FTX Shorts Bitcoin As It Looks To Repay Billions To Customers

Table of Contents

• FTX’s Unconventional Plan
• Is The Plan Sustainable?
• FTX Behind Grayscale Outflows

FTX has proposed an unconventional plan as the fallen crypto exchange looks to repay billions to customers by shorting Bitcoin with leverage.

FTX has made considerable progress when it comes to raising funds but acknowledges that full customer repayment remains uncertain at the moment.

FTX’s Unconventional Plan

FTX has put forth an unconventional plan to repay customers, one that puts Bitcoin at the center of its efforts. However, the plan can also backfire on the exchange, making full repayment uncertain. The exchange’s unprecedented collapse sent shockwaves through the crypto ecosystem and erased billions in value. Since its collapse, FTX has been attempting to repay a mountain of debts.

In 2023, the exchange unveiled a plan to compensate users with a mix of cash and equity in a revived platform called FTX.com. By December 2023, the exchange had accumulated around $4.4 billion, a significant increase from the $2.3 billion reported in October. This considerable windfall was attributed primarily to two sources: asset sales and Bitcoin derivatives trading.

Asset sales allowed FTX to generate $1.8 billion in December alone. Meanwhile, Bitcoin derivatives trading is a high-risk strategy used to manage risk and potentially generate profits from FTX’s sizable crypto holdings to repay outstanding debts.

Is The Plan Sustainable?

While FTX has made considerable progress regarding repayments, it has been shadowed by concerns surrounding the sustainability of the recovery efforts. Several experts, such as Zerohedge, have flagged concerns about the exchange’s heavy shorting of Bitcoin Futures. This means FTX is effectively betting against the cryptocurrency’s price.

In such a situation, if Bitcoin experiences a considerable price surge, it could magnify FTX’s financial struggles and considerably hinder the exchange’s repayment efforts and ability to repay its debts fully. To add further uncertainty, FTX has acknowledged the possibility of falling short on its repayment obligations, with users likely to face the major brunt of losses should such an eventuality occur, with FTX.com users potentially facing significant losses.

FTX Behind Grayscale Outflows

Meanwhile, data last week revealed that the FTX bankruptcy estate was responsible for a large chunk of outflows from Grayscale’s Bitcoin fund since it was converted into a spot Bitcoin ETF. FTX reportedly sold 22 million shares worth $900 million as it zeroed out on its holdings in the fund. Grayscale’s Bitcoin fund saw considerable outflows with around $2 billion since its conversion to an exchange-traded fund. Grayscale’s spot Bitcoin ETF was the first to begin trading after the SEC finally approved spot Bitcoin ETFs after years of delays and refusals.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.