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.
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The Online Safety Act is putting free speech at risk and needs significant adjustments, Elon Musk’s social network X has warned.
New rules that came into force last week require platforms such as Facebook, YouTube, TikTok and X – as well as sites hosting pornography – to bring in measures to prove that someone using them is over the age of 18.
The Online Safety Act requires sites to protect children and to remove illegal content, but critics have said that the rules have been implemented too broadly, resulting in the censorship of legal content.
X has warned the act’s laudable intentions were “at risk of being overshadowed by the breadth of its regulatory reach”.
It said: “When lawmakers approved these measures, they made a conscientious decision to increase censorship in the name of ‘online safety’.
“It is fair to ask if UK citizens were equally aware of the trade-off being made.”
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What are the new online rules?
X claims the timetable for platforms to meet mandatory measures had been unnecessarily tight – and despite complying, sites still faced threats of enforcement and fines, “encouraging over-censorship”.
“A balanced approach is the only way to protect individual liberties, encourage innovation and safeguard children. It’s safe to say that significant changes must take place to achieve these objectives in the UK,” it said.
A UK government spokesperson said it is “demonstrably false” that the Online Safety Act compromises free speech.
“As well as legal duties to keep children safe, the very same law places clear and unequivocal duties on platforms to protect freedom of expression,” they added.
Users have complained about age checks that require personal data to be uploaded to access sites that show pornography, and 468,000 people have already signed a petition asking for the new law to be repealed.
In response to the petition, the government said it had “no plans” to reverse the Online Safety Act.
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Why do people want to repeal the Online Safety Act?
Reform UK’s leader Nigel Farage likened the new rules to “state suppression of genuine free speech” and said his party would ditch the regulations.
Technology Secretary Peter Kyle said on Tuesday that those who wanted to overturn the act were “on the side of predators” – to which Mr Farage demanded an apology, calling Mr Kyle’s comments “absolutely disgusting”.
Regulator Ofcom said on Thursday it had launched an investigation into how four companies – that collectively run 34 pornography sites – are complying with new age-check requirements.
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These companies – 8579 LLC, AVS Group Ltd, Kick Online Entertainment S.A. and Trendio Ltd – run dozens of sites, and collectively have more than nine million unique monthly UK visitors, the internet watchdog said.
The regulator said it prioritised the companies based on the risk of harm posed by the services they operated and their user numbers.
It adds to the 11 investigations already in progress into 4chan, as well as an unnamed online suicide forum, seven file-sharing services, and two adult websites.
Ofcom said it expects to make further enforcement announcements in the coming months.
Zarah Sultana and Jeremy Corbyn may be the figureheads of a new left-wing party, but already there is a battle over leadership.
The confusion behind the initial launch speaks to a wider debate happening behind closed doors as to who should steer the party – now and in the future.
Already, in the true spirit of Mr Corbyn’s politics, there is talk of an open leadership contest and grassroots participation.
Some supporters of the new party – which is being temporarily called “Your Party” while a formal name is decided by members – believe that allowing a leadership contest to take place honours Mr Corbyn’s commitment to open democracy.
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Jeremy Corbyn open to ideas on new party name
They point out that under Mr Corbyn’s leadership of the Labour Party, members famously backed plans to make it easier for local constituency parties to deselect sitting MPs – a concept he strongly believed in.
His allies now say the former Labour leader, who is 76, is open to there being a leadership contest for the new party, possibly at its inaugural conference in the autumn, where names lesser known than himself can throw their hat into the ring.
“Jeremy would rather die than not have an open leadership contest,” one source familiar with the internal politics told Sky News.
However, there have been suggestions that Ms Sultana appears to be less keen on the idea of a leadership contest, and that she is more committed to the co-leadership model than her political partner.
Those who have been opposed to the co-leadership model believe it could give Ms Sultana an unfair advantage and exclude other potential candidates from standing in the future.
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Corbyn’s new political party isn’t ‘real deal’
One source told Sky News they believed Mr Corbyn should lead the party for two years, to get it established, before others are allowed to stand as leader.
They said Ms Sultana, who became an independent MP after she was suspended from Labour for opposing the two-child benefit cap, was “highly ambitious but completely untested as leader” and “had a lot of growing into the role to do”.
“It’s not about her – it’s about taking a democratic approach, which is what we’re supposed to be doing,” they said.
“There are so many people who have done amazing things locally and they need to have a chance to emerge as leaders.
“We are not only fishing from a pool of two people.
“It needs to be an open contest. Nobody needs to be crowned.”
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Corbyn’s new party shakes the left
While Mr Corbyn and Ms Sultana undoubtedly have the biggest profiles out of would-be leaders, advocates for a grassroots approach to the leadership point to the success some independent candidates have enjoyed at a local level – for example, 24-year-old British Palestinian Leah Mohammed, who came within 528 votes of unseating Health Secretary Wes Streeting in Ilford North.
Fiona Lali of the Revolutionary Communist Party, who stood in last year’s general election for the Stratford and Bow constituency, has also been mentioned in some circles as someone with potential leadership credentials.
However, sources close to Mr Corbyn and Ms Sultana downplayed suggestions of any divide over the leadership model, pointing out that their joint statement acknowledged that members would “decide the party’s direction” at the inaugural conference in the autumn, including the model of leadership and the policies that are needed to transform society.
A spokesperson for Mr Corbyn told Sky News: “Jeremy will be working with Zarah, his independent colleagues, and people from trade unions and social movements up and down the country to make an autumn conference a reality.
“This will be the moment where people come together to launch a new democratic party that belongs to the members.”
Sky News has approached Ms Sultana for comment.
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