FTX’s $3.4B crypto liquidation: What it means for crypto markets
The FTX bankruptcy lawsuit reached a key juncture in the second week of September after the United States Bankruptcy Court for the District of Delaware approved the sale of $3.4 billion worth of crypto assets.
The court also approved $1.3 billion in brokerage and government-recovered assets as part of the liquidation process, with $2.6 billion in cash bringing the total tally to $7.1 billion in liquid assets.
Among the different cryptocurrencies set for liquidation, Solana (SOL) tops the pile with a value of $1.16 billion, and Bitcoin (BTC) is the second-largest asset held, valued at $560 million.
Other assets to be liquidated include $192 million in Ether (ETH), $137 million in Aptos (APT), $120 million in Tether (USDT), $119 million in XRP (XRP), $49 million in Biconomy Exchange Token (BIT), $46 million in Stargate Finance (STG), $41 million in Wrapped Bitcoin (WBTC) and $37 million in Wrapped Ethereum (WETH).
Bitcoin, Ether and insider-affiliated tokens can only be sold after giving a 10 days advance notice to U.S. trustees appointed by the Department of Justice. The court also permitted hedging options for these assets.
The allowance for hedging is significant because FTX can use various financial instruments, such as futures, options and perpetual swaps to offset the losses.
The ruling drew industry-wide attention due to the significant amount of crypto assets approved for sale, with many questioning the potential impact on the crypto market.
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Joshua Garcia, partner at Web3-focused legal firm Ketsal, told Cointelegraph that determining whether the liquidation was the right decision is challenging. He said that bankruptcy courts have to focus on what is good for creditors, and creditors may care more about the recovery of funds rather than a potential slump in the price of the assets being liquidated.
“Whether or not this decision impacts the token price is perhaps not the court’s primary concern. The potential or imagined market impact may mean nothing to a judge or creditors committee if it doesn’t make creditors whole, at least in the eyes of the court. The concern here is millions of users suffered substantial losses due to FTX’s actions. Making victims as whole as possible is the top priority.”
The discovery of billions of dollars of liquid assets also relieved many creditors in the case.
Blake Harris, an asset protection attorney, believes unearthing liquid assets can be a game-changer in the FTX bankruptcy case. He told Cointelegraph that the newfound liquid assets “could offer more flexibility in asset management, allowing for a strategic approach that balances immediate legal requirements with broader market implications,” adding that “the discovery of such assets could provide some relief in terms of meeting immediate financial obligations, but it’s also essential to consider how these assets will be managed moving forward to prevent similar situations in the future.”
Market analysts predicted that Solana and Aptos prices have the highest chance of facing price volatility after liquidation based on each token’s daily trading volume.
How much of an impact will FTX’s liquidation have on the market?#SOL (81%) and #APT (74%) will have the most impact when you look at the daily trading volume of each token#BTC, #XRP, and #BNB liquidations will have very little impact on the market as each are 1% or less of… pic.twitter.com/XXIoZbKfBm
— Velvet.Capital (@Velvet_Capital) September 17, 2023
FTX liquidation won’t risk a crypto market cascade
The bankruptcy court has taken measures to ensure that the liquidation of FTX assets won’t become a burden for the crypto market.
The court order permits FTX to sell digital assets through an investment adviser in weekly batches in accordance with pre-established rules. Galaxy Digital has been entrusted with liquidating the assets and maximizing returns for FTX’s creditors while ensuring market stability.
The court also permitted FTX “to utilize staking options available through their qualified custodians using their respective private validators if the Debtors determine in the reasonable exercise of their business judgment that such activities are in the best interests of their estates.”
In the first week, there will be a $50 million cap on the sale of assets, followed by a $100 million cap in the succeeding weeks. The cap can be increased up to $200 million per week with the previous written consent of the creditors’ committee and ad hoc committee after court approval.
Anthony Panebianco, a commercial business litigator, told Cointelegraph that legally, a court may permit a debtor to liquidate its assets “outside the normal scope of business” in order to maximize the value from the sale to repay creditors, adding:
“The interesting part is that the court took an additional step to look at the general marketplace for the assets it is granting liquidation of. That is, the court is looking at protecting both creditors and non-creditors of FTX by the manner in which it has ordered the liquidation process.”
He also highlighted the different liquidation strategies for BTC and ETH. He said the “court-approved hedging arrangements for Bitcoin and Ether are subject to certain investment guidelines,” adding that “the court did not include Solana in these eligible assets for hedging arrangements, likely because of FTX’s large position in Solana. All three appear to be eligible for staking arrangements, again with oversight.”
