Mainstream media headlines this past week read something like “FTX Has Billions More Than Needed to Pay Bankruptcy Victims” and “FTX says most customers of the bankrupt crypto exchange will get all their money back.”
However, digital asset investor Anthony Pompliano has explained why this is inaccurate.
In a letter to investors, Anthony Pompliano writes that FTX’s advisors filed a disclosure statement recently that revealed a plan to “end the Chapter 11 bankruptcy.”
In the document, the advisors claim they have “between $14 billion to $16 billion to pay out to creditors in the coming months.”
Pompliano acknowledges that these are big numbers “considering that FTX only owes approximately $11 billion to various people and entities.”
So how did FTX get so much money, Pompliano notes in the letter to investors.
He points out that first, they had cash “on their balance sheet before they went bankrupt.”
And second, they were able “to sell a number of investments they had, such as an investment in 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.”
So if the company has more money than what they owe, everyone should “get paid back 100%, right?” According to the update from Anthony Pompliano, not quite because it is apparently not that easy.
He claims that there is “some funny math going on here.”
He also mentioned that FTX users who “had crypto on the platform are owed money based on crypto prices back in November 2022.”
He further explained that so if you “had 1 bitcoin on the platform, you would be owed approximately $18,000. Although FTX is claiming they will pay you 100% of the $18,000, this means that you are actually only getting ~ 0.28 bitcoin back from the exchange. That is only 28%.”
He added that 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.”
Unfortunately, this is how bankruptcy works, Pompliano explains while adding that the courts “need to pick a date to use for the value of claims.”
He added that the court also “historically has used a single currency, US dollars, to denominate all claims.”
The same phenomenon at play in the FTX case “is also present in other crypto bankruptcy cases (Celsius, Blockfi, etc).”
The fact that crypto assets “are involved here has thrown a curveball to the courts.”
Pompliano added that 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.”
Pompliano concluded:
“I don’t know what the right answer is for future bankruptcy cases. That is for people much smarter than me to figure out. But I do know that the headlines boasting that FTX users are going to be paid back 100% of their money are misleading.”
