Crypto Debt Market Surges: FTX Claims Trend

The market for bankruptcy claims has witnessed a notable surge in interest regarding the debts tied to the defunct cryptocurrency exchange FTX. Substantial credit investors have eagerly engaged in purchasing FTX debts, driving a bullish trend in the market.

Prominent names like Silver Point Capital, Diameter Capital Partners, and Attestor Capital have collectively acquired over $250 million worth of FTX debts in the ongoing year, as reported by Bloomberg on September 21, citing an internal analysis of publicly available court filings.

Moreover, FTX's debt has captured the attention of investors like Hudson Bay Capital Management, which reportedly secured a $23 million FTX claim and subsequently sold approximately 50% of it to Diameter.

In response to heightened demand, the prices of certain FTX claims have experienced a remarkable surge throughout the year. Notably, some lower-tier FTX claims have witnessed an astonishing 191% increase, ascending from $0.12 in early 2023 to approximately $0.35 in recent weeks, according to data from the crypto debt broker Claims Market.

The historical indicative prices for larger FTX claims, denoted by the "bid" and "ask" values, have also demonstrated an upward trajectory this year, as illustrated by the charts from Claims Market.

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

Investors involved in debt transactions concerning FTX claims are optimistic that the ongoing bankruptcy proceedings of the firm will ultimately unlock additional value. However, it's important to note that major bankruptcies can be protracted processes, making it challenging to accurately estimate the value of a collapsed company, particularly within the realm of cryptocurrency.

Certain bankruptcy claim investors speculate that the aggregate value of all traded FTX claims could potentially exceed the $250 million reported in publicly available court records.

Bankruptcy claims investor Thomas Braziel reportedly highlighted that buyers and sellers often wait for extended periods to formalize the paperwork for a debt trade. He revealed knowledge of individual FTX claims surpassing the $100 million mark. Braziel stated in the report:

In addition to trading debts, investors have shown interest in acquiring rights to FTX crypto accounts holding assets stuck on the platform since FTX suspended all withdrawals in November 2022. Debt investment firm Contrarian Capital Management reportedly acquired an FTX account containing a substantial amount of Bitcoin (BTC) and Ether (ETH), along with a significant cash reserve.

The protracted nature of some crypto bankruptcies is also evident, with Mt. Gox, a once major crypto exchange hacked in 2014, recently extending the deadline for returning Bitcoin holdings to investors. At the time of writing, Bitcoin has surged over 3,000% since Mt. Gox restricted its users from withdrawing crypto after the hack.

This development coincides with FTX's restructuring executives urging investors to complete the claims process through the FTX Customer Claims Portal by the deadline of September 29, 2023.

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