Will FTX Investors Get Their Money Back?

Fallout from the FTX collapse (explained here) is still making headline news, going on two years since the scheme was uncovered, and its founder eventually indicted. There's been ongoing drama with plans for financial settlements in the months that have followed, and plans to repay creditors took shape in January 2024 after much back and forth about the company's future and its past.

Investors have remained worried about their lost money, much of it still tied up in the exchange's crypto token FTT (reporting from Reuters places this value at over $700 million in FTT holdings by exchange customers). Recent legal developments suggest that large-scale creditors may be angling to drop civil litigation against Sam Bankman-Fried in an attempt to target celebrity endorsers instead.

Certainly, a movement like this will muddy the waters and create additional questions surrounding the FTX's ultimate culpability. But there may be some hope on the horizon for investors yet. Other movement in the FTX bankruptcy case suggests that its insolvency management team is hopeful that repayment of money lost to the Ponzi scheme may be a realistic outcome. Questions remain, but FTX investors may very well be repaid for their trouble, with some caveats and clarifications, of course.

The brass tacks is this: FTX, in its current managed state, appears poised to pay back investors who had their funds stolen by its disgraced former boss. As of early May, the company had recovered as much as $14.5 billion (and up to roughly $16.3 billion), per reporting by The Washington Post. This places assets roughly in line with some $16 billion owed back to investors and other creditors who were defrauded by the company's illicit actions.

Reporting continues to point to payouts for those who lost money on the exchange, although no money has changed hands as of yet. It's also clear FTX intends to liquidate cryptocurrency holdings and sell off physical assets in order to pay users in cash, rather than digital currency. This might be a welcome exchange for some who have totally soured on the crypto experience as a result of their misadventures with FTX.

Others, however, might be a little miffed their investment is being translated into physical currency rather than digital assets before being paid out. After all, one bitcoin is worth just that, regardless of its conversion rate to dollars, pounds, or francs. However, there's far more to that story! According to NPR, a submitted compensation plan from early May would provide customers who claim less than $50,000 in damages a payout calculated at about 118% of their losses.

In other news concerning the FTX saga, it would appear that for months the leadership guiding FTX through its bankruptcy proceedings explored the idea of relaunching the exchange. It's unclear what a return to the market might have held for investors who had lost money to the extracurricular pursuits of its founder, but after millions of dollars spent on this exercise in futility, the team has given up on its interest in a refresh.

An FTX relaunch may have endangered creditors' ability to claw back some or all of their losses. Reestablishing the exchange might have forced its users to accept a blanket compensation package alongside a decision about whether or not to continue using the service. This said, it could've also played a minor role, with funds still being returned to disaffected users. Moreover, it's likely many investors who trusted Sam Bankman-Fried and his FTX cryptocurrency exchange before getting burned would be hesitant to kickstart a new cycle of crypto investing on a platform going by the same moniker. Therefore, it's likely good news for most that any plans for a reincarnation of the platform have been scrapped.

Per bankruptcy law, anyone owed money as a result of FTX's insolvency will only be able to claim assets based on their value when FTX filed for bankruptcy: November 11, 2022. Investors looking to be made whole have pushed back on the idea, as well as FTX's decision to value its own token as worthless. This is a major blow for traders hoping to get value for their investment.

While the legalese of the bankruptcy proceedings is clear and precedent dictates valuation should remain as such, it doesn't do anything to assuage the concerns of investors who are rightfully upset about their lost value appreciation. According to Reuters, many customers have written directly to the judge overseeing the case about the issue, with one writer calling it a "second act of theft."

Cryptocurrency value shifts momentously throughout many trading timelines. Whether it's in day trading to capture fluctuating price movement or long-term buy-and-hold strategies, there's a lot to take advantage of with the volatility of bitcoin pricing and other cryptocurrency assets, too. Bitcoin, in particular, was valued at roughly $17,000 when FTX's bankruptcy filing was made. As of July 21, 2024, the asset is trading at a price hovering ~$67,000. Bitcoin alone has experienced a roughly 230% increase in value over that span, a value gain that investors won't see if and when their lost money is returned.