FTX Customers will get their money back in early 2025

2 years since FTX went down the gurgler, customers have light at the end of the tunnel. They will get their money back in early 2025, starting with customers with claims of US$50,000 or less. This includes customers around the world, although it had been estimated that 30,000 or so were in Australia. But before we go into further details, how did we get to this point?

The story of FTX

FTX was founded in 2017 by Sam Bankman-Fried (often called SBF) and Gary Wang. The exchange quickly grew to become a major player in the cryptocurrency market, offering a platform for trading various digital assets. FTX gained popularity due to its user-friendly interface, innovative products, and aggressive marketing efforts, including high-profile sponsorships and partnerships (like with the Miami Heat’s arena that got renamed FTX Arena).

FTX’s success was built on a combination of retail and institutional clients, and it was often seen as a more trustworthy alternative to other exchanges. SBF himself was widely regarded as a rising star in the crypto space, known for his public advocacy for cryptocurrency regulation and his charitable donations.

But then it all went pear-shaped. The collapse of FTX began with a report from CoinDesk in November 2022, which revealed that FTX’s sister trading firm, Alameda Research, held a large amount of FTX’s own native token, FTT, as collateral for its assets. This raised concerns about the liquidity and solvency of both FTX and Alameda, as it suggested that the companies were closely intertwined and dependent on the value of the FTT token, which could be manipulated.

As more details emerged, it became clear that FTX and Alameda had engaged in risky financial practices, such as using customers’ money to fund risky trades and lacking basic risk controls.

The situation rapidly deteriorated when Binance, the world’s largest cryptocurrency exchange, announced it was selling its holdings of FTT due to concerns over FTX’s financial health. This caused a panic among FTX customers, leading to a bank run – where a bank collapses as customers run to withdraw their money, leaving the bank insolvent.

This incident shockwaves through the cryptocurrency ecosystem, leading to a significant loss of investor confidence. Several other companies that had exposure to FTX, like BlockFi, Genesis, and Voyager Digital, also faced financial difficulties or bankruptcy.

Sam Bankman-Fried was arrested in the Bahamas and extradited to the United States. Authorities alleged that he orchestrated a massive fraud scheme that misled investors, customers, and regulators. Bankman-Fried denied the charges and pleaded not guilty to most of them, but was found guilty and sentenced to 25 years in jail. The court found he stole a total of US$8bn.

Customers are getting their money back

After the bankruptcy filing, FTX began liquidating its assets, including subsidiaries. The exchange’s assets were found to be in disarray, with records of poor accounting, missing funds, and potentially fraudulent transactions. There were doubts as to whether or not customers get anything.

Investors who instigated a withdrawal in Australian dollars were eligible for an easy process here. But those who traded crypto-to-crypto had to wait to see what happened with the case in the USA. Over the months, administrators found US$4.4bn in cash from the 100+ companies in the collapsed empire, but were able to obtain more money as the price of Solana (a crypto heavily held on FTX’s balance sheet) increased. And so it now has US$14.7-16.5bn to repay its customers and other debtors. And as we mentioned above, those with claims below US$50,000 will be first. Crypto firms Kraken and BitGo will help with the process.

Mr. Wonderful seen chasing a $20 bill after losing all his money in FTX.
byu/Straight-Air-1940 inwallstreetbets

It must be noted that repayment calculations are based on the US dollar-value of deposits as at the time of the collapse. Back then, bitcoin was at the bottom of a bear market, at just US$17,000. Now it is over US$100,000.

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