By Donald Haymatter
FTX, the cryptocurrency exchange now in bankruptcy, is seeking permission from the Delaware bankruptcy court to sell off its holdings in Grayscale and Bitwise trusts, valued at $744 million. This move, led by newly appointed CEO John Ray III, is part of the exchange’s efforts to liquidate assets to repay creditors.
FTX Outlines Strategy for Trust Asset Sales to Shield from Market Volatility
FTX has detailed a strategic plan in its court filing to offload its Grayscale and Bitwise trust assets, utilizing an investment adviser’s expertise to navigate the process. The primary goal is to shield the assets from unpredictable price changes and to maximize the value of the estate for creditors’ benefit.
This carefully structured monetization is designed to diminish market risks and to prime the assets for conversion into cash, anticipating direct distributions to creditors as part of FTX’s broader reorganization efforts.
The investment adviser’s role will be crucial in executing this plan under a set of specific guidelines aimed at achieving the best possible outcomes for the stakeholders involved.
FTX is convinced that their approach to liquidating trust assets, as set forth in their proposed procedures, will offer substantial benefits to creditors by reducing market risks.
Also read:Furthermore, the exchange asserts that while they recognize the absence of “valid liens” on these trust assets, they are prepared to honor any that are legitimately claimed by ensuring such liens are transferred to the sales proceeds, maintaining the integrity of the process and safeguarding creditor rights.
Grayscale and Bitwise Trust Investments by FTX
FTX’s investment portfolio includes units in multiple Grayscale Trusts, which allow investors to gain exposure to specific digital assets in a regulated trust format without the complications of direct ownership. These Grayscale Trusts create units that represent a share in the trust’s digital assets holdings.
FTX has also invested in a statutory trust managed by Bitwise, known for offering similar investment structures that track cryptocurrency indices.
The held trust units are distributed across accounts with two financial institutions: ED&F Man Capital Markets, Inc. (recently rebranded as Marex Capital Markets Inc.) and Deltec Bank and Trust Limited.
These investments represent a significant portion of FTX’s assets and are part of the current monetization plan to provide liquidity for creditor repayment in the ongoing bankruptcy proceedings.
Legal Challenges Surrounding FTX’s Grayscale Investments
The court documents from FTX’s filing reveal an ongoing dispute involving Grayscale Investments. In the quest to broaden investment opportunities for its clients, Grayscale sought to convert its Grayscale Bitcoin Trust (GBTC) into an ETF that directly tracks the price of Bitcoin.
This application was filed in October 2021 but was subsequently rejected by the SEC in June 2022, leading Grayscale to challenge the decision.
The United States Court of Appeals for the D.C. Circuit provided Grayscale with a favorable outcome by overturning the SEC’s denial in August 2023.
Parallel to these developments, Alameda Research, as a debtor, is embroiled in a separate legal battle with Grayscale Investments. Alameda accuses Grayscale of breaching trust agreements, a matter that is now being deliberated in the Delaware Court of Chancery.
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