It was recently reported that the bankrupt crypto exchange FTX recovered over $7.3 billion in cash and liquid crypto assets. This was according to FTX attorney Andy Dietderich at a U.S. bankruptcy court hearing in Delaware. Also, Dietderich said FTX is now thinking about its future, since the “situation has stabilized, and the dumpster fire is out”. Is the bankrupt crypto exchange FTX going to relaunch?
It is true that FTX has recovered over $7.3 billion in cash and liquid crypto assets, but this should not be interpreted or speculated to mean that the bankrupt FTX will be relaunched, even if it wished to. This is because of the circumstances surrounding the infamous FTX collapse and the questionable role ex-founder Sam Bankman-Fried played.
First, according to FTX attorney, Andy Dietderich, FTX has only started to look into the future and is considering options for restarting the crypto exchange. The negotiations and consultations are still ongoing with what the attorney described as “stakeholders”. It is not clear who these “stakeholders” are. Depending on the stakeholders the FTX attorney is talking about, negotiations and consultations may be successful or unsuccessful as far as relaunching FTX is concerned.
Second, while the FTX attorney says FTX is looking at deciding on the options for restarting the crypto exchange in the current quarter i.e. before the end of June 2023, very negligible details have been given on how FTX hopes to relaunch. Even more importantly, no details have been given about what FTX will do about the customers whose funds were questionably tampered with and customers whose funds have been locked up due to the bankruptcy case.
Third, that FTX has benefited from the recent rise in the crypto market does not automatically mean that FTX can run a safe and sustainable crypto exchange business post-FTX implosion. Looking at crypto prices from November 2022 when FTX filed for bankruptcy, FTX has recovered a total value of about $6.2 billion. FTX will obviously need external funding. If the dirty circumstances surrounding the FTX implosion and the shocking revelations since November 2022 are anything to go by, getting external funding may be a herculean task. If external funding becomes challenging, FTX may decide to sell its current assets. But again, potential buyers will most likely want to avoid buying a lawsuit or having to go to court to exercise their rights—as Binance did when it bought the collapsed Voyager, one of the ruins of the FTX contagion. So for FTX to have any chance at relaunching at all, stakeholders—particularly users—will expect that FTX would use the recovered funds to repay customers, not relaunch the crypto exchange. Lawmakers and the regulators will also most likely prefer and require this.
Further, it is doubtful if anyone would ever trust the name “FTX” again, therefore distrust may be the greatest challenge yet of the new FTX being contemplated. As long as the trust deficit remains, the same way traders pulled out $6 billion from the crypto exchange in 3 days, it is the same way users whose funds have been held down since November 2022 may most likely click the withdrawal button as soon as withdrawals are possible, if their money is still or back in their wallets. Even the FTX attorney acknowledged this much when he said, “The app worked beautifully, but in truth it was a facade”. From improper fund transfers to poor accounting, corporate governance was reportedly nonexistent at FTX. As described by FTX’s new CEO John Ray, control was a “complete failure”.
Besides, even if FTX eventually decides to relaunch, launching will not be possible until the second quarter of 2024. According to FTX, it intends to submit whatever its plans will be by July 2023. This is after handling creditors who are expected to fight for their share of FTX’s assets. Consequently, FTX estimates that its Chapter 11 plan would not be approved earlier than the second quarter of 2024. Also, it is still not clear how and where FTX intends to operate when or if it launches the crypto exchange. The FTX implosion succeeded in triggering regulatory reactions and actions, largely resulting in a tougher business environment for virtual asset service providers (VASPs). Against the background of innovators decrying the lack of clarity and certainty in U.S crypto regulation for example, the U.S regulators have become more daring, and consequently more hostile. This is unlike Japan where even FTX customers are still able to make withdrawals because of the relatively clearer and specific crypto regulations in that country.
So perhaps the question one should be asking is not whether FTX will relaunch but whether an FTX relaunch is desirable, healthy, and sustainable for the crypto ecosystem.