What lies ahead for FTX following Sam Bankman-Fried’s involvement?

With Bankman-Fried facing a lengthy prison sentence, the future of the FTX exchange hangs in the balance. Once a prominent player in the crypto industry, FTX experienced a rapid decline in November 2022, ultimately leading to its bankruptcy. Bankman-Fried, the former CEO of FTX, was recently sentenced to 25 years in prison for various crimes, including fraud and embezzlement of user funds. The question now is, what comes next for FTX? Crypto.news is delving into the potential impact of this verdict on the exchange’s future.

During the trial, it was revealed that FTX clients had lost a staggering $8 billion, with an additional $1.7 billion lost by investors and $1.3 billion owed to the exchange’s creditors. The financial turmoil caused by these losses resulted in the tragic deaths of at least three FTX clients. In court, the possibility of a life sentence for Bankman-Fried was considered, as Judge Lewis Kaplan accused him of providing false testimony on multiple occasions.

Bankman-Fried did acknowledge the debts owed by Alameda Research, a fund linked to FTX that also went bankrupt. However, he claimed that FTX could have avoided bankruptcy and resolved its issues. It was revealed that Alameda had access to FTX clients’ funds, which were used for high-risk investments and other expenses, including political donations.

While prosecutors sought a 40-year sentence, Bankman-Fried’s defense argued for a much shorter sentence of no more than six and a half years. They appealed to his background, education, experience on Wall Street, and role in founding trading firms, suggesting that greed was not his sole motivation.

Efforts to revive FTX ultimately proved unsuccessful. In June 2023, FTX CEO John Ray announced that the company had initiated a stakeholder engagement process to relaunch the FTX.com exchange. However, it was reported that the exchange would likely undergo a rebranding when it restarted. In August 2023, FTX unveiled a relaunch plan, which included the creation of a new international marketplace for customers outside the United States. FTX managers were in negotiations with three investors to restore the platform by the end of October 2023. The options under consideration were selling the company and customer base or bringing in a partner to help reopen the exchange.

Kevin M. Cofsky, an investment banker overseeing the negotiation process, stated that a decision on whether to continue operations would be made by mid-December 2023. FTX was considering two transaction options: selling the entire exchange and customer base or partnering with another entity to facilitate its reopening.

However, in late January, FTX abandoned its attempts to resume operations and opted to liquidate all assets, returning funds to customers. The new management of FTX has been grappling with the aftermath of the bankruptcy and attempting to salvage what remains of the company’s assets. FTX attorney Andy Dietderich revealed that they have been in talks with potential buyers and investors for months. However, these parties require more time before committing the significant funds necessary to revive the exchange. Dietderich expressed disappointment with FTX 2.0, as the company still possesses valuable customer data that could generate revenue. He also highlighted the largely unsuccessful nature of FTX’s previous acquisitions, which have limited interest from potential buyers. Even LedgerX, one of the few solvent divisions of the exchange, proved to be a poor investment.

In the meantime, the interim administration of the bankrupt FTX Group has been selling off crypto assets and accumulating cash to repay debts to clients whose accounts were frozen when the platform collapsed. Bloomberg sources reported that FTX Group’s four main subsidiaries, including FTX Trading and Alameda Research, have doubled their cash assets to $4.4 billion in 2023. It was also revealed that the interim administration gained over $1.8 billion from the sale of digital assets in December of the previous year.

FTX has managed to recover over $7 billion in assets to reimburse customers and has reached agreements with various government regulators, according to Dietderich. However, regulators have chosen to wait until customers are fully compensated before attempting to recover approximately $9 billion in claims.

FTX intends to pay all clients in full, but the payments will be calculated based on cryptocurrency prices at the exchange rate in November 2022 when the collapse of the exchange triggered a market-wide crypto crash. Some FTX clients have challenged this decision in court, as paying compensation at 2022 prices would mean missing out on the growth of the crypto market in 2023 when their assets were frozen. However, these appeals were rejected by the court, which approved awards based on 2022 prices, citing U.S. bankruptcy law.

The conviction of Bankman-Fried is unlikely to have a significant impact on FTX’s current operations, as the two entities have now gone their separate ways. Without a revival plan in sight, FTX’s future appears to revolve around settling its debts. Bankman-Fried, on the other hand, is expected to spend many years in prison, cementing his status as the mastermind behind one of the largest frauds in the crypto industry.