FTX’s Cash Crunch: Unloading Crypto to Settle Customer Claims, Cash Reserves Reach $4.4B

According to a Bloomberg report, FTX is trying to sell-to-pay to make things work so that they can pay their customers back. However, the process has had a lot of problems, so FTX is making every move count.

Understanding FTX’s Sell-to-Pay Approach

Recently, FTX has made a strategic move to increase its cash reserves to $4.4 billion by the end of 2023. The move involved selling crypto assets and engaging in Bitcoin derivative trades, highlighting the company’s efforts to address its financial challenges.

The four major affiliates of FTX, including FTX Trading Ltd. and Alameda Research LLC, contributed significantly to this cash pile, nearly doubling it from approximately $2.3 billion in late October 2023.

While a representative for FTX declined to comment on the matter, monthly operating reports under Chapter 11 bankruptcy revealed the financial maneuvers.

Notably, as a result of FTX’s efforts, customers may not be fully compensated. Claims from customers have gone from trading at about 38 cents on the dollar in October to about 73 cents on the dollar as of Friday, since the platform went down in November 2022.

As a result, bankruptcy lawyers are working hard to get back assets and make deals that help customers whose smaller accounts were touched by FTX’s failure.

In a court filing, FTX disclosed that it raised $1.8 billion through December 8 by selling off some of the firm’s digital assets. The company also engaged in Bitcoin derivative trades as a risk management strategy and to generate additional yield on its digital holdings. FTX is actively exploring options to potentially restart its exchange operations. 

Impact on FTX Customers and Creditors

Despite these efforts, FTX has cautioned that customers may not be fully compensated. The company has proposed valuing assets at bankruptcy filing prices, excluding potential gains from a Bitcoin rally.

This approach has sparked contention, with dozens of FTX customers challenging the proposal, particularly its impact on the valuation of digital assets at the time of bankruptcy filing.

FTX’s strategic cash hoard, coupled with ongoing legal battles and challenges from customers, underscores the complex landscape the crypto firm faces as it seeks to address its financial obligations and chart a path forward amid the bankruptcy proceedings.