FTX debt trading is active, investment firms are vying for acquisition

Informed sources reveal that several well-known investment firms are actively negotiating the acquisition of FTX's debt. Among them, some small investment firms have already purchased a portion of the debt from hedge funds looking to exit quickly. It is worth noting that the proceeds from the sale of the debt may be lower than the amount ultimately distributed in the bankruptcy proceedings.

As a former cryptocurrency trading giant, FTX left behind approximately 1 million creditors after filing for bankruptcy protection last month, with total debts amounting to billions of dollars. According to court documents, FTX owes more than $3.1 billion to just its top 50 creditors. While many creditors have chosen to wait for the bankruptcy process to complete, which may take years, some have started seeking to quickly extricate themselves through distressed debt brokers and buyers.

Currently, choosing to immediately recover funds means incurring significant losses, as the sale price of the debt is only a few percent of its face value. On the other hand, debt acquirers need to be patient, hoping to ultimately recover more cash through the bankruptcy process.

A professional stated: "The market shows strong interest in these claims, but many people lack sufficient knowledge about them. Some people are even unclear about the concept of stablecoins."

When it comes to handling complex crypto assets, some investors have accumulated rich experience. For example, some have acquired debts from a well-known exchange based in Tokyo and other collapsed digital asset companies. However, purchasing such debts requires immense patience: a legal dispute stemming from a hacking incident that occurred in 2014 was not fully clarified until eight years later.

The Predicament of Institutional Investors

The deep liquidity claimed by FTX attracted many institutional investors, including crypto hedge funds. The chief investment officer of an asset management company revealed at last month's meeting that the company had about $12 million of funds trapped in FTX. The chief investment officer of another crypto asset management startup stated on social media that "the vast majority" of its assets were locked up in FTX. Similar situations are common among several hedge funds.

Industry insiders say that most fund companies wish to extricate themselves as soon as possible and are reluctant to face protracted court proceedings. Some FTX clients also hope to complete the sale of their claims before the end of the year in order to reduce losses for tax purposes.

It is reported that there are multiple FTX debt transactions currently taking place in the market, with face values ranging from several million dollars to over one hundred million dollars. The trading prices of these debts are usually between 5% and 10% of the face value.

Debt Valuation: Art or Science?

Assessing the future value of bankruptcy claims is more of an art than a precise science. Through rough calculations, investors can gain a general understanding of available assets and liabilities, but huge returns often depend on legal arguments.

Some investors are betting on the legal strategy that U.S. courts will recognize client assets held in trust based on relevant laws. This means that assets held in trust will have priority rights, and relevant clients are expected to receive priority in repayment.

However, not all debts are related to client assets. There are also some special debts circulating in the market, such as the employment contracts of certain employees. These contracts contain some striking terms, such as guarantees for the payment of years of salary. However, legal experts have pointed out that U.S. courts may not enforce such terms, and these unpaid wages may be nearly impossible to recover in bankruptcy claims.

As the FTX bankruptcy case progresses, the trends in the debt trading market will continue to be closely monitored. Investors participating in such transactions need to fully consider the risks and have an in-depth understanding of the peculiarities of the cryptocurrency industry.