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Bankruptcy Update – FTX to Reboot? BlockFi to Release Certain Assets?
In the rapidly evolving world of crypto, bankruptcies have become common over the past year. In today's article, we will explore the recent bankruptcy updates of major players in the crypto space, including FTX, BlockFi, Celsius Network, and Core Scientific. These companies represent a cross-section of the crypto industry, from exchanges to lenders and miners.
So, let's delve into the latest developments in the bankrupt companies while Bitcoin aims for $32,000 and Ethereum for $2,200 as the total crypto market cap surges past $1.3 trillion.
FTX Recovered $7B+, set to Reboot in Summer?
According to recent court hearings, FTX, the now-defunct cryptocurrency exchange that collapsed in November 2022, has recovered over $7.3 billion in cash and liquid crypto assets, including an additional $800 million over the last three months. This is up from $1.9 billion in January.
For those unversed, FTX customers have been unable to withdraw funds from the exchange except for those located in Japan due to the country's strict cryptocurrency regulations.
The bankruptcy update of FTX was revealed by its attorneys from Sullivan & Cromwell during a court hearing on Wednesday. The attorneys also revealed that the company might reopen its doors in the second quarter of 2023 as one of many alternatives being considered as part of the ongoing bankruptcy proceedings.
One potential option discussed was giving FTX's creditors the opportunity to convert some of their holdings to a stake in a reopened exchange, said Andy Dietderich, the lead attorney for FTX.
FTX's native token, FTT, more than doubled in value to almost $3 following this news. Since then, however, it has fallen about 14% to $2 and is currently down 97.6% from its all-time high (ATH) of $84.18, as per CoinGecko.
Significant capital must be raised if the path to re-starting exchange is taken. However, there is internal debate over whether that capital should come from the FTX estates or third-party capital. Customers may also have the option to take part of their proceeds in the form of an interest in the exchange going forward.
While discussions to reopen FTX might be a relief for customers and businesses who lost millions following the exchange's meltdown, there are many unanswered questions. Dietderich also emphasized that no decisions have been made yet, and re-starting FTX is just one of many possibilities.
FTX is still “far away from an equity distribution,” added the attorneys.
Not to mention the platform's standing was damaged by its executives' dubious practices. For those who have no knowledge of the matter, John Ray, the new CEO of the collapsed crypto exchange, has previously detailed improper fund transfers and poor accounting at the exchange, describing it as a “complete failure” of controls.
The platform is currently developing a preliminary Chapter 11 plan to guide its journey out of bankruptcy, with an expected filing date in July. However, the company recognizes that multiple details will need to be sorted out as creditors seek their portion of the firm's assets. FTX anticipates that approval of any Chapter 11 plan will not occur before the second quarter of 2024.
It's worth noting that Sam Bankman-Fried (SBF), the former CEO and founder of FTX, has been indicted on fraud charges but has pleaded ‘not guilty,' while several company insiders have pleaded guilty and agreed to cooperate with prosecutors.
BlockFi to Discuss Release of Customer Assets
BlockFi, the digital asset lending platform that filed for bankruptcy in November 2022, has received approval from the federal bankruptcy court for the sale of nearly 6,400 mining rigs for $4.7 million to US Farms & Mining Opportunity Fund, revealed the court documents filed recently.
Most of the mining rigs, which are Bitmain Antminers, are located in the US in Texas, Georgia, Kentucky, and North Dakota, with some also in Norway. Around 400 of the machines were acquired by the company through foreclosure. In addition to financing Bitcoin miners, BlockFi also engaged in self-mining operations.
BlockFi filed for bankruptcy due to the ripple effects of the collapse of FTX. The crypto lender has also been seeking permission from the bankruptcy court to direct its servicer to return loan repayments made by international customers. The company has a court appearance scheduled for April 19 to discuss this issue further.
As the bankruptcy proceedings continue, BlockFi will need to resolve outstanding matters and reassure customers that it has the necessary safeguards in place to prevent future issues.
Amidst this, Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez have sent letters to BlockFi, USDC stablecoin issuer Circle, and 12 other non-crypto firms, questioning why crypto companies banked at Silicon Valley Bank (SVB), which recently collapsed.
They are seeking more information about the “mutual back-scratching dynamic” between SVB and venture capitalists, which saw the bank offer extensive lines of credit and “white glove” services to high-rolling depositors.
The lawmakers believe this may have encouraged some customers to place massive, uninsured deposits at SVB, contributing to its collapse and forcing regulators to spend $20 billion to stop a run on the bank. BlockFi and Circle had around $3.5 billion in uninsured deposits at SVB, with Circle alone responsible for $3.3 billion, which poses a significant risk to their customers.
As a result, the CEOs of both firms have been asked to provide answers about the history of their relationships with SVB, including details about financial relationships between the executives and SVB and any SVB-sponsored trips taken by executives.
