The FTX Bankruptcy Case Sparks a Surge in Debt Trading

With the former cryptocurrency exchange giant FTX filing for bankruptcy protection, it left around 1 million creditors and billions of dollars in debt. According to court documents, the debts of just the top 50 creditors amount to $3.1 billion. Faced with this situation, some creditors are seeking ways to exit quickly, unwilling to wait for a bankruptcy process that could take years.

Several well-known investment firms are negotiating to acquire these debt claims. Some smaller investment firms have purchased several debt claims from hedge funds looking to exit quickly. However, the proceeds from the sale of the debt claims may be lower than the amounts ultimately distributed in bankruptcy proceedings.

Currently, recovering funds means enduring significant losses, as the sale price of the debt is only a few percent of its face value. Debt buyers need to be patient and wait to recover more cash through bankruptcy proceedings. An industry expert stated: "The market is generally interested in these debts, but many people lack an understanding of the complexities involved."

For institutional investors, the collapse of FTX has resulted in significant losses. Some crypto asset management companies and hedge funds have revealed that they have large amounts of assets trapped on the FTX platform. Most of these institutions hope to extricate themselves as soon as possible to avoid lengthy legal proceedings. Some FTX clients even hope to complete the sale of their claims by the end of the year to facilitate loss write-offs when filing taxes.

Currently, some debt transactions have emerged in the market. Investors have acquired several FTX claims at a face value price of 5-6%, with nominal values ranging from several million to nearly one hundred million dollars. Some funds typically ask for prices close to 10% of the face value.

The assessment of the future value of bankruptcy claims is a complex process. While a rough estimate of available assets and liabilities can provide a general understanding, substantial returns often depend on judicial arguments. Some investors believe that U.S. courts may recognize client assets held in trust based on British trust law, which means that certain clients may gain priority in repayment.

In addition to customer asset-related claims, there are also some special situations. For example, there is a circulating employment contract that includes a clause guaranteeing payment of salary for the next 9 years. This contract was signed in August 2021, with an annual salary of $525,000, and guarantees a minimum annual raise of 15%, plus bonuses. However, some legal experts believe that U.S. courts are unlikely to enforce such clauses, and unpaid wages may be worth almost nothing in bankruptcy claims.

As the FTX bankruptcy case progresses, the trends in the debt trading market will continue to attract attention. Investors need to fully consider the risks when participating in such trades and have an in-depth understanding of the complexities of the cryptocurrency industry.