The FTX repayments could spark a bullish trend in the crypto market

K33 Research analyst K33 Research predicts that FTX’s planned $14.5 Billion cash repayments for creditors may lead to bullish pressure on the crypto market. The timing of the payments and whether they will be approved by the court are uncertain. However, repayments should take place later in this year. The smaller creditors may be the ones most disappointed by FTX bankruptcy after the recent development. Ryan Salame, the former co-CEO of FTX, is fighting to get a sentence of only 18 months because of his small role in FTX and lack of awareness of its fraudulent activities.

FTX Repayment Plan May Drive Market Surge

Analysts at K33 Research predict that FTX’s repayment of cash to creditors will lead to a bullish purchasing pressure on the cryptocurrency market. FTX intends to refund at least $14.5 Billion in cash to customers who lost money due to the bankruptcy of its exchange.

In a report published on May 14, analysts Vetle Lunde, Anders Hesleth and others stated that the cash payments could lead to a bullish market overhang. The analysts compared FTX’s anticipated $14+ billion cash repayments to the crypto-based repayments planned by Mt. Gox and Gemini, which total only $10.6 billion. They pointed out that all repayments do not have to be bearish.

Analysts argued that FTX in-kind payments will neutralize any selling pressure, however they acknowledged that it was almost impossible to predict the future net selling or buying pressure. The analysts also think that timing is crucial in predicting the actual impact of these payments. Gemini is scheduled to repay $1.7 billion by early June. Mt. Gox is due to receive $8.9 Billion by the October 2024 deadline.

The court must still approve FTX’s repayment proposal before a date can be set. Most FTX creditors expect to receive repayments later in the year.

On May 8th, FTX announced that it would repay up to 16,3 billion dollars to creditors. Those with claim amounts under $50,000 are eligible to receive up to 118%, based upon the price of their cryptocurrency in November 2022. Some aren’t happy with this proposal. They claim that creditors won’t receive payments equal to the current market price. BitGo CEO Mike Belshe, who is also dissatisfied by the proposal, stated that victims do not receive their money in full.

How about smaller creditors?

The latest developments in the FTX case could lead to even more dissatisfaction. FTXcreditor has received a large claim from FTX EU (formerly K-DNA Financial Services).

Documents filed on the U.S. Bankruptcy Court of Delaware for the District of Delaware, filed May 15, indicate that the transfer was part of ongoing Chapter 11 proceedings previously conducted against FTX Europe. According to Rule 3001(e),(2) of the Federal Rules of Bankruptcy Procedures, the transfer took place in order to consolidate all creditors under one creditor.

It also poses some risk to smaller creditor, as they could be overlooked by larger creditors and get less favorable terms. Michael Bottjer represents the new single-claim holder FTXcreditor. However, the identity of transferor remains confidential. There are now new concerns regarding the transparency of the bankruptcy proceedings and possible manipulation.

Former FTX co-CEO argues for Leniency

Lawyers for the former CEO of FTX Digital Markets Ryan Salame have asked that he not be sentenced beyond 18 months. Salame’s lawyers argued in a May 14 filing with the United States District Court for Southern District of New York that an 18 month sentence would be sufficient, even after he had met his forfeiture and restitution obligations.

Salame plead guilty to conspiring to run an illegal money-transmitting company and to campaign finance fraud in September 2023. On May 28, Judge Lewis Kaplan will sentence him.

Salame’s attorneys claimed that he had no knowledge of fraudulent activity by Alameda or FTX. Salame also maintains that he has never stolen from customers or lied about them, and was misled into thinking the companies were legit. In the sentencing memorandum, it was also noted that, even though FTX collapsed in 2022 and Salame had no knowledge of the fraud, Caroline Ellison, Sam Bankman, and Sam Bankman Fried misled Salame and other customers about the solvency of the company.

Salame notified the Securities Commission of the Bahamas of the fraud on November 9, 2022. This was just before Bankman-Fried resigned from FTX and filed for bankruptcy. The lawyers for Salame argued an 18-month term was appropriate, given his small part in the crimes he admitted to and low chances of repeating them.

Salame is the second individual connected with FTX or Alameda Research who will be sentenced, after Bankman Fried. Since his guilty plea, he has been released on $1 million bail. In exchange for his guilty plea, he agreed to pay $6 million as penalties to the U.S. Government and another $6 million to FTX’s debtors. In addition, he will surrender a property and an enterprise. He has no assets left.

Caroline Ellison and Gary Wang of FTX, as well as Nishad and Nishada Singh, who pleaded guilt, will still be facing the chopping blocks.

What happened to FTX?

The cryptocurrency market suffered a significant downturn in late 2021 or early 2022. Bitcoin and the other big cryptos lost a large amount of value. While other platforms were closing down, FTX continued to grow and attract new competitors.

FTX’s fortunes abruptly ceased in November 2022, when CoinDesk published a CoinDesk article on Alameda Research. This company was founded also by Sam Bankman Fried. Alameda Research’s assets are heavily linked to FTX digital token FTT, according to the article. Leaked financial statements also showed a worrying lack of diversification between the companies. The balance sheet revealed $9 billion liabilities against $900 millions in assets, and an alarming negative balance of $8 billion.

Alameda’s intertwined relationships with FTX became more alarming when it was revealed that Alameda regularly borrowed money from FTX using primarily customer deposits. FTX did not provide standard financial reporting, as it never provided audited statements. This left no record of the company’s cash flow and ability to pay liabilities.

Binance agreed initially to purchase FTX by Nov. 8, 2020 in an effort to stabilize the situation. Changpeng Zhao, then Binance CEO and an early investor in FTX, decided to pull out of the deal due to the mishandling and investigations by the U.S. The decision was made at a time when FTX’s financial problems were becoming more apparent.

It is likely that the CoinDesk report and leaked balance sheets were the triggers for the collapse of FTX in 2022. Binance announced that it would sell the FTT tokens because of mishandled money. This led to a huge drop in FTT value.

FTX could not meet its obligations when faced with withdrawal requests of billions. Despite Bankman-Fried’s efforts to cover the $8 billion shortfall, the situation worsened, leading FTX, on November 8, to stop customer withdrawals and file bankruptcy.

Investigations revealed later that Bankman-Fried used FTX money for luxury purchases, advertising campaigns and political contributions. This made many people bitter over the demise of the company.