FTX’s $16 billion compensation is imminent, will it become an incremental fund for the bull market?

In this case, SBF is still eating vegetarian food in prison, but in that case, FTX, which has no boss, has ushered in a new turn of events.

After nearly two years of wrangling, and countless attempts to rekindle hopes and shattered dreams, investors finally have the possibility of getting their money back. On January 3, according to FTX’s official announcement, the FTX debtor restructuring plan officially came into effect. Customers can submit claims through the official website to obtain compensation refunds, and the first round of distribution will be initiated within 60 days from the effective date. The initial payout was approximately $1.2 billion, and after a lengthy bankruptcy and recovery process, FTX now has $14.7 billion to $16.5 billion to repay customers and other debtors.

As soon as this news came out, creditors cheered. Although the cash compensation made them bear potential losses, most users were still happy that the long road to debt recovery had finally come to an end. But for the market, the mixed blessings seem to be more obvious. FTX's compensation means that liquidity may flood in, but its sell-off fundraising has also cast a shadow on some currencies.

We have to admit that the black swan incident two years ago is still having a profound impact on the encryption market even today.

The FTX incident is undoubtedly a highlight in the not-so-distant history of encryption. At that time, the collapse of FTX swept across the entire encryption field. The chain reaction affected hundreds of encryption companies and hundreds of investment institutions suffered losses. This not only caused the market to suffer a heavy setback, but also completely wiped out the newly improved mainstream recognition of cryptocurrency. On the other hand, misuse of funds, financial fraud, lottery decisions, and various outrageous operations by SBF and its team have also made users extremely angry at being manipulated and played.

Back to debt, on November 12, 2022, SBF announced on social media that more than 130 affiliated companies, including the exchange FTX.com and the affiliated trading company Alameda Research, have voluntarily filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in order to "Evaluate and realize assets in an orderly manner based on the interests of global stakeholders." Initially, the Wall Street Journal said FTX had a funding gap of about $8 billion. However, as the trial progressed, the total amount of claims increased by an astonishing amount. In the end, there were more than 36,000 claims and the total amount of claims was approximately US$16 billion.

Since then, creditors and FTX have been engaged in a long tug-of-war. Restructuring "Wolf Cried" has occurred one after another, and FTT has once become the core target of this narrative.

As early as January 23, FTX's newly appointed CEO John J. Ray III had expressed plans to restart the exchange. Not surprisingly, when trust collapsed, no one cared. It was not until three months later, in April 23, that Andy Dietderich, a lawyer from FTX's law firm Sullivan Cromwell, once again stated that FTX was considering reopening its exchange business at some point in the future. Since some of the arrears had been recovered at that time, the market began to go from crazy to crazy. The debt collection perspective shifted to the restructuring plan. Subsequently, the reorganization welcomed good news. In May, John J. Ray III confirmed the FTX 2.0 plan. In June, court documents even showed that many companies including Nasdaq, Ripple, BlackRock, etc. had acquired it. plan.

Affected by the news, although the recovery fell silent for a time, the market's confidence in the restructuring plan gradually increased. It was not until November 23, when SEC Chairman Gary Gensler mentioned that "it is possible to restart FTX within the legal framework" that the market officially participated in restructuring narrative pricing. The directly underlying FTT was robbed off-site and soared 40%, reaching a maximum of $5.54. However, with the disclosure of court documents, the court confirmed the properties of its utility tokens and declared that the intrinsic value of FTT was zero, which once again shattered the dreams of holders.

Although the FTT dream is shattered, the creditors' compensation is a certainty. As the crypto market continued to rise, in February 2024, FTX stated that it had sufficient funds to fully pay all approved customer and creditor claims. On October 8, a U.S. court judge formally approved FTX's restructuring plan, which allowed FTX to repay creditors for the first time, involving an amount of more than $14 billion.

The timing of the compensation plan was pushed back again and again, and finally on January 3 this year, the FTX debtor restructuring plan officially came into effect. The first debt payments will begin within 60 days of the January 3rd effective date. According to the FTX plan, creditors need to complete tax form submission and KYC verification before January 20. The first batch of "convenience category" users will be repaid first, including users with a claim amount of US$50,000 or less, which accounts for about 98% of users. , will be expected to receive a repayment of 119% of the declared value of its capital with interest. The first batch of compensation is expected to be US$1.2 billion, and there is no specific timetable for the remaining payments. BitGo and Kraken will assist FTX with compensation, and both have initiated customer notifications during the compensation process.

FTX did not forget to add time interest on top of its debt. It seems that everyone is happy, but for creditors, it is not a perfect ending. The reason is that in the compensation, FTX mentioned that reimbursement can only be made in the form of stable currency and legal currency, and it was stated that the reimbursement amount is based on the value of the application date when the claim was submitted, which was concentrated around November 22. But at that time, the crypto market was in a huge shock, and Bitcoin once fell to 16,000 US dollars. Now, Bitcoin has reached 95,000 US dollars, an increase of more than 4 times. Obviously, it is far from the so-called 119% "benevolence and justice" repayment. Far.

Some creditors are also dissatisfied with this, especially large creditors. For example, Sunil Kavuri, the representative of FTX's largest creditor group, once said that FTX should pay compensation in "BTC physical form" rather than the equivalent value in cash. But it is obvious that FTX will not agree. Even if it wants to agree, it is unable to do so. The FTX liquidation team once said that when it took over, BTC only had 0.1% of the book amount.