Celsius Proceeds with a Restructuring Plan
Celsius Network, the bankrupt crypto lender, has announced that it will move ahead with its Chapter 11 restructuring plan with a disclosure statement containing information for claim holders.
The debtors of Celsius announced on April 7 that they would submit the disclosure statement to users on April 12. This statement aims to provide enough information for the claim holders to make informed decisions regarding the proposed restructuring plan, which is sponsored by NovaWulf.
Initially introduced in February, the restructuring plan intends to establish a publicly owned platform, NewCo, exclusively owned by Earn creditors. The majority of the board members for the firm will be appointed by the unsecured creditors' committee without any participation from Celsius founders.
The debtors' statement outlines that the filing made on April 12 will provide a comprehensive account of the events leading up to Celsius' bankruptcy, anticipated recovery for specific stakeholders if the restructuring plan is sanctioned, and responses to common inquiries. The bankruptcy court is set to hold a hearing on May 17 to approve the disclosure statement, with a vote on the plan expected to follow.
However, Celsius has pushed back the deadline for its disclosure statement by two weeks, according to a court document dated April 12. The extension until April 28 is due to ongoing discussions with bidders as the company works to finalize its restructuring plan. The deadline extension suggests that the company is progressing in its efforts to emerge from bankruptcy and restore its financial health.
During its Chapter 11 bankruptcy proceedings filed in July 2022, Celsius has been entangled in discussions related to various assets, including those from the company's Earn program, crypto holdings, Bitmain coupons, as well as the personal information of its users.
In March, the bankruptcy judge approved a settlement plan that allows Celsius custody account holders to retrieve 72.5% of their cryptocurrency, giving them a chance to recoup some of their losses.
However, only Custody account holders will benefit from the deal. But unfortunately, this will leave nearly 600,000 Earn investors without any relief.
In January, the court ruled that Earn account holders had signed over their crypto to Celsius, giving the failed lender ownership of up to $4.2 billion in assets, including $23 million in stablecoins. For context, Celsius had only about $167 million in liquidity when it filed for bankruptcy, with liabilities of $5.5 billion, of which $4.7 billion were debts to customers.
However, Judge Glenn's ruling reduced Celsius' liabilities to $1.3 billion, and customer deposits subsidized $144 million in legal fees. The remaining Earn customers can now choose between receiving 36.5% of their deposits back or pursuing further litigation to recover all their assets. The first 36.5% will be refunded immediately, while the remaining amount will be paid out “upon plan resolution” or by the end of the year.
The question is, which available crypto lending platforms can fill the void after consecutive bankruptcies of major players in the industry? Click here to find out.
Core Scientific Appoints New President Amidst Bankruptcy
Core Scientific, a leading crypto hosting and mining company based in Austin, Texas, has recently appointed crypto veteran Adam Sullivan as its new President. Sullivan brings a wealth of experience to the role, having spent the past six years in various positions at financial services firm XMS Capital Partners, where he was most recently Managing Director and Head of the Digital Asset and Infrastructure group.
The debtors behind Core Scientific filed a motion to appoint Sullivan as the company's permanent President, citing his extensive experience in the digital asset investment banking industry. As part of his new position, Sullivan will receive a base salary of $500,000 and a guaranteed annual bonus of at least $500,000 in 2023.
In his new role as President of Core Scientific, Sullivan will be responsible for managing the company's financial and strategic affairs. This will involve working with a range of stakeholders, including customers, suppliers, and creditors.
Sullivan will also play a key role in restructuring the company's management team. Meanwhile, Todd DuChene, Core Scientific's current President, will become the Chief Legal Officer and Chief Administrative Officer, leading corporate, legal, financial, and administrative tasks.
Despite having filed for bankruptcy in December, Core Scientific continues to mine Bitcoin (BTC) during the bankruptcy process, as its cash flows remain positive. In fact, the company recently expanded its agreement with crypto miner LM Funding to host an additional 900 Bitcoin mining machines, bringing LM Funding's total mining capacity to approximately 400 petahash.
At the end of March, Core Scientific had approximately 207,000 Bitcoin miners, of which 52,000 were under co-location, and 155,000 were under its self-mining business, giving the company a total potential hash rate of 21.8 exahash at its data centers across several states in the US.
From its self-mining operations, Core minted 1,410 Bitcoin (worth around $4 million) in March, while Bitcoin miners owned by its customers produced 474 Bitcoin during the same period.
In its bankruptcy filing, Core Scientific cited the extended decline in the price of Bitcoin, higher electricity costs, and the failure of some hosting customers to honor their payment obligations as reasons for its financial difficulties. However, the company remains optimistic about its future prospects and has continued to mine BTC through its self-mining and hosting services, which are significantly cash flow positive on a debt-free basis.
