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It’s looking more like FTX is going repay customers in full, with a cash value computed based on the value of crypto deposits when the company went bankrupt in

It’s looking more like FTX is going repay customers in full, with a cash value computed based on the value of crypto deposits when the company went bankrupt in November 2022. That was a time when the prices of crypto had fallen, and they’ve gone back up. If FTX has billions of dollars left over after paying depositors, FTX equity holders could end up getting paid too. If that happens, the outcome arguably would be pretty unfair. You’d have a situation where an insolvent FTX effectively managed to crash the crypto market, forcibly cash out all its customers at the low prices, but hold onto the other assets that it bought with customer money. In effect, capital gains that were earned with the capital of FTX customers are going to go FTX shareholders instead. Same happened with Mt Gox.

peter422 3y ago
It’s funny that this is getting downvoted when it is true. It is more complicated though, the bankruptcy lawyers had to come up with some system to pay people back, and if not for the huge run up in crypto prices, which happened mainly after the policy was locked in, it wouldn’t be so bad. Still though it does seem a very generous to the other FTX creditors (I doubt the equity holders are getting anything).
- Scoundreller 3y ago
  > the bankruptcy lawyers had to come up with some system to pay people back I don’t think it’s a lawyer’s decision: per law, everyone’s unsecured debts get fixed at the date of bankruptcy filing converted into dollars.
deleted 3y ago
[deleted]
Scoundreller 3y ago
And this is reason 26366363 why it almost never makes sense to sell your creditor claim to a hedge fund. Unless you have 29% interest loans to pay down or you’re going to die soon without heirs, it makes sense to wait it out. The hedge funds (usually) discount the expected value by a ton when deciding how much to pay. I wonder what Miami Dade county sold their $17m claim for after the stadium naming agreement got cancelled: https://amp.miamiherald.com/news/local/community/miami-dade/article274981761.html https://amp.miamiherald.com/news/local/community/miami-dade/... (But I guess they did ok by re-selling the naming rights for more per year to Kaseya which somehow has a lot of cash after indirectly getting >1000 companies had their computers down after getting ransomware’d: https://en.m.wikipedia.org/wiki/Kaseya_VSA_ransomware_attack https://en.m.wikipedia.org/wiki/Kaseya_VSA_ransomware_attack )
- abm53 3y ago
  > The hedge funds (usually) discount the expected value by a ton when deciding how much to pay. That’s called a risk premium.
  - Scoundreller 3y ago
    And generally not worth paying it if you’re a creditor, unless they get it very wrong or you know something they don’t. I’m surprised crypto enthusiasts can have such a weak risk appetite.
romeros 3y ago
FTX did not crash the crypto market. The crypto market crashed FTX. Crypto running on greater fool theory ran out of fools. FTX was just caught swimming naked after the tide went down.
- ClarityJones 3y ago
  The precise sequence of events (and cause) doesn't affect the numbers.
  - theygotit 3y ago
    [dead]
- fshbbdssbbgdd 3y ago
  The prices of BTC and ETH dropped by about 15% between Nov 2 when the Coindesk story about FTX balance sheet came out and Nov 11 when FTX went bankrupt. And some others like Solana dropped more. But you’re right that crypto already had a much bigger crash before that.
  - romeros 3y ago
    https://cointelegraph.com/news/coinbase-regains-1-position-on-apple-app-store-as-crypto-com-jumps-to-third https://cointelegraph.com/news/coinbase-regains-1-position-o... Coinbase became the most downloaded app on the app store on OCT 28, 2021. The entire Crypto Market Crashed within 10 days. Same exact thing around May 2021. i.e the first bull market peak. Same exact thing around late 2017. Regardless of FTX it would still have crashed in the same way that it did every cycle.
sidewndr46 3y ago
No, to make it the same as Mt. Gox they'd have to sit on the money for at least a decade without paying anyone. Ever.
- fshbbdssbbgdd 3y ago
  Wow. I never followed up on that story after I heard that the payouts would be low. Wonder how long it takes for FTX depositors to get paid out.
  - Lerc 3y ago
    Possibly a long time, MTGox could have paid out years ago if they had have paid the value in Yen of bitcoin balances at the time of collapse. They could have paid everyone in full and had some billion left over. This would have made a lot of people very unhappy. As the value of bitcoin went up it was clear a better solution was needed, and ultimately one of those solutions was decided upon then put to a vote. At each stage they were required to go slowly to go slowly to give people time to respond. People needed to be given a timeframe to make claims, verify their identity, vote etc. On top of that there were lawsuits (as there inevitably will be when someone is deciding how to divide up billions). Add to that plain old bureaucracy and managing paperwork of thousands of claimants. For the record MTGox had a deadline of something like October last year, and was given a 1 year extension on that by the courts. I'd say 50% chance they meet that and pay out this year and if not they get another extension and probably next year. Even after that payout they would not be entirely done, they have set aside a small (proportionally, probably huge in dollar terms) sum to deal with accounts that are in dispute. That'll last as lawsuits can last. The 'early' payment is for people who opted to forgo their portion of the disputed amount, which they might or might not have otherwise received. So yeah, it takes a long time, but because of very real complexity and dealing with people with differing opinions.
Analemma_ 3y ago
I'm not sure what your proposed alternative is? If you don't peg the payouts to crypto FMV at the time of the crash, then FTX is still insolvent (because their debts were also denominated in crypto), so nobody gets anything.
- ClarityJones 3y ago
  > nobody gets anything. The argument is that equity should get nothing, and the crypto-holder's assets should be adjusted for current value... just like how cash-holder's recovery would be adjusted for inflation.
  - JumpCrisscross 3y ago
    > how cash-holder's recovery would be adjusted for inflation Is it really?
    - ClarityJones 3y ago
      > A debtor's promise of future payments is worth less than an immediate payment of the same total amount because the creditor cannot use the money right away, inflation may cause the value of the dollar to decline before the debtor pays, and there is always some risk of nonpayment. The challenge for bankruptcy courts reviewing such repayment schemes, therefore, is to choose an interest rate sufficient to compensate the creditor for these concerns. Till v. SCS Credit Corp, 541 US 465, 474 (2004).
      - deleted 3y ago
        [deleted]
      - JumpCrisscross 3y ago
        Post-judgement interest remains at the discretion of the court, and applies "when a creditor has a security interest in an amount greater than his or her claim, that 'oversecured' creditor is entitled to interest on the claim as well as repayment of principal" [1]. Whether the claim is on cash or collateral doesn't seem to have figured into the law. [1] https://bbklaw.com/resources/best-in-law-which-interest-rate-applies-in-bankruptcy https://bbklaw.com/resources/best-in-law-which-interest-rate...
JumpCrisscross 3y ago
> FTX equity holders could end up getting paid too FTX is under heavy litigation. If there is extra cash, it will go to those claimants.
kobalsky 3y ago
I thought the IRS popped a claim of $44b out of the hat [1], did this change? If they collect that, customers are bound to get pennies on the dollar. [1] https://www.forbes.com/sites/digital-assets/2023/05/14/the-irs-is-changing-crypto-bankruptcy-with-44-billion-of-claims-against-ftx-considerations-for-investors/ https://www.forbes.com/sites/digital-assets/2023/05/14/the-i...

