Crypto customers sell claims at a loss to avoid bankruptcy

Some clients with accounts stuck in failed cryptocurrency firms are now choosing to take large losses on their investments to avoid dealing with the uncertainties of protracted bankruptcies.

At least hundreds of customers burned by the collapses of FTX, Celsius Network LLC and Voyager Digital Ltd. are looking to sell their cryptocurrency claims at deep discounts so they don’t have to wait months or even years to see what they can recover as platforms. : skip to chapter 11.

Customers and others Creditors with about $1 billion in FTX claims and about $100 million in Celsius claims have expressed interest in selling them through an online marketplace run by Cherokee Acquisition, a bankruptcy broker and buyer.

Nearly 500 users of FTX, Celsius and Voyager filed claims worth about $126 million for sale on Xclaim Inc. a bankruptcy claims trading startup that recently shifted its business to focus on providing a platform for buying and selling crypto-claims. Xclaim has recorded about $91.7 million in FTX customer claims so far, the company said.

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These investors take the loss upfront to avoid a bankruptcy proceeding that doesn’t necessarily guarantee them a better outcome, or they don’t have time to figure it out.

“[Bankruptcy] takes more time than people can handle,” said Vladimir Jelisavcic, founder and manager Cherokee achievement. “Some people need or want money now.”

Matt Sedich, founder and CEO of Xclaim, says the company receives calls from creditors every day. Because most FTX users live overseas, with roughly two-thirds of FTX claims coming from creditors in China, Hong Kong and Taiwan, Sedikh said.

At the other end of the spectrum, hedge funds and distressed debt investors are making calculated bets. Fund managers including Contrarian Capital Management LLC, Invictus Global Management and digital asset investment firm NovaWulf Digital Management bought claims from Celsius or Voyager creditors, court documents show.

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Professional asset managers have the capital and time to weather bankruptcies, and they said they buy tokens they believe have high upside. Other considerations include analyzing the quality of the tokens being purchased in the event of default in dollars through bankruptcy.

Claim prices may change from day to day. Voyager’s bankruptcy claims on Xclaim fell to 40 cents on the dollar after FTX collapsed in early November and the deal to buy Voyager collapsed. They traded earlier With 64 cents, Sedigh said. Celsius claims also fell, falling from about 29 cents to the dollar to 19 cents shortly after FTX filed for bankruptcy.

The sales so far represented only a portion of what FTX, Celsius and Voyager owed to customers. How much FTX creditors could recover in bankruptcy is unknown, and the case is further complicated by the fact that the company lacked reliable financial information and its founders are subject to criminal investigation.

Xclaim and Cherokee Acquisition said their platforms enable cryptocurrency customers to earn higher returns because they make transparent the historically opaque process of trading claims, which creates competition among potential buyers.

Luxembourg-based investment firm NOIA Capital bought FTX claims, offering sellers two options. The company will pay 5% of the value of the claims, with 20% in payments when accounts are settled in bankruptcy, or 2.5% in advance with 35% of future earnings, said Mohammed Yesilhark, NOIA’s chief investment officer.

Yesilhark said the types of claimants are diverse and include companies that have been financed by FTX as well as wealthy individuals who are “ready to just close this chapter. [their] life and move on.”

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Ezra Serrur, who founded his hedge fund management firm Serrur & Co. in June. The company says that selling the accounts not only allows customers to get some money back immediately, but also allows them to lose money to reduce their tax liability. Serrour was previously an investment analyst at distressed debt hedge fund DSC Meridian Capital LP. establishment his eponymous hedge fund.

Buyers, on the other hand, have capital requirements to acquire and can use expertise at the intersection of cryptocurrency and Chapter 11 to invest in digital assets with significant upside, Serrur said.

“There’s an opportunity if you’re willing to sift through the paperwork, the paperwork and understand the specifics,” Serrur said.

Some customers have chosen to keep their accounts. Voyager customer Josh Ragusa in California said:[I’d] rather take my chances with my assets in the hope that I will be able to recover my portfolio and that the digital currency will again have her day”.

“Hope is a powerful medicine,” Ragusa said.

But for others, investing in crypto was an expensive but valuable lesson.

One client who sold his claims to Serrur’s fund was Dylan Jones. The California resident collected 16.5 cents on the dollar on his $165,205 Celsius claim. Xclaim. Jones said he opened his account because Celsius promised high returns that he thought they were “unmatched anywhere”.

He said he was not surprised to see large losses in the cryptocurrency market. If it holds these claims, he said he could see a return of 10 cents to 20 cents based on the assets Celsius said it has been able to secure.

“My crypto investments were always limited to the amount of money I was willing to lose if the experiment blew up, as it did,” Jones said. He said he somewhat regretted “not listening to my gut when the market froze.”

“It was a life lesson in that there are very few opportunities to get rich quick without taking a lot of risk,” he said.