FTX Withdraws Restriction Request: Potential Victory for Creditors in Crypto Bankruptcy

The now-defunct crypto exchange FTX has withdrawn its bankruptcy application to restrict payments to creditors in certain "limited foreign jurisdictions." Recently, the FTX Recovery Trust, responsible for asset recovery, announced that it has withdrawn its request to establish special procedures for jurisdictions such as China to apply. These countries were categorized as problematic in the bankruptcy plan.

The memorandum states that if the FTX Recovery Trust requests this relief again in the future, it will file a new motion and announce it in accordance with the applicable rules. The request to restrict payouts, filed in July, sought to freeze payouts in 49 countries, including China, Saudi Arabia, Russia, and Ukraine, arguing that local crypto laws are unclear or restrictive.

Caution advised, creditor warns

While the withdrawal of this motion appears to be a significant victory for affected FTX creditors, some experts argue that seeking relief too early is unwise. Weiwei Ji, a creditor known as Will op X, stated that it is important to remain vigilant. It is a victory for potentially affected creditors, but “until you receive the compensation you are entitled to, it is critical to remain vigilant and continue to act collectively,” Ji wrote in a post.

The decision to withdraw the motion came after significant opposition from creditors, with more than seventy objections filed with the bankruptcy court within weeks of the motion's filing. Ji had previously warned that the court's approval of the motion could set a precedent that impacts future crypto bankruptcies. He noted that this is not just about FTX's creditors, but could also undermine confidence in the global crypto ecosystem.

Additionally, Sunil Kavuri, a prominent representative of FTX creditors, warned on Sunday that the value of the expected payouts may be significantly lower than many expected. He emphasized that the payouts will be made in fiat (traditional currency) and that the planned 143% repayment in fiat does not reflect the losses in cryptocurrency terms.

Frequently Asked Questions

What does the withdrawal of the motion mean for FTX's creditors?
The withdrawal of the motion is a victory for creditors, as it allows them to continue presenting their claims without restriction. This can improve their chances of full compensation.

Why is it important to remain cautious after this victory?
Experts warn that, despite this positive development, creditors still lack certainty. Until the compensation is actually received, vigilance is advised.

What are the implications of all this for the broader crypto market?
The outcome of this case could set important precedents for future crypto bankruptcies and how local laws protect creditors in such situations. An undesirable precedent could undermine confidence in the crypto ecosystem as a whole.