peter422 3y ago

It’s funny that this is getting downvoted when it is true. It is more complicated though, the bankruptcy lawyers had to come up with some system to pay people back, and if not for the huge run up in crypto prices, which happened mainly after the policy was locked in, it wouldn’t be so bad. Still though it does seem a very generous to the other FTX creditors (I doubt the equity holders are getting anything).

Scoundreller 3y ago
> the bankruptcy lawyers had to come up with some system to pay people back I don’t think it’s a lawyer’s decision: per law, everyone’s unsecured debts get fixed at the date of bankruptcy filing converted into dollars.

deleted 3y ago

[deleted]

Scoundreller 3y ago

And this is reason 26366363 why it almost never makes sense to sell your creditor claim to a hedge fund. Unless you have 29% interest loans to pay down or you’re going to die soon without heirs, it makes sense to wait it out. The hedge funds (usually) discount the expected value by a ton when deciding how much to pay. I wonder what Miami Dade county sold their $17m claim for after the stadium naming agreement got cancelled: https://amp.miamiherald.com/news/local/community/miami-dade/article274981761.html https://amp.miamiherald.com/news/local/community/miami-dade/... (But I guess they did ok by re-selling the naming rights for more per year to Kaseya which somehow has a lot of cash after indirectly getting >1000 companies had their computers down after getting ransomware’d: https://en.m.wikipedia.org/wiki/Kaseya_VSA_ransomware_attack https://en.m.wikipedia.org/wiki/Kaseya_VSA_ransomware_attack )

abm53 3y ago
> The hedge funds (usually) discount the expected value by a ton when deciding how much to pay. That’s called a risk premium.
- Scoundreller 3y ago
  And generally not worth paying it if you’re a creditor, unless they get it very wrong or you know something they don’t. I’m surprised crypto enthusiasts can have such a weak risk appetite.

romeros 3y ago

FTX did not crash the crypto market. The crypto market crashed FTX. Crypto running on greater fool theory ran out of fools. FTX was just caught swimming naked after the tide went down.

