This decision comes at a critical time for the crypto market, as creditors are poised to receive more than $12 billion through the court-sanctioned payout plan, raising the possibility that some of these funds could be reinvested into the digital asset ecosystem, potentially influencing market prices.

Market Awaits FTX Liquidation Impact

In June, FTX reported having $12.6 billion available for customer repayments, a figure that could increase to $16.5 billion as additional assets are identified and liquidated. 

The initial distribution of around $1.1 billion, while relatively modest, is expected to provide support for Bitcoin (BTC) and other cryptocurrencies such as Solana (SOL) and Ethereum (ETH), according to Alex Thorn, the head of research at Galaxy Digital Holdings.

Benjamin Celermajer, co-chief investment officer at Magnet Capital, also noted that the upcoming payouts “effectively provide liquidity to known crypto traders”. He highlighted the likelihood that some of these funds will flow back into the cryptocurrency market, potentially acting as a price catalyst for “liquidity-starved assets.â€?/p>

However, it is important to note that the repayments from FTX will not occur immediately. Bloomberg reports that the exchange must establish a trust and hire a company to oversee the distribution process. 

Repayments Expected To Take Years?

Galaxy Digital says payments to smaller creditors may begin as early as December, while larger claims will be addressed in the first half of next year. Some remaining claims could take up to three years to resolve.

Research firm K33 has estimated a “latent demand from FTX reallocators�of around $2.4 billion. However, they caution that the impact on the crypto market may be “soft�due to the staggered nature of the repayments expected over the next year.

In a related development, Caroline Ellison, the former CEO of FTX’s trading arm, Alameda Research, has agreed to hand over her assets to the exchange’s debtors to settle a claim brought against her by the FTX bankruptcy estate. 

Ellison has reached a settlement that includes the transfer of her assets that have not already been confiscated by the government or used for legal fees, FTX said in a court filing on Monday. 

Ellison, who is also the former romantic partner of the now convicted Sam Bankman-Fried, also agreed to cooperate with the bankruptcy estate in current and future investigations. Upon completion of the settlement, Ellison will retain only certain physical personal property.

When writing, the defunct exchange’s native token FTT is trading at $2.25, down from an 8-month high of $3 reached after the bankruptcy plan was approved on Monday.  

Featured image from DALL-E, chart from TradingView.com

Court Approves FTX Settlements

The approved plan includes a series of settlements with FTX customers, creditors, US government agencies, and liquidators tasked with managing the company’s operations outside the United States. 

These settlements prioritize the repayment of customers before addressing claims from government regulators, allowing FTX to utilize its assets effectively in the repayment process.

Under the approved plan, FTX customers will receive at least 118% of the value of their accounts as of November 2022, the month the failed crypto exchange filed for bankruptcy.

Customer Reactions Remain Mixed

According to Reuters, FTX has characterized this outcome as a triumph for its creditors, attributing it to the successful recovery of cash and crypto assets that had initially gone missing amid the chaos surrounding the company’s collapse. 

Additionally, FTX has raised further funds by liquidating other assets, including its investments in various technology firms, such as the artificial intelligence (AI) startup Anthropic.

However, customer reactions to the repayment plan have been mixed. Many former users of the exchange have expressed disappointment, feeling that the collapse of FTX prevented them from taking advantage of a significant rebound in cryptocurrency prices since the market hit its lowest point in 2022.

Some customers have voiced objections to the plan, arguing for higher repayments that reflect the recent increases in crypto values. FTX has maintained that it cannot simply return the cryptocurrency assets originally deposited by customers, as those assets were misappropriated by founder Sam Bankman-Fried. 

Bankman-Fried, who was sentenced to 25 years in prison in March for defrauding FTX customers, has since appealed his conviction, further complicating the aftermath of the exchange’s failure.

At the time of writing, the exchange’s native token, FTT, has jumped 20% to the $3 mark for the first time in nearly 8 months amid the first quarter of the year’s uptrend. 

CoinGecko data also shows that FTT has seen a notable 176% increase in trading volume in the last few hours, but is still down nearly 97% from its all-time high of $84, reached in September 2021. 

Featured image from DALL-E, chart from TradingView.com