and frozen withdrawals that they could not recover from.
The Repayments
FTX’s Bankruptcy Repayment
FTX is repaying its customers in cash, but the value is based on their crypto holdings when the company filed for bankruptcy. The problem with this is that the market for digital assets had hit a significant low at that time, and since then, cryptocurrency prices have surged up. For example, if a customer held one Bitcoin when FTX collapsed, it would have been worth around $16,000. FTX is paying that amount in cash, but today (September 5, 2024), that same Bitcoin is worth over $56,000. Customers feel shortchanged because they’re missing out on the post-bankruptcy appreciation of their digital assets.
While FTX is paying out interest, the interest hasn’t made up for the substantial increase in the value of cryptocurrencies since the bankruptcy filing. Attorneys representing Florida customers say that when FTX filed for bankruptcy, the total value of customer accounts was roughly $9.2 billion. Its customers’ losses measured in the current market are nearly $30 billion.
Genesis Global’s Bankruptcy Repayment
Meanwhile, Genesis has decided to repay in crypto. Doing so will allow customers to recover the actual cryptocurrency they originally deposited, which has significantly increased in value. Sean O’Neal, a lawyer representing Genesis, says, “We think that if someone lent us three bitcoins, they’re due three bitcoins.” However, some customers still have an issue with Genesis’s repayment plan. Since they experienced long delays in accessing their funds, many claim to have missed out on investment opportunities during that time.
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