Among all crypto assets held by FTX slated for liquidation, Solana became a major point of discussion owing to the $1.1 billion of the asset on the bankrupt crypto exchange’s balance sheet. According to market analysts, people considering a short position should be wary of the unlock period of the tokens held by FTX, with a complete unlock in 2028.
Looking at FTX’s SOL staking unlock schedule, a significant chunk of these tokens will slowly make their way to the market via linear vesting or scheduled unlocks until 2028, with the largest unlock scheduled for March 2025. Most of the SOL is locked in staking contracts.
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The linear vesting program offers a simple mechanism to gradually release a token balance over certain periods.
Currently, only 24% of the total $1.16 billion SOL tokens have been unlocked. Apart from Solana, Aptos tokens are also 100% locked and will be unlocked in phases over the next few years.
In its own analysis, Coinbase crypto exchange said that the scheduled and phased liquidation will keep the market stable, noting the strict controls in place for selling certain “insider-affiliated” tokens and a major part of FTX’s SOL holdings locked up until around 2025 due to the token’s vesting schedule.
While many experts state that markets are more or less safe amid the FTX liquidation, the exchange’s saga is far from over, with former CEO Sam Bankman-Fried’s legal team sparring with prosecutors for special conditions ahead of the trial.
Moreover, the exchange’s alleged illegal behavior has dealt a significant blow to public trust in the crypto ecosystem.
Donald Trump has acted for his country and I will act in Britain’s interests, Sir Keir Starmer has said after the US president imposed 10% tariffs on UK goods.
The prime minister told business chiefs at an early morning meeting in Downing Street: “Last night the president of the United States acted for his country, and that is his mandate.
“Today, I will act in Britain’s interests with mine.”
Politics latest: Starmer says UK will react to tariffs with ‘cool and calm head’
Mr Trump announced sweeping tariffs on countries around the world, with the UK getting off relatively lightly with 10% tariffs – branded “kind reciprocal” by the president – compared with China, which will have to pay 54% tariffs and 20% for the EU.
A previously announced 25% tariff on British car imports to the US came into effect at 5am on Thursday.
Sir Keir said the government is moving “to the next stage of our plan” after negotiations failed to fend off any tariffs ahead of Wednesday’s announcement.
He promised any decisions “will be guided only by our national interest, in the interests of our economy, in the interests of businesses around this table, in the interests of putting money in the pockets of working people”.
Sir Keir Starmer hosted business leaders in Downing Street on Thursday morning. Pic: Simon Dawson/No 10 Downing Street
“Clearly, there will be an economic impact from the decisions the US has taken, both here and globally,” he told the business leaders.
“But I want to be crystal clear: we are prepared, indeed one of the great strengths of this nation is our ability to keep a cool head.”
Business Secretary Jonathan Reynolds told the Commons on Thursday the government is considering retaliatory measures and requested British businesses let him know what the tariff implications will be for them.
An “indicative list of potential products” that could be targeted was later published, with 8,364 categories covering about 27% of UK imports from the US.
Earlier, Mr Reynolds told Wilfred Frost on Sky News Breakfast his “job is not done” when it comes to negotiating a trade deal
Mr Reynolds refused to say if the tariffs might cause a global recession and said the UK has safeguards in place to ensure it is not flooded with goods that would have gone to other countries.
“We’ll take any powers we need to protect the British people and the British economy from that,” he said.
“What we have directly within our power, alongside that is, of course, the ability to negotiate a better deal in the national interest for the UK. That’s been our approach to date and we’ll continue with that.”
Read more:
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Tariffs will have consequences for globalisation, the US economy and geopolitics
Trump’s tariffs explained
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Moment Trump unveils tariffs chart
UK will be template for other nations’ deals
The business secretary also suggested if the UK is successful in negotiating a deal with the US “there’ll be a template there” for other countries to “resolve some of these issues”.
He reiterated statements he and the PM have made over the past few days as he said: “America is a friend, America’s our principal ally.
“Our relationship is an incredibly strong economic one, but also a security one, a political one as well.”
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Sky’s Ed Conway examines how economies across the world are impacted by tariffs
Government ‘very slow’ to start talks
Conservative shadow home secretary Chris Philp told Sky News the government had been “very slow” to start negotiating a free trade agreement with the US, and they should have started when Mr Trump was elected in November, even though he did not get sworn in until the end of January.
He said the UK being hit by a lower tariff than the EU was “one of the benefits of Brexit”.