Overall, most creditors are still satisfied with the compensation. After all, the road to debt collection is not smooth sailing, and settling down is the key. On the other hand, such a large compensation naturally attracted the attention of the market. $16 billion, where did FTX come from? Where will the funds flow to?

As for how to get there, FTX’s wallet is enough to explain the problem. As early as the end of August 2023, the shareholder report disclosed FTX encrypted assets. The 10 major currencies accounted for 72% of the total FTX encrypted asset positions. At that time, the total value of the positions was approximately US$3.2 billion, of which SOL held the largest position, reaching 55 million. BTC holds about 21,000 pieces, and ETH holds 113,000 pieces.

Since the restructuring plan began, FTX has been selling coins one after another to repay the money. At the beginning of 2024, FTX liquidated all 22 million shares of GBTC it held, including approximately 20,000 BTC. In October, FTX sold $28 million in SOL, and in December, it released $178,000 of SOL pledge again.

Judging from the current holdings, FTX has completed the sell-off of most mainstream currencies, and the total holdings of crypto assets are US$13.43. There are currently 20 currencies with holdings of more than one million US dollars. Among them, FTT has the most concentrated value, with a total of US$626 million, followed by OXY, with a total of US$301 million. MAPS and Media also hold positions of more than US$100 million. .

The sell-off will undoubtedly affect prices in the short term, especially for currencies with less liquidity or greater FTX concentration. Currencies at the forefront of positions are more likely to be widely affected. FTT is the first to bear the brunt. This currency that has been reduced to MEME is likely to have no one to take over. OXY, MAPS, MEDIA, FIDA, BOBA, SRM, AMPL, etc. will be affected due to the large proportion of FTX holdings.

From the current point of view, FTX address repayment is still being prepared, and a lot of funds are flowing to the exchange every day, but it has not had a major impact on the currency at this stage, and the impact seems to be relatively controllable. The periodic impact is still there, but the market has also looked at the selling pressure from a longer-term perspective.

After the $16 billion is repaid, will it flow into the crypto market? Coupled with the special date of Trump taking office on January 20, some industry insiders are optimistic that this move may catalyze the next round of rise in the cryptocurrency market cycle in 2025, allowing Bitcoin to break through to new highs again.

This statement is not groundless. The creditors in Mentougou are a precedent. In the disclosure on July 30, 2024, Mt. Gox completed the distribution of 41.5% of Bitcoins to creditors, and creditors received a total of 59,000 Bitcoins. However, Glassnode shows that although Mt. Gox creditors received nearly $4 billion worth of Bitcoin, most groups did not sell it. Instead, the value returned and became firm holders.

Of course, whether creditors who have suffered heavy losses will choose to hold it still depends on personal preference and cannot be generalized. It is worth noting that due to the protracted debt recovery process, most original creditors will isolate or sell the debt to a debt settlement company early in order to get rid of the debt as soon as possible and obtain funds. This proportion is not a minority, and this part of the funds is expected to be unlikely to flow back.

But no matter what, part of the funds from encryption will inevitably flow to encryption, which is still a good thing for the encryption field where liquidity is frequently in short supply.

Back to the current market, garbage time is still continuing. Rising macro data, uncertainty in the external situation, and the debt crisis of the U.S. authorities have caused a sharp increase in risk aversion in the market. Risk assets have been hit. Even the recent natural and man-made disasters in the United States have once again increased the market's concerns about liquidity.

On January 7, wildfires broke out in California, USA. This is a normal event that occurs every year, but this year's wildfires were particularly raging due to the impact of record summer high temperatures and drought. According to the latest data from the California Disaster Relief Department on the 12th, wildfires have resulted in 24 deaths and 16 missing people. The total area burned by the four wildfires in the county has exceeded 160 square kilometers, which is larger than the area of ​​San Francisco. Analysts at AccuWeather expect economic losses to be between $135 billion and $150 billion. Currently, Biden says that the U.S. government will pay "100% of all costs" caused by the disaster and will ask Congress for more financial assistance.

In the face of this natural and man-made disaster, the economic level has suffered a huge blow. Whether it is due to the long-term impact of insurance evaluation, personal hedging needs, or longer-term concerns about US inflation and debt, the conservative trend of liquidity will only become increasingly prominent. What is even more noteworthy is that for risk markets, emotional fluctuations are continuing to expand.

After the incident, California Governor Newsom blamed the local government, while US President-elect Trump pointed out that Democratic California Governor Newsom and current President Biden should be responsible for the fire. The opposition and conflicts between the two major parties have not slowed down even in the face of unified natural disasters. Responsibility-shifting and internal fighting will only shake global confidence in the stability of the U.S. financial market.

As Trump comes to power, any incident can easily trigger the sensitive nerves of crypto and even risk markets. Even if the direct impact is limited, there are still risks and concerns. Just a few days ago, Tom Lee, chief investment officer of Fundstrat Capital, a staunch bull on Wall Street, came to sing down, saying that due to the shrinking global liquidity, although the long-term bullish forecast of $250,000 remains unchanged, Bitcoin may fall sharply from its recent highs. Test support at $70,000 or even $50,000.

Misfortunes come with blessings, but it was also when Trump came to power that the expected support for Bitcoin was still relatively solid. Early this morning, the Washington Post reported that David Sacks and the Trump transition team are working closely with encryption industry leaders to formulate legislative strategies. Trump is expected to sign an executive order on his first day in office, which may involve "debanking" and abolition. A controversial crypto accounting policy that requires banks to include digital asset holdings on their own balance sheets.

Affected by this, Bitcoin has once again returned to above $95,000. As of press time, BTC is now trading at $95,452 and ETH is at $3,183.