FTX Creditors Emerge as Possible Fillip for Ailing Crypto Market

(Bloomberg) -- Crypto exchange FTX’s creditors are set to receive more than $12 billion in coming months in a court-approved payout plan, raising the prospect that some of the cash could be plowed back into digital assets.

The bankrupt platform in June had $12.6 billion to return to customers, a figure that may reach $16.5 billion after all its assets are found and sold. Initial distributions of about $1.1 billion are relatively small but are set to support Bitcoin, Galaxy Digital Holdings Research Head Alex Thorn wrote in a note.

Crypto traders are hunting for sources of volatility to shake Bitcoin and other tokens from a prolonged period of torpor. A gauge of the top 100 coins is down 3% this month even though October is meant to be a seasonally strong period for digital assets, raising the prospect that a yearlong rally has run out of steam.

The anticipated FTX payouts are “effectively giving liquidity to known crypto traders,” said Benjamin Celermajer, co-chief investment officer at Magnet Capital. “It’s very likely that we see some of this flow back into crypto, providing a potential price catalyst to liquidity-starved markets.”

Repayments won’t occur immediately. FTX must first put together a trust and hire a company to oversee the process of distributing the money.

Galaxy said transfers to smaller creditors may start as soon as December, while larger ones will be addressed across the first half of next year. It said remaining claims may take as many as three years to resolve.

Research company K33 in a note estimated “latent demand from FTX reallocators” of $2.4 billion but cautioned about a “soft” potential impact on the crypto market as repayments are due in waves over the next year.

Demand for US Bitcoin exchange-traded funds helped push the token to a record high of almost $74,000 in March. The jump subsequently fizzled as inflows cooled. The largest cryptocurrency is up 43% this year, about as much as an index of the Magnificent Seven technology megacap stocks in the US.

Bitcoin was little changed at $62,485 as of 7:22 a.m. Wednesday in London. Most other major digital assets also posted relatively constrained moves.