Crypto’s Lehman moment: Investors buy $250M of FTX claims — Report

The bankruptcy claims market has been growing bullish on the debts of the collapsed cryptocurrency exchange FTX as major credit investors have been rushing to buy FTX debts.

Investors like Silver Point Capital, Diameter Capital Partners and Attestor Capital have purchased more than $250 million worth of FTX debts so far in 2023, Bloomberg reported on Sept. 21, citing an in-house analysis of public court filings.

The FTX debt has also attracted investors like Hudson Bay Capital Management, which reportedly bought a $23 million FTX claim and subsequently sold about 50% of it to Diameter.

In line with growing demand, the price of some FTX claims has been soaring this year. Some low-ranking FTX claims have jumped 191%, surging from $0.12 in early 2023 to about $0.35 recorded in recent weeks, the report said, citing data from the crypto debt broker Claims Market.

The historical indicative prices of “bid” and “ask” for larger FTX claims have also been on the rise this year, according to the Claims Market’s charts.

Historical indicative prices of “bid” and “ask” for larger FTX claims. Source: Claims Market

The debt investors have been piling up FTX Group claims, betting that the firm’s bankruptcy process would unlock additional value by the time it’s resolved. One potential trade-off is that major bankruptcies can take years to unwind, and it can be hard to know what a collapsed company would be worth, especially in crypto.

According to some bankruptcy claim investors, the total value of all traded FTX claims might be much higher than the $250 million of deals seen in public court records.

Related: Stanford to return millions in crypto donations from FTX

Bankruptcy claims investor Thomas Braziel reportedly said that buyers and sellers sometimes wait months to file the paperwork for a debt trade. He claimed to be aware of individual FTX claims of more than $100 million. Braziel stated in the report:

“People made careers off of Lehman and Madoff — I think people see FTX as a Lehman or Madoff. The guys that are buying in these dockets, I consider them some of the smartest people in distressed.”

According to the report, many investors have been buying the rights to FTX crypto accounts with assets stuck on the platform after FTX halted all withdrawals in November 2022. Debt investment firm Contrarian Capital Management reportedly purchased an FTX account holding a massive amount of Bitcoin (BTC) and Ether (ETH), alongside $430,000 of cash.

Some crypto bankruptcies have also been taking years to be settled. Mt. Gox, once a major crypto exchange that was hacked back in 2014, has recently again postponed the deadline to return Bitcoin holdings to investors by one more year. At the time of writing, Bitcoin has surged more than 3,000% since Mt. Gox barred its users from withdrawing crypto in the aftermath of the hack.

The news comes amid FTX restructuring executives reminding investors to complete the claims process through the FTX Customer Claims Portal by the deadline of Sept. 29, 2023.

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