There is a growing hope among token holders that failed crypto exchange FTX could come back from the dead, driven in part by comments at the firm’s latest bankruptcy hearing. Investors shouldn’t hold their breath.
On Wednesday afternoon, FTX attorney Andrew Dietderich of Sullivan & Cromwell told the court that the firm had recovered $7.3 billion in cash, crypto and other assets that could go to stakeholders. But more than that, he said the exchange’s bankruptcy estate was exploring a relaunch.
The statement caused the price of an FTX-linked token, called FTT, to double to its highest price since January. As of Thursday it had fallen back but was still about 50% higher than its price before the hearing.
Before FTX’s bankruptcy, the token could be used by traders to save on fees, and presumably some investors believe that a relaunch could include regaining that utility. But there is a mountain of uncertainty to climb before that looks viable.
This isn’t the first time FTX’s new leadership has floated the idea of restarting the exchange. In a January interview with The Wall Street Journal, FTX CEO John. J. Ray III said he had set up a task force to explore rebooting FTX.com. Putting aside the allegations of a multibillion-dollar fraud, customers had praised FTX’s technology, Ray said at the time, and the bankruptcy estate was exploring any options it had to maximize recoveries for its customers and other creditors.
The firm’s billing details disclosed in the Delaware bankruptcy court also show that FTX is at least paying advisors to study various aspects of a relaunch.
But in the hearing, FTX’s attorneys made clear that the idea of a relaunch was more of a vague possibility than a concrete plan. In response to questions from the judge on what a relaunch would look like, Dietderich said the firm’s executives and advisors didn’t yet know.
“There are as many opinions on this, I think, as there are professionals involved in the case and that’s a lot,” Dietderich said, later adding that “all options are on the table.”
One option, according to Dietderich, could be for FTX’s creditors to give up a portion of their claims against the company in exchange for equity in the new entity. He said that in any case, a relaunch would likely involve raising “significant capital” from outside investors, a daunting prospect in an environment where all crypto firms say they are having trouble raising funds, even without FTX’s reputational baggage.
In a slide deck accompanying the presentation, FTX said it aimed to complete an assessment of whether it would restart the exchange in the second quarter.
Even if FTX determined that there was a path to a relaunch, there is reason to wonder if that would be the most lucrative option for creditors, and if the FTT token’s function as a way to save on fees would also be revived. Fees earned by crypto exchanges in recent quarters have suffered significantly, as investors have stepped back from active trading. Traditional Wall Street firms, like Fidelity Investments, have also started to edge into serving crypto traders, threatening to increase competition.
That isn’t typically an environment conducive to a start-up crypto exchange—let alone to an investment in its predecessor’s token.
Write to Joe Light at joe.light@barrons.com
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