Main Pointers:

• FTX granted authorization to sell $873 million in trust assets for creditor repayment following the exchange’s collapse in 2022.

• Grayscale’s flagship products, including GBTC and ETHE, are among the trusts FTX can liquidate, totalling over $800 million.

In a recent development, the Delaware bankruptcy court granted bankrupt crypto exchange FTX permission to sell approximately $873 million in trust assets. These assets will be utilized to compensate creditors affected by the exchange’s collapse in 2022, as detailed in a filing dated November 29.

Trust Assets and Their Valuation

The sanctioned $873 million in assets predominantly comprises stakes held by FTX in trusts managed by Grayscale Investments, amounting to $807 million. Additionally, the custody service provider Bitwise’s assets, valued at $66 million, contribute to this fund.

Although the court filing reflects an asset valuation of $744 million dated October 25, 2023, these assets have since experienced an increase in value.

Trusts Eligible for Sale

FTX is authorized to liquidate holdings from various cryptocurrency trusts, including the Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE), and Bitwise 10 Crypto Index Fund (BITW). The exchange holds over 22 million GBTC units, valued at $691 million, and 6.3 million ETHE shares, currently worth around $106 million.

Additionally, the Grayscale Ethereum Classic Trust (ETCG), Litecoin Trust (LTCN), and Digital Large Cap Trust (GDLC) are among the trusts FTX can sell to generate funds aimed at compensating affected customers.

Asset Recovery and Legal Proceedings

Following the collapse of Sam Bankman-Fried’s former empire in November 2022, FTX administrators, led by John J. Ray III, have been diligently working to recover assets. To date, approximately $7 billion in assets has been reclaimed, nearly half of which are in cryptocurrency, totaling $3.4 billion.

FTX debtors estimated misappropriated customer assets at $8.7 billion in June. Meanwhile, Bankman-Fried, convicted on seven fraud-related charges on November 2, awaits sentencing scheduled for March 28. Presently detained in Brooklyn’s Metropolitan Detention Center, recent reports indicate that Bankman-Fried traded four mackerels for a haircut while in detention.

Legal Approval and Path Ahead

The approval granted by the bankruptcy court marks a significant step for FTX in repaying its creditors by liquidating a substantial portion of its trust assets. It remains to be seen how this decision will impact the exchange’s ongoing efforts to recover and redress its customers’ financial losses.