In a recent development in the ongoing FTX bankruptcy case, debtors of the now-defunct cryptocurrency exchange have proposed a revised Chapter 11 reorganization plan.
The plan aims to determine the value of customer asset claims based on crypto asset prices at the time of the exchange’s collapse in November 2022. This decision has sparked discussions and debates within the cryptocurrency community, given the significant price fluctuations in the crypto market since the filing.
Crypto claims valuation tied to petition date
FTX debtors have submitted a revamped Chapter 11 reorganization plan, outlining their intention to retroactively assess the value of customer claims to the date when the exchange filed for bankruptcy on November 11, 2022.
Under this proposed plan, any claim against the exchange meant to compensate the claimant will be based on the crypto asset’s value at the time of the bankruptcy filing.
To determine the value of these claims, conversion rates specified in a conversion table will be employed. However, this approach has sparked controversy due to the considerable increase in cryptocurrency prices since the bankruptcy filing.
For instance, Bitcoin (BTC), which was valued at $17,036 during the filing, has surged to $42,272 at the time of this report, leading to concerns regarding the fairness of the valuation process.
Complexities surrounding FTX bankruptcy
Joseph Moldovan, Chair of Business Solutions, Restructuring, and Governance Practices at Morrison Cohen, a New York-based law firm, pointed out the uniqueness of the FTX bankruptcy case.
He stated, “What’s most unusual about the FTX bankruptcy is that the debtors are complex entities with significant amounts of debt.” This complexity has added a layer of intricacy to the bankruptcy proceedings, making it a closely watched case in the legal and cryptocurrency communities.
In late November, FTX received approval to sell approximately $873 million worth of trust assets. The proceeds from this sale are intended to be used to repay the creditors of the collapsed exchange.
This move was seen as a significant step toward resolving the financial obligations stemming from FTX’s shutdown. However, the valuation of customer claims continues to be a contentious issue.
The ongoing debate
The decision by FTX debtors to value crypto claims based on petition date market prices has ignited a debate within the cryptocurrency community. While proponents argue that it ensures fairness by reflecting the situation at the time of the exchange’s collapse, critics contend that it fails to account for the significant price gains that have occurred since the filing.
The rising value of cryptocurrencies, particularly Bitcoin, has left some customers concerned that their claims may be significantly undervalued if the plan is approved. This issue underscores the challenges and complexities of integrating the fast-moving cryptocurrency market with the traditional bankruptcy process.