FTX Bankruptcy Claims Surge as Investors See Value

The bankruptcy claims market has become increasingly bullish regarding the debts of the defunct cryptocurrency exchange FTX, as major credit investors have rushed to purchase FTX debts.

Since the beginning of 2023, investors including Silver Point Capital, Diameter Capital Partners, and Attestor Capital have acquired more than $250 million worth of FTX debts, Bloomberg reported on September 21, citing an in-house analysis of public court filings.

The FTX debt has also attracted investors such as Hudson Bay Capital Management, which reportedly purchased a $23 million FTX claim and then sold approximately fifty percent of it to Diameter.

In response to rising demand, the cost of certain FTX claims has soared this year. Some low-ranking FTX claims have increased by 191%, from $0.12 in early 2023 to approximately $0.35 in recent weeks, according to data from crypto debt broker Claims Market.

Historical indicative prices of “bid” and “ask” for larger FTX claims. Source: Claims Market

According to the charts of the Claims Market, the historical indicative prices of “bid” and “ask” for larger FTX claims have also been increasing this year. The debt investors have amassed FTX Group’s claims, speculating that the company’s bankruptcy proceeding will release additional value by the time it is concluded.

“People made careers off of Lehman and Madoff — I think people see FTX as a Lehman or Madoff. The guys that are buying in these dockets, I consider them some of the smartest people in distressed.”

The resolution of significant bankruptcies can take years, and it can be difficult to determine the value of a defunct company, particularly in crypto. According to some investors in bankruptcy claims, the total value of all traded FTX claims may exceed the $250 million seen in public court records.

Thomas Braziel, an investor in bankruptcy claims, reportedly stated that buyers and sellers must sometimes wait months to submit the necessary paperwork for a debt trade.

He stated that he was aware of individual FTX claims exceeding $100 million. Braziel stated in the report that many investors have been purchasing the rights to FTX crypto accounts with assets stuck on the platform since November 2022, when FTX suspended all withdrawals.

Contrarian Capital Management reportedly acquired an FTX account containing a large quantity of Bitcoin and Ethereum in addition to $430,000 in currency. In addition, some crypto bankruptcies have taken years to resolve.

Mt. Gox, a once-major cryptocurrency exchange that was compromised in 2014, has recently extended by one year the deadline for returning Bitcoin holdings to investors.

As of the time of writing, Bitcoin’s value has increased by more than 3,000% since Mt. Gox prohibited its customers from withdrawing cryptocurrencies following the breach.

The announcement follows a reminder from FTX restructuring executives to investors to complete the claims process through the FTX Customer Claims Portal by September 29, 2023.