Why FTX’s Plan to Refund 90% of Recovered Assets Doesn’t Add Up To 90% of Customer Losses

Failed crypto exchange FTX has announced an updated plan for sending 90% of distributable funds—money it has recovered—to former customers in its bankruptcy proceedings, but that doesn’t necessarily mean they will get back 90% of the money they lost.1 FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16.

Money Recovered Not Equal to Money Owed

As the criminal trial of FTX founder and former Chief Executive Officer (CEO) Sam Bankman-Fried continues, a new plan has been put forward for former customers of the crypto exchange to get some of their money back in 2024. Under the plan offered by FTX’s new management, which is headed by CEO and bankruptcy expert John J. Ray III, FTX customers will see 90% of every dollar of recovered assets.

To be clear, the 90% number refers to the funds FTX can gain access to, rather than total customer deposits at the time of the exchange’s collapse. This doesn’t necessarily mean customers will gain access to 90% of their assets that were left on the exchange. Rather, customers will gain access to 90% of the funds FTX can distribute to their creditors.

FTX and FTX US had an estimated $8.7 billion combined shortfall at the time the crypto firm filed for bankruptcy. Roughly $6.9 billion of that shortfall, including a Bahamas real-estate portfolio, had been recovered as of September.

Clawback From Those Who Withdrew Before FTX Failed

The current FTX management continues to seek access to more funds for their creditors via methods such as clawbacks of customer money. For example, those who withdrew more than $250,000 from FTX in the nine days prior to the exchange’s collapse will be able to pay a 15% fee on those funds to avoid potential clawback attempts.

According to Ikigai Asset Management founder and FTX creditor Travis Kling, this part of the amended plan implies an expected 85% or more recovery for customers.2

“Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers,” Ray said.

Opportunity Cost: The Biggest Loss No One’s Talking About

According to court filings, ‘Petition Date Value’ is defined as the “value of any Claim outlined in U.S. Dollars as of the Petition Date,” with the petition date being Nov. 11, 2022.34 That means you’d be eligible for a dollar amount, not your lost cryptocurrency, based on prices from last November.

Let’s consider Bitcoin, the largest cryptocurrency by market capitalization, as a proxy for the broader cryptocurrency markets. On Nov. 11 of last year, the petition date, bitcoin was trading at around $17,000. On Friday, it crossed $30,000.5

Simply put, if the current plan goes through, you’d likely get 85% of the dollar value of your cryptocurrency held on FTX as of last November, even if the same coins have almost doubled in value today.

This Plan is Not Final Yet

There is still room for negotiation about the terms of this proposal between FTX and its creditors prior to the December court filing.

“It depends on how things go behind the scenes between FTX debtors, the Committee of Unsecured Creditors (UCC), and the Ad Hoc Committee over the next two months,” Kling told Investopedia when reached for comment on the chances of approval for the plan.

If a U.S. bankruptcy court approves the proposal, the amended plan could be confirmed in the second quarter of 2024.