Cryptocurrencies are the big winners in the bankruptcy case

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Cryptocurrencies are the big winners in the bankruptcy case

As the world awaits the trial of Sam Bankman-Fried, DL News took a closer look at FTX's bankruptcy case.

The FTX estate is suing Bankman-Fried's mom and dad for millions they allegedly misappropriated.

It paints a picture of two opportunistic Svengalis, closely advising the college grads running FTX while treating it as their piggy bank - funding luxury homes, lavish travel, and campaign donations.

FTX's Depositors are behind the juicy details and general media frenzy.

I'm not talking about big firms like BlackRock or Sequoia - somehow, I think they'll be fine - but rather the million-odd ordinary people screwed out of $8 billion.

They were not gullible fools, he said. The media coverage of celebrity endorsements, appearances at prestigious conferences, and the disregard for professional dress codes that appeared to be an iconoclastic boy genius, were greeted with fawning media coverage and celebrity endorsements.

They just wanted in on what the cognoscenti thought was a good thing.

Now the creditors of FTX - including those of Celsius Network, Voyager Digital, Gemini Trust, BlockFi, and so on - can only wait for the decisions of courts or restructuring teams.

Bankruptcy under Chapter 11 of the US tax code is never smooth, but it is a path well worn with precedent and clear laws facilitating the orderly winding down or restructuring of a business.

Debtors can remain in possession of their companies, protected against asset grabs from creditors. Creditors may have to wait to get what they owe, but they have a better chance of reclaiming the money they owe.

Cryptocurrencies are difficult to value due to their rarity. Nobody is quite sure whether to treat them as commodities or securities. It's not always clear who owns the cryptocurrency - the failed lender/exchange or the user.

There are some variables that have implications for whether a depositor can retrieve their crypto back, even in part.

Crypto creditors are commonly treated as 'unsecured', as they're at the back of the queue when the bankruptcy estate finally distributes assets.

And distributions of unsecured claims are often pennies on the dollar.

In January, a federal judge ruled that Celsius, instead of a number of its depositors, owned most of the cryptocurrency on its platform, classifying the depositors as unsecured creditors.

Celsius creditors overwhelmingly approved a restructuring plan that will see a new company formed. The investors will get back $2 billion worth of Bitcoin and Ether, as well as equity in the new company.

FTX has accumulated $7.3 billion in assets. A Delaware court has ruled that customers can claim these assets from the restructuring plan.

So these are happy endings.

It's worth remembering, though, that for many people who trust Bankman-Fried and another seemingly legit founder, Celsius CEO Alex Mashinsky, it's too little too late.

Have you been burned in a crypto case and want to talk about it? How will crypto lawyers counterattack the SEC after Grayscale and Ripple court wins?

The SEC has filed suit against crypto industry players that are both large and small. But attorneys for associations like the DeFi Education Fund told DL News they are planning a counteroffensive. Obscure administrative laws and challenges to enforcement actions.

Pearse Os, the department for communication networks, content and technology, told a summit last week. The EU wants to build an EU-wide blockchain, but the industry must provide the know-how, he said.