Following its abrupt collapse, cryptocurrency exchange FTX filed for Chapter 11 bankruptcy protection in the United States on Friday, claiming it may owe money to over a million creditors. Here is what the case is expected to bring:
What is the current status of FTX's bankruptcy case?
A bankrupt corporation usually begins its Chapter 11 case by notifying the judge about its debts and how it got into bankruptcy, as well as requesting administrative permits for ordinary bankruptcy processes.
FTX has yet to make these normal petitions or set a "first-day" hearing to seek first permissions from the Delaware judge assigned to its case, indicating that the case is moving slowly.
Will customers' money be refunded?
Unlike bank deposits, customer accounts at crypto platforms such as FTX are not insured by the Federal Deposit Insurance Corporation. Customers will have to rely on the bankruptcy procedure since the US government will not step in to cover client deposits as it would in a regular bank failure.
Customers will have to wait for the bankruptcy court to determine how much, if anything, they would get back from a bankrupt firm if they file a Chapter 11 case. One of the important issues for the court to decide is whether clients own the bitcoin they placed or if it is the property of FTX.
What about FTX clients who have withdrawn funds from the company?
Customers that withdrew their valuables from FTX before its demise are not necessarily safe. The bankruptcy court may permit FTX to recoup such withdrawals to provide a more equitable settlement to creditors who were unable to make withdrawals. The clawback time might be prolonged for years in situations of fraud.
What other dangers do FTX clients face?
The bankruptcy might lead to the release of FTX clients' identities, email addresses, and transaction histories.
Bankruptcy relies on openness; at the very least, the court must know who is due money, how much it is owed, and how to contact creditors. The judges' demand for transparency clashes with crypto consumers' need for anonymity.