In a significant development, the bankrupt cryptocurrency exchange FTX has obtained approval from a U.S. court to liquidate its cryptocurrency assets. This decision, according to the company, will enable it to reimburse customers in U.S. dollars and mitigate the risks associated with cryptocurrency market price volatility.
U.S. Bankruptcy Judge John Dorsey gave the green light to FTX’s proposal during a court hearing held in Wilmington, Delaware. This approval grants FTX the authority to sell cryptocurrency assets amounting to up to $100 million per week. Additionally, it allows FTX to enter into hedging and staking agreements aimed at minimizing the exposure to price volatility risks. These agreements would also facilitate the generation of passive income from more mainstream cryptocurrencies such as bitcoin and ether.
FTX’s request received support from the official committee appointed to represent its customers in the bankruptcy proceedings. Furthermore, an ad hoc committee representing non-U.S. customers with deposits on FTX.com’s international exchange also backed the proposal.
During the hearing, Judge Dorsey dismissed concerns raised by two FTX customers who voiced apprehension that FTX’s asset sales could potentially lead to a crash in cryptocurrency prices. They also expressed doubts regarding whether FTX actually possesses all the cryptocurrencies held in its accounts.
In response to these concerns, FTX outlined in its court filings that it was well aware of the market risks associated with liquidating large amounts of cryptocurrencies. The company stated that it had engaged the services of the U.S. crypto firm Galaxy as an investment advisor, primarily to manage the risk of “information leakage” that could result in short-selling activities and sharp price declines in the cryptocurrency market.
However, FTX also underscored the risks associated with maintaining its current crypto portfolio. This strategy could potentially lead to FTX holding certain assets as their prices continue to decline, as highlighted in FTX’s court documents.
Judge Dorsey further granted FTX the option to increase the pace of its asset liquidation to as much as $200 million per week if both creditors’ committees reach a consensus on the matter.
FTX disclosed in a court filing on Monday that it currently holds cryptocurrency assets valued at $3.4 billion. This includes $1.16 billion in Solana, $560 million in bitcoin, and $192 million in ether.
FTX filed for bankruptcy in November 2022 amid allegations of misappropriation and loss of billions of dollars worth of customers’ cryptocurrency deposits. Since then, FTX has managed to recover over $7 billion in assets, earmarked for reimbursing customers. The exchange is also actively pursuing additional recoveries through legal action against FTX insiders and other entities that received funds from FTX prior to its bankruptcy filing.
It’s noteworthy that FTX’s founder, Sam Bankman-Fried, has pleaded not guilty to charges related to defrauding FTX customers by using their funds to support his high-risk investments. Several former FTX executives have also pleaded guilty to various criminal charges in connection with the case.
