It was a good week for FTX creditors—an unexpected development considering the bleak outlook following the crypto exchange's bankruptcy filing at the end of 2022. The turnaround is largely due to the significant increase in crypto asset prices since FTX's collapse, bolstering the value of its holdings.

When FTX filed for bankruptcy, crypto asset prices were at their lowest, but they have since rebounded. This rise has substantially increased the value of FTX's assets, allowing the bankruptcy estate to generate funds by selling off shares in Grayscale Bitcoin Trust (GBTC), its stake in the AI startup Anthropic, and locked Solana tokens. These sales have provided much-needed liquidity to pay back creditors.

Despite some missteps in the bankruptcy process—such as selling FTX’s stake and token warrants in Mysten Labs for $96 million just before Sui’s token launch, which could have fetched a higher value had they been held longer—the overall outcome has been positive. Last week, FTX unveiled a compensation plan that promises 98% of creditors with claims below $50,000 will receive 118% of their allowed claims. Other creditors are also set to receive full repayment, along with additional compensation for the time value of their lost funds. FTX estimates that the total cash available for distribution is between $14.5 billion and $16.3 billion.

This positive development has driven FTX creditor claims above 100 cents on the dollar. Creditors can sell their claims to expedite their payouts, usually at a discount. In November 2023, these claims were trading as high as 65 cents on the dollar, reflecting a significant expected recovery compared to earlier in the year when expectations were much lower. With the assurance of full repayment and more, these claims are now trading at 109%.

However, not everyone is satisfied. Sunil Kavuri, a representative of the largest FTX creditor group, has urged creditors to vote against the latest compensation plan. Kavuri's primary concern is that the plan compensates creditors in dollars equivalent to their asset values at the time of bankruptcy, not in cryptocurrency. He argues that this approach has potentially "destroyed an estimated over $10 billion" in value for creditors, considering the significant appreciation of asset values since FTX's collapse.

Thomas Braziel, a partner at 117 Partners and 507 Capital and an investor in distressed assets, remains optimistic despite the pushback. He notes that many claims are now held by distressed asset investors and a significant portion of the claims are based on stablecoins, which may mitigate some of the dissatisfaction.

The good news for FTX creditors has also positively impacted FTT, FTX’s native token. While the possibility of the exchange's revival is slim, negating future utility for the token, there was a notable spike in trading volume. On May 8, the day the compensation plan was announced, FTT saw $139 million in spot volume—the highest since December.

In summary, FTX creditors are experiencing an unexpected yet welcome recovery as the bankruptcy proceedings progress, highlighting the dynamic nature of the cryptocurrency market and its impact on asset recovery efforts.