FTX to Start Repaying $1.2 Billion to Creditors, Will It Trigger Crypto Market Volatility?

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Restarted crypto exchange FTX has declared that it will disburse over $1.2 billion in refunds to all those affected by its bankruptcy. Nearly two and a half years post the collapse, the new management at FTX is making efforts to facilitate users and creditors who have been unable to retrieve their funds.

Users with digital asset claims valued at $50,000 or higher need to settle their repayment obligations by January 20th. Following this deadline, as reported by Sunil, a notable FTX creditor and representative from the FTX Customer Ad-Hoc Committee (comprised of over 1,500 creditors), FTX plans to initiate the distribution of claim payouts promptly.

FTX repayments

Initial Distribution Schedule

Claims < $50k = $1.2bn

January 20th: FTX requires fulfillment of prerequisites for the initial distribution by January 20th.

or simply,

January 20th: Fulfill the necessary requirements for the initial distribution by January 20th (provided by FTX).

Repayments likely won’t start before then

Feb 25: Likely (up to 4th Mar)

— Sunil (FTX Creditor Champion) (@sunil_trades) January 12, 2025

It’s noteworthy that January 20th deadline falls on the same day as Donald Trump’s inauguration. This date is significant in the crypto industry because they anticipate a quick change in policies and more regulatory certainty following it. Moreover, there’s intense focus on the approval of the Bitcoin Act, which suggests establishing a strategic reserve of Bitcoin for the U.S. government.

Will FTX Repayment Trigger Crypto Market Volatility?

According to the FTX restructuring strategy, those who file for a claim up to $50,000 will be prioritized for payments initially. As part of the approved plan in October 2024, it’s expected that approximately 98% of FTX users will receive funds worth 119% of their originally reported account balance.

Nevertheless, some creditors have expressed dissatisfaction with the proposed FTX restructuring plan and its payment mechanism. Under this proposal, the digital currency exchange intends to repay claimants based on the cryptocurrency market values at the time of bankruptcy filing.

Since the drop in November 2022, the price of Bitcoin (BTC) has experienced an extraordinary surge of approximately 370%. This increase has been mirrored in other altcoins as well. Despite this dramatic rise, the upcoming repayment will mark a significant milestone in rectifying past customer losses and reestablishing trust within the industry.

As FTX initiates its repayment phase, investors anticipate increased crypto market turbulence due to differing investor responses, largely determined by their individual risk thresholds, as per Anndy Lian, a renowned author and blockchain expert in intergovernmental circles. In his words:

As a researcher studying the impact of recent events like FTX’s collapse on smaller investors, I can say that some may choose to sell their holdings for financial stability due to their past losses. On the other hand, those with a more optimistic outlook on cryptocurrency’s long-term potential might decide to hold onto their investments, hoping for future growth. Ultimately, each individual’s decision will be influenced by their personal circumstances and risk tolerance.

Conversely, Lian posits that the Mt. Gox repayment establishes a trend, encouraging many individuals to keep their coins rather than selling off their investments.

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2025-01-13 15:09