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FTX, Celsius, BlockFi Are Finally Paying Users. Will Money Stay On Chain?

By Evan Jones03/20/2024

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Sam-Bankman Fried’s trial is over, with the infamous former CEO of FTX Exchange now awaiting sentencing after being found guilty of all his charges. FTX collapsing didn’t just affect FTX’s customers though, as the exchange had become one of the top exchanges by trading volume before its collapse, and became tied to parties like Celsius and BlockFi. 

When FTX collapsed, these two lending platforms were some of the first to disclose that they were likely to face bankruptcy issues because of their dealings with FTX. Now that the FTX case has been settled, all three of these platforms are beginning to move forward with paying back clients what they’re owed. Will this cause a market downturn or is the money going to stay on the blockchain. Let’s take a look.

Cleared for Repayments

Celsius, BlockFi, and FTX have now been cleared to start repaying customers what they can. Celsius is expected to pay back clients about $2 billion in crypto to account holders, of which there were some 600,000 when it collapsed. In addition to the crypto repayment, customers will be given a stake in a newly formed company called Fahrenheit, a crypto mining business.

BlockFi won their case against FTX, leading to them recovering almost $1 billion dollars which they can now use to almost make their customers entirely whole. This means that BlockFi’s creditors and customers will get almost all the money they lost back.

FTX fully expects to repay all its customers in entirety as well, with 15 million customers owed somewhere between $30-$35 billion in crypto, which is no small sum.

Where Will the Money Go?

As these three entities go about repaying their creditors and customers, it’s fair to wonder whether these parties will decide to keep the money as crypto on the blockchain, or sell it for fiat. There are a few things to consider regarding where the money will go, but also whether it will even matter where it goes.

The first thing to consider is the amount of money being repaid and how that repayment has been valued. Celsius and BlockFi are paying back customers somewhere around $3 billion in crypto combined, while FTX’s repayment is over $30 billion. 

Now, if all that money were to be repaid in one day, and then sold, then the market would likely face a downturn, at least in the short-term. But considering that spot Bitcoin ETFs have been adding almost $1 billion in buying pressure a day to the market, if that sum total between the three parties is distributed over time, the market should easily absorb it all.

The next thing to consider is the asset that the person is being repaid in. If they’re getting Bitcoin back, they might sell it if they bought it at a lower price than where it is currently, but they also might hold it because of how legitimate the asset has become. Similarly, if they’re getting repaid in FTX Token (FTT), they’ll probably want to dump that as soon as they can because there is no FTX Exchange and therefore no viable reason to hold the asset.

What they sell their assets for then becomes the important part. If they sell out their crypto for fiat because they’re fed up with the cryptocurrency sector, then the money certainly isn’t staying on-chain. But if they decide to stay within the sector they may sell their returned, smaller cap assets for something like Bitcoin or Ethereum that can likely be considered blue  chip investments for the sector now. 

Closing Thoughts 

It seems possible that many of these clients and creditors, if they’re down in terms of dollar value on the assets received, may want to stay in the sector. This is because crypto is one of the only sectors where they may be able to turn their 90% loss into a profit over time due to crypto volatility and the seemingly impending bull run

Whether the money stays on the chain or not likely won’t have too much of an effect on the market regardless, thanks to the buying pressure presented by spot Bitcoin ETFs. But, it will certainly be interesting to watch what happens as affected customers are repaid.

Article tags

bitcoin
cryptocurrency
Exchanges
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

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