FTX's creditors face a pivotal decision on how they will be repaid, as the cryptocurrency exchange seeks court approval to query its creditors on whether they prefer to receive their recovered funds in cash or cryptocurrency at its current market value. The court, led by United States Bankruptcy Judge John Dorsey, granted FTX the approval to proceed with this voting plan on June 25.

FTX's lawyers have emphasized that in-kind cryptocurrency payouts could potentially conflict with bankruptcy laws. This comes as several creditors have expressed dissatisfaction with the proposed cash repayment plan. In May, FTX's liquidation plan suggested a 118% return to 98% of creditors with claims under $50,000, based on the asset prices at the time FTX filed for bankruptcy in November 2022.

Despite this, a significant number of creditors are advocating for a payout in cryptocurrency, reflecting the substantial growth in the crypto market since FTX's collapse. For example, Bitcoin, which was trading at approximately $16,900 during FTX's bankruptcy filing, has surged by 265% to around $61,770 at the time of publication. The overall crypto market has seen a 165% increase in total market capitalization since FTX's downfall.

The vote, according to FTX's lawyer Andy Dietderich, aims to gather input from the wider customer base that has not yet been engaged in repayment negotiations. However, FTX's legal team has stressed that bankruptcy laws mandate valuing claims at the time of the Chapter 11 filing, aligning with the current proposed plan. They also highlighted that cash repayments would be more straightforward to execute, as creditors would not be liable for capital gains tax.

Even if creditors vote in favor of cryptocurrency repayments, the court is not obligated to approve this method. Creditors have until August 16 to cast their votes, with Judge Dorsey set to make a final decision on October 7. FTX has already recovered $11.4 billion in cash since its bankruptcy filing, with expectations to increase this amount to $12.6 billion by October 31, when the Chapter 11 plan could be enacted.

Once a major player in the global cryptocurrency exchange market, FTX collapsed in November 2022 after approximately $8 billion in customer funds were misappropriated, primarily by its trading firm Alameda Research. This misuse led to a liquidity crisis when customers attempted to withdraw their assets.

Currently, FTX is under the leadership of CEO John Ray, a turnaround specialist actively involved in the ongoing bankruptcy case. Meanwhile, former CEO Sam Bankman-Fried was convicted of multiple fraud and money laundering charges in November 2023 and sentenced to 25 years in prison in March 2024.