Investoer Unable to Access Their Money
Many investors worldwide are now unable to access their money due to the failure of cryptocurrency exchanges like FTX and hedge funds like Three Arrows Capital (3AC). Due to this, the digital market for trading bankruptcy claims has expanded, allowing investors to sell their claims for pennies on the dollar. By giving consumers the chance to purchase an IOU, or the right to a share of the money returned to creditors at the conclusion of a bankruptcy case, online markets give investors a chance at significant profits and discounted exposure to cryptocurrencies. The buyer is thus making a bet that the value finally paid back to creditors will be more than what they paid for the claims. Bankruptcies in the cryptocurrency industry have played a significant role in the growth of this market for bankruptcy claims.
Investor Story
Aleksandar is one of the investors that can no longer access their money due to the failure of FTX. One of the largest public bankruptcy claim marketplaces, Cherokee Acquisition, purchased his claim from the investor fund. For his FTX claim, he received less than 20 cents on the dollar, but he was glad to “be done with it and move on.” The development of online markets for the exchange of bankruptcy claims is a result of this circumstance. One of them, Open Exchange, led by the creators of the insolvent hedge fund 3AC, is even attempting to tokenize these claims by creating new tokens out of failed crypto projects that owners can then sell or use as collateral.
Market Bankruptcy
There has been a market for bankruptcy claims at least since the 1980s. However, over the past few years, public marketplaces for bankruptcy claims have emerged. Examples include Xclaim and Claims Market. These marketplaces bring some transparency to an otherwise opaque market and enable virtually anyone with a claim to list it. Bankruptcies in the cryptocurrency industry have played a significant role in the expansion of these marketplaces. According to projections from Open Exchange and Xclaim, there are currently between $20 billion and $30 billion in crypto bankruptcy. Claims in cryptocurrency bankruptcy can be purchased as a way to get cryptocurrency at a discount.
But buying claims is not a task for the weak-willed. The goals for claim sales are diverse yet work well together. The seller either needs quick cash to pay expenses, wants to deduct losses from profits for tax considerations, or thinks investing the money elsewhere will yield a better return. Some investors must make the difficult choice to sell their claims now for a small portion of their paper value because they have their money locked away, possibly for years.
Source: ©Matthew Busch/Bloomberg via Getty Images ; Wired
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Yustika Kusuma Putri, she is social media marketer from Indonesia. I currently work as a Media Manager in Technologie Omicrom Sendas inc.
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