ClarityJones 3y ago
The precise sequence of events (and cause) doesn't affect the numbers.
- theygotit 3y ago
  [dead]
fshbbdssbbgdd 3y ago
The prices of BTC and ETH dropped by about 15% between Nov 2 when the Coindesk story about FTX balance sheet came out and Nov 11 when FTX went bankrupt. And some others like Solana dropped more. But you’re right that crypto already had a much bigger crash before that.
- romeros 3y ago
  https://cointelegraph.com/news/coinbase-regains-1-position-on-apple-app-store-as-crypto-com-jumps-to-third https://cointelegraph.com/news/coinbase-regains-1-position-o... Coinbase became the most downloaded app on the app store on OCT 28, 2021. The entire Crypto Market Crashed within 10 days. Same exact thing around May 2021. i.e the first bull market peak. Same exact thing around late 2017. Regardless of FTX it would still have crashed in the same way that it did every cycle.

sidewndr46 3y ago

No, to make it the same as Mt. Gox they'd have to sit on the money for at least a decade without paying anyone. Ever.

fshbbdssbbgdd 3y ago
Wow. I never followed up on that story after I heard that the payouts would be low. Wonder how long it takes for FTX depositors to get paid out.
- Lerc 3y ago
  Possibly a long time, MTGox could have paid out years ago if they had have paid the value in Yen of bitcoin balances at the time of collapse. They could have paid everyone in full and had some billion left over. This would have made a lot of people very unhappy. As the value of bitcoin went up it was clear a better solution was needed, and ultimately one of those solutions was decided upon then put to a vote. At each stage they were required to go slowly to go slowly to give people time to respond. People needed to be given a timeframe to make claims, verify their identity, vote etc. On top of that there were lawsuits (as there inevitably will be when someone is deciding how to divide up billions). Add to that plain old bureaucracy and managing paperwork of thousands of claimants. For the record MTGox had a deadline of something like October last year, and was given a 1 year extension on that by the courts. I'd say 50% chance they meet that and pay out this year and if not they get another extension and probably next year. Even after that payout they would not be entirely done, they have set aside a small (proportionally, probably huge in dollar terms) sum to deal with accounts that are in dispute. That'll last as lawsuits can last. The 'early' payment is for people who opted to forgo their portion of the disputed amount, which they might or might not have otherwise received. So yeah, it takes a long time, but because of very real complexity and dealing with people with differing opinions.

Analemma_ 3y ago

I'm not sure what your proposed alternative is? If you don't peg the payouts to crypto FMV at the time of the crash, then FTX is still insolvent (because their debts were also denominated in crypto), so nobody gets anything.

ClarityJones 3y ago
> nobody gets anything. The argument is that equity should get nothing, and the crypto-holder's assets should be adjusted for current value... just like how cash-holder's recovery would be adjusted for inflation.
- JumpCrisscross 3y ago
  > how cash-holder's recovery would be adjusted for inflation Is it really?
  - ClarityJones 3y ago
    > A debtor's promise of future payments is worth less than an immediate payment of the same total amount because the creditor cannot use the money right away, inflation may cause the value of the dollar to decline before the debtor pays, and there is always some risk of nonpayment. The challenge for bankruptcy courts reviewing such repayment schemes, therefore, is to choose an interest rate sufficient to compensate the creditor for these concerns. Till v. SCS Credit Corp, 541 US 465, 474 (2004).
    - deleted 3y ago
      [deleted]
    - JumpCrisscross 3y ago
      Post-judgement interest remains at the discretion of the court, and applies "when a creditor has a security interest in an amount greater than his or her claim, that 'oversecured' creditor is entitled to interest on the claim as well as repayment of principal" [1]. Whether the claim is on cash or collateral doesn't seem to have figured into the law. [1] https://bbklaw.com/resources/best-in-law-which-interest-rate-applies-in-bankruptcy https://bbklaw.com/resources/best-in-law-which-interest-rate...

JumpCrisscross 3y ago

> FTX equity holders could end up getting paid too FTX is under heavy litigation. If there is extra cash, it will go to those claimants.

kobalsky 3y ago

I thought the IRS popped a claim of $44b out of the hat [1], did this change? If they collect that, customers are bound to get pennies on the dollar. [1] https://www.forbes.com/sites/digital-assets/2023/05/14/the-irs-is-changing-crypto-bankruptcy-with-44-billion-of-claims-against-ftx-considerations-for-investors/ https://www.forbes.com/sites/digital-assets/2023/05/14/the-i...