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Crypto exchange FTX successfully protects US$4.4 billion holdings amid rising repayment pressures

FTX, the troubled crypto exchange that filed for Chapter 11 bankruptcy in November 2022, has been selling off its digital assets to raise cash and pay back its customers. According to the latest court filings, FTX's four largest affiliates, including FTX Trading Ltd. and Alameda Research LLC, have nearly doubled the group's cash pile to US$4.4 billion by the end of 2023, from about US$2.3 billion in late October.

FTX was one of the largest and most popular crypto platforms in the world, with over 10 million users and US$1.2 trillion in trading volume in 2022. However, the exchange collapsed after a series of scandals, lawsuits, and regulatory actions that exposed its fraudulent and illegal activities. FTX was accused of manipulating the crypto market, laundering money, evading taxes, and defrauding its customers and investors.

The bankruptcy filing triggered a massive freeze of customer accounts, which held over US$16 billion worth of crypto assets at the time. Since then, FTX's bankruptcy advisers have been trying to locate and recover the assets and negotiate deals to benefit the customers, especially those with smaller accounts. FTX has also sued several former associates of its founder and CEO, Sam Bankman-Fried, and other crypto firms that withdrew funds from FTX before it went bankrupt.

However, FTX has admitted that it may not be able to repay all its customers in full, as the value of its assets may not cover the value of its liabilities. FTX has also faced challenges in liquidating its crypto assets, as the market has been volatile and illiquid. FTX has said that it is conducting Bitcoin derivative trades to hedge its exposure to the coin and generate additional yield on its digital holdings. FTX has also said that it is exploring options to potentially restart the exchange, under new management and supervision.

According to Bloomberg, FTX raised US$1.8 billion by selling some of its digital assets as of Dec8, 2023. The company did not disclose which assets it sold, or at what prices. However, some of the assets that FTX held included Bitcoin, Ethereum, Solana, FTT, and USDT. The prices of these assets have fluctuated significantly in the past year, with Bitcoin reaching a record high of over US$100,000 in April 2023, and then dropping to below US$30,000 in December 2023.

The increase in FTX's cash holdings has also coincided with the increase in the value of customer claims, which are traded on the secondary market. According to Cherokee Acquisition, a bankruptcy claims broker, customer claims worth more than US$1 million traded at around 73 cents on the dollar as of Friday, up from around 38 cents on the dollar in October. However, the actual trading prices depend on the value of a specific claim and other factors, such as the expected recovery rate and the time horizon.

FTX's customers are divided into two groups: FTX.com customers and FTX.us customers. FTX.com customers are those who used the offshore platform, which was not registered or regulated in the US and offered more leverage and riskier products. FTX.us customers are those who used the US-based platform, which was compliant with US laws and regulations and offered less leverage and safer products. FTX.com customers are expected to bear a larger share of the losses, as their accounts are more difficult to access and verify.

FTX's bankruptcy case is one of the most complex and unprecedented in the history of crypto. It involves multiple jurisdictions, regulators, creditors, and stakeholders, as well as billions of dollars worth of crypto assets. FTX's fate will have significant implications for the crypto industry, as it will test the legal and regulatory frameworks, as well as the trust and confidence of the users and investors. FTX's bankruptcy case is expected to last for several months, if not years, before a final resolution is reached.