FTX repayments could create ‘bullish overhang’ for crypto markets

As a researcher with a background in crypto markets, I’ve seen my fair share of repayment plans from bankrupt exchanges. The upcoming cash repayments to FTX creditors, estimated at $14.5 billion, have the potential to create a significant wave of buying pressure in the market.

According to K33 Research analysts, anticipated cash payments to FTX creditors may trigger a surge in buying demand, potentially boosting the crypto market.

FTX is set to dispense a minimum of $14.5 billion in cash to users who suffered losses during the exchange’s bankruptcy. According to K33 analysts Vetle Lunde and Anders Hesleth, these payouts could generate a “bullish sentiment” or “buoyancy” in the market. (Note: The term “bullish overhang” is often used in financial markets to describe a situation where there is an excess of bullish sentiment, which can lead to further price increases.)

Analysts pointed out that not all creditor payments involve bearish signs, using FTX’s anticipated cash repayments as an example. In contrast, Mt. Gox and Gemini have planned crypto repayments worth a combined $10.6 billion.

In their study, Lunde and Hesleth found that the demand from those receiving cash offset the supply from those receiving goods or services, resulting in a balanced market pressure.

Analysts pointed out that ascertaining the overall effect of these repayments on the market in terms of net buying or selling pressure beforehand is an intricate task. However, they highlighted that the precise timing of these payments could hold significant importance when making predictions about their potential market influence.

The repayment of Gemini’s $1.7 billion is scheduled for early June, whereas Mt. Gox’s repayment plan totalling $8.9 billion is set to be completed by its October 2024 due date.

Analysts pointed out that the exact repayment date for FTX creditors was still up in the air, as the court had not yet endorsed the proposed repayment plan. However, they predicted that most FTX debtors would likely receive their payments by the end of this year.

“The different timing of these repayments represents yet another indication of a slow summer in the market and a solid end to the year.”

On May 8, FTX announced that it might reimburse creditors up to $16.3 billion. Those with claims below $50,000 could potentially receive up to 118% of their recovery, calculated based on the value of their crypto as of November 2022.

As a researcher examining this issue, I’ve come across some criticisms from industry experts. They argue that the proposed solution may not satisfy all creditors, as not everyone would receive repayments equal to current market prices.

“Although I acknowledge the necessity of the bankruptcy procedure, it’s important to remember that the affected parties aren’t being fully reimbursed.” – Mike Belshe (May 8, X)

2024-05-16 04:57

FTX repayments could create ‘bullish overhang’ for crypto markets — K33 Research

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