FTX Bankruptcy: Cash or Crypto? The Showdown

FTX's reorganization plan is causing quite the stir, and honestly, I can't look away. With a whopping 94% backing from what they're calling Dotcom creditors (those linked to the FTX.com offshore exchange), the plan seems to be leaning heavily towards a 118% cash return. But here's where it gets juicy: there's a faction of creditors that are firmly against it, and they want their crypto back, thank you very much. As we gear up for the court hearing on October 7, I'm starting to think this could change the game for how we handle crypto bankruptcies.

The Lay of the Land

FTX was once this titan in the crypto world before everything went belly up. Now they're trying to reorganize, and according to Kroll (the restructuring agent), about $6.83 billion in claims are on the table from these Dotcom creditors. Most of them seem cool with getting their money back—just like those folks who got burned at Mt. Gox years ago—but there's a vocal group led by one Sunil Kavuri that's pushing back hard.

This group has some solid points too! They argue that cash payouts will trigger taxable events and that they should receive distributions based on what they had—essentially a "crypto time capsule." But FTX's legal team is saying "not so fast," claiming that Chapter 11 law requires them to pay in cash. And let's be real; if you were given a choice between getting back your lost Bitcoin at $16k or $40k (current price), wouldn't you want the latter?

Why This Matters

The crux of it all comes down to valuation and distribution methods. In-kind distributions mean you're getting back exactly what you lost, while cash payouts are pegged to what was essentially an arbitrary value at the time of bankruptcy filing.

And can we talk about market volatility? If you're one of those lucky souls who got paid out in Bitcoin after Mt. Gox, you're sitting pretty right now compared to those who got fiat.

But here's where it gets complicated: paying out in crypto could lead to unequal recoveries among creditors due to fluctuations in asset prices post-distribution. Imagine being part of a creditor class and getting different amounts based solely on when your assets were distributed!

The Rumors and Market Reactions

Interestingly enough, as all this debate raged on, FTT—the native token of FTX—saw a massive surge! It jumped over 70% at one point based on some rumors that distributions were about to happen. Spoiler alert: they weren't true.

Now it's settled down but remains higher than before, which makes me think... are people betting on further chaos?

Summary: Setting Precedents

What we're witnessing might just be a blueprint for future crypto bankruptcies—especially considering how many there have been this year alone! The overwhelming creditor approval (over 95%!) suggests that maybe, just maybe, having some consensus among affected parties could streamline things.

As we inch closer to October 7th, one thing's for sure: whether it's cash or crypto payments being proposed by companies paying in crypto going forward, we're gonna need clearer guidelines!