FTX’s $3.4B crypto liquidation impact on crypto markets

FTX's $3.4B crypto liquidation impact on crypto markets

The FTX Bankruptcy Lawsuit and the Impact on the Blockchain Industry

The FTX bankruptcy lawsuit has recently made headlines in the blockchain industry as the United States Bankruptcy Court for the District of Delaware approved the sale of $3.4 billion worth of crypto assets. This approval not only includes the sale of cryptocurrencies but also brokerage and government-recovered assets, 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) comes in second with a valuation of $560 million.

The approval of such a large amount of crypto assets for sale has raised concerns about the potential impact on the overall crypto market. However, it is important to note that the bankruptcy court has taken measures to ensure that the liquidation of FTX assets won’t become a burden for the industry. The court order permits FTX to sell digital assets through an investment adviser in weekly batches, with caps on the sale amounts. Galaxy Digital has been entrusted with the responsibility of liquidating the assets and maximizing returns for FTX’s creditors while ensuring market stability.

It is worth mentioning that Bitcoin, Ether, and other insider-affiliated tokens can only be sold after giving a 10-day advance notice to U.S. trustees appointed by the Department of Justice. The court has also permitted hedging options for these assets, which allows FTX to use various financial instruments, such as futures, options, and perpetual swaps, to offset potential losses.

The bankruptcy court’s decision to approve the liquidation of FTX assets has raised questions about the potential impact on the token prices. However, it is important to understand that bankruptcy courts primarily focus on what is good for creditors. Joshua Garcia, a partner at Web3-focused legal firm Ketsal, explains that the concern here is to make the victims of FTX’s actions as whole as possible, rather than the market impact on the token prices. Creditors may prioritize the recovery of funds over the potential slump in asset prices.

The discovery of billions of dollars’ worth of liquid assets in the FTX bankruptcy case has brought relief to many creditors. Blake Harris, an asset protection attorney, believes that this discovery could offer more flexibility in asset management, allowing for a strategic approach that balances immediate legal requirements with broader market implications. However, it is crucial to consider how these assets will be managed in the future to prevent similar situations from occurring.

Market analysts have predicted that Solana and Aptos prices have the highest chance of facing price volatility after liquidation based on each token’s daily trading volume. However, Coinbase crypto exchange has stated that the scheduled and phased liquidation will keep the market stable, highlighting the strict controls in place for selling certain “insider-affiliated” tokens and the locking of a significant portion of FTX’s SOL holdings until around 2025.

While many experts believe that the markets are relatively safe amid the FTX liquidation, the exchange’s saga is far from over. Former CEO Sam Bankman-Fried’s legal team is currently sparring with prosecutors for special conditions ahead of the trial. Furthermore, the exchange’s alleged illegal behavior has dealt a significant blow to public trust in the crypto ecosystem.

Overall, the FTX bankruptcy lawsuit and the approval of the liquidation of crypto assets have drawn attention to the potential impact on the blockchain industry. The court’s measures to ensure market stability and the recovery of funds for creditors highlight the importance of finding a balance between immediate financial obligations and maintaining public trust. As the liquidation process continues, it will be interesting to see how the market reacts and how future regulations may evolve to prevent similar situations in the future.


Assets Set for Liquidation:

Cryptocurrency Value
Solana (SOL) $1.16 billion
Bitcoin (BTC) $560 million
Ether (ETH) $192 million
Aptos (APT) $137 million
Tether (USDT) $120 million
XRP (XRP) $119 million
Biconomy Exchange Token (BIT) $49 million
Stargate Finance (STG) $46 million
Wrapped Bitcoin (WBTC) $41 million
Wrapped Ethereum (WETH) $37 million

Source: United States Bankruptcy Court