However, he said the 25% tariff on car exports to the US is “very, very serious” and the global impact is “bad news for our economy”.
The list has landed.
More than 400 pages of thousands of goods that could be affected by reciprocal tariffs against the US.
Everything from fresh domestic ducks to sea-going dredgers makes the cut; most symbolic, however, are iconic American items like jeans, motorcycles and whiskey.
Would Donald Trump stand for a levy on Levi’s? It’s not the first time this battle has played out.
When the US president announced tariffs on steel and aluminium in his first term, the EU responded with its own – including a symbolic 25% tax on American whiskey.
At the time, the UK, then an EU member, followed suit.
But as the UK tries to carve its own path outside the bloc, vindicated by the baseline 10% tariffs imposed instead of the EU’s rate of 20%, the aim is to avoid retaliation.
The government want us to know “all options are on the table” – but that is not how they want this to play out.
“This is not a short-term tactical exercise,” the prime minister said this morning.
Despite the business secretary’s best efforts during his recent trip to Washington to try to secure a UK tariffs carveout, no deal was reached in time.
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How will tariffs hit working people?
Mr Trump wanted his big bang, board brandishing moment; carveouts for certain countries would have softened the impact of his speech.
But with 90-plus countries on the tariff billboard, how far along the queue is any UK deal?
And how much are we willing to give? Will the sensitive subject of chlorinated chicken be on the table? What of the agreement to cut taxes on big tech companies that Mr Trump wants?
Lots of questions. The day after the surreal night before is too soon to know all the answers, but this is about politics as much as it is about economics.
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As the prime minister launched Labour’s local election campaign in Derbyshire today, he talked about potholes, high streets and school meals. Every question I heard was about tariffs.
Decisions made across the Atlantic are looming large. Tariffs may not directly sway many votes in the local elections, but the consequences for Rachel Reeves’s fiscal headroom and the amount of money she has to spend, or save, will have an impact before too long.
Politics
Woman whose son Martyn Hett died in Manchester Arena terror attack welcomes new law in his name
There is a certain steel about a mother who has lost a child.
It’s hard to put your finger on, but perhaps after going through hell you re-emerge made of a different material to the rest of us.
Figen Murray has been utterly relentless after her son Martyn Hett was killed in the Manchester Arena terror attack at an Ariana Grande concert in May 2017.
When she worried that politicians’ support was wavering last year, she walked 200 miles from the place Martyn died to Downing Street – and needed a hip replacement after.
And on Thursday, Martyn’s Law – rules to better train staff and safeguard venues against terrorists – was passed by royal assent, finally becoming law.
I sat down with Figen just before she went into Number 10 Downing Street to meet the prime minister, and she told me after six years of campaigning, the moment “feels surreal”.
She continued: “The Manchester attack was a wake up call. But it also made question, who are these people who do these things? Why are they doing it? What are governments doing about it? And I realised the only way I could get the answers was to educate myself – so I did a masters in counter-terrorism.
“I’ve recognised that people were radicalised. When you were a newborn baby, you were innocent but somebody poisoned your mind.
“There are people who try to groom young people into their ideology, and I want them to recognise where these people operate, the tricks they use, the things they say and how they can recognise themselves or others in the process of being radicalised and how to get out.”
Martyn Hett
She also supports the initiative to show the Netflix drama Adolescence in schools: “I think it’s absolutely important that young people see that programme and they learn more about it. It’s a good thing and I’m hoping they’re taking it further.”
There will be a debate – certainly – about the financial impact the legislation will have on venues, but the legislation has been welcomed by safety campaigners.
Emma Kay, co-founder of personal safety app WalkSafe which geo-fences events and stadiums, said: “The passing of Martyn’s Law is hugely progressive move that will keep young people safe on nights out.
“Our research has shown that 63% of women prefer to visit venues with safety initiatives in place. People want safer experiences and to know their friends and loved ones arrive home safely.”
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Martyn’s Law: Terrorism response bill named after Manchester Arena bombing victim becomes law
When I sat down with Figen, I asked her how Martyn would feel today.
“Knowing Martyn, the party animal he was, he’d throw the biggest party ever,” she said.
“He was full of life and lived life not just at 100 miles an hour, but 200 miles an hour.
“You would definitely know when he came through the door, and he had an incredible ability to make everyone feel that they are the most important person in that moment in his life. And I really miss that.”
You can watch Sophy Ridge’s full interview with Figen Murray on the Politics Hub at 1900 on Sky News.
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