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Recent headlines in mainstream media, and something we also reported on, suggest that FTX, the bankrupt cryptocurrency exchange, has sufficient funds to fully compensate its creditors, with reports claiming that the company has billions more than necessary for this purpose. However, this narrative is being challenged by financial analysts and industry experts who argue that the reality is far more complex.
Anthony Pompliano, a leading figure in the cryptocurrency space and the author of the Pomp Letter, provided his views on the situation as things are not as they seem. According to Pompliano, while it appears that FTX has between $14 billion and $16 billion available to pay out creditors—over the $11 billion it owes—the actual repayment process is fraught with complications.
“Mainstream media headlines this morning read that ‘FTX Has Billions More Than Needed to Pay Bankruptcy Victims’ and that ‘FTX says most customers of the bankrupt crypto exchange will get all their money back.’ This is inaccurate,” Pompliano explains.
He elaborates on how FTX managed to accumulate these funds: “First, they had cash on their balance sheet before they went bankrupt. Second, they were able to sell a number of investments, such as an investment in the hot AI startup Anthropic, to generate more cash. And lastly, the various crypto assets FTX held have appreciated hundreds of percent over the last year.”
Despite these assets, Pompliano points out a significant discrepancy in how repayments are calculated and perceived. FTX users who held cryptocurrency on the platform are owed money based on November 2022 crypto prices. For instance, if a user had one Bitcoin, they would be owed around $18,000, based on prices at the time of FTX’s bankruptcy filing.
“Although FTX is claiming they will pay you 100% of the $18,000, this means that you are actually only getting about 0.28 Bitcoin back from the exchange. That is only 28%,” Pompliano clarifies. This calculation reveals that, in terms of cryptocurrency, customers are getting back far less than the total amount they originally held.
Pompliano criticizes the system, noting, “If you price the claim in dollars at the time of the bankruptcy, then FTX can take a victory lap and claim they are paying everyone back 100% of their funds. But if you denominate the claims in the native asset that a user put on the platform, then FTX is not even paying back 30% of the users’ funds.”
“The fact that crypto assets are involved here has thrown a curveball to the courts. They have never seen financial assets appreciate hundreds of percent in a year, which drastically changes the calculation of the true value of a creditors’ claim,” he adds.
In conclusion, while headlines may boast that FTX is fully compensating its users, the reality, as outlined by Pompliano, shows a more nuanced and potentially disappointing outcome for many of FTX’s customers. This case may prompt a reevaluation of how bankruptcy claims are valued and compensated, especially in rapidly changing markets like cryptocurrency.