FTX restructuring plan sparks market controversy: Cryptocurrency claims assessed at "bankruptcy price"

The closure of the cryptocurrency exchange FTX has not only caused market turmoil but also brought a series of complex legal and financial issues. Recently, the debtors of FTX's assets have proposed a revised Chapter 11 reorganization plan, which includes a significant provision that has sparked widespread discussion and controversy.

Core Content of FTX Restructuring Plan: Claims to Be Settled at the Price at the Time of Bankruptcy Filing

FTX debtors submitted a revised Chapter 11 restructuring plan on 12/16. A key provision of the plan is to "treat cryptocurrency claims at their cash value at the time of the bankruptcy filing."

This decision means that despite the price increase of most cryptocurrencies since the bankruptcy - for example, Bitcoin was around $17,000 at the time and is now trading over $42,000 - creditors may still face potential losses in terms of unrealized gains.

Creditors' Concerns and Opposition

A creditor of FTX named Sunil Kavuri has expressed opposition to the restructuring plan.

He pointed out that the plan violates FTX's terms of service, which state that ownership of digital assets belongs to the customers, not the exchange. Kavuri emphasizes that FTX founder SBF was convicted of stealing digital assets owned by FTX customers, further indicating that creditors should have the right to receive the full value of their assets.

Sunil Kavuri, an @FTX_Official creditor, thinks the failed exchange could come back to life.

"I looked at the financial statements, which was built up by the bankruptcy restructuring team, and it's extremely profitable," he says.

Watch more: https://t.co/fcAFO8yzIl pic.twitter.com/T4hwV8vujh

— CoinDesk (@CoinDesk) April 4, 2023

Voting and Implementation of the Restructuring Plan

Certain categories of creditors will have the opportunity to vote on the revised restructuring plan. The plan outlines that to be effective, certain approval thresholds need to be met, including amounts and numbers of creditors. In a scenario of "cramdown," even if certain classes of creditors do not agree to the plan, they may be compelled to accept it as long as the solution is deemed "fair and equitable."

The collapse of FTX and its subsequent restructuring plan highlights the vulnerabilities and legal challenges in the cryptocurrency market. As the restructuring plan progresses and the market reacts, this turmoil could have far-reaching implications for the entire cryptocurrency sector.