April 13, 2024

U.S. Bankruptcy Court Approves FTX’s Plan to Sell and Invest Crypto Holdings

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The U.S. Bankruptcy Court for the District of Delaware has granted permission to cryptocurrency exchange FTX to sell, stake, and hedge its crypto holdings to repay creditors. The ruling, handed down by Judge John Dorsey, follows FTX’s request to engage in these activities, citing the potential benefits of protecting its assets and generating returns.

During the court hearing, Judge Dorsey approved the motion and overruled two objections raised against the plan. FTX, which revealed it holds crypto assets valued at over $3.4 billion, will now be able to proceed with its strategy to manage and utilize these holdings to meet its financial obligations.

An attorney representing the ad hoc committee of FTX customers voiced support for the plan, emphasizing the importance of expediting the process. Similarly, a lawyer representing the unsecured creditors committee expressed a shared desire to move the proceedings forward swiftly.

FTX’s rationale for seeking permission to sell and invest its crypto holdings centers on risk management and generating returns. According to FTX’s lawyers, hedging the assets would help “limit potential downside risk prior to the sale of such bitcoin or ether.” Additionally, “staking certain digital assets … will inure to the benefit of the estates – and, ultimately, creditors – by generating low-risk returns on their otherwise idle digital assets.”

In response to inquiries from the judge regarding asset ownership, FTX’s legal representatives clarified that they consider the digital assets being sold as assets of the debtors. They also emphasized that these assets are pooled and “not traceable to the individual customer.”

In a related development, FTX has sought to enlist the services of Mike Novogratz, CEO of Galaxy Digital, as an adviser.

This decision is a notable development in the cryptocurrency exchange’s ongoing efforts to address its financial challenges. FTX recently disclosed significant holdings in crypto assets, including approximately $1.16 billion in Solana (SOL) and $560 million in Bitcoin (BTC), along with various other lesser-known illiquid tokens.

The court’s approval of FTX’s plan to leverage its crypto holdings to repay creditors underscores the increasing convergence of traditional financial systems and the crypto industry. It also demonstrates the evolving recognition of cryptocurrencies as valuable assets that can be effectively utilized in financial restructuring efforts.

Digital Assets Desk

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