Will FTX Creditor $12 Billion Payouts Revive the Sluggish Crypto Market?

The cryptocurrency market may see a significant capital injection in the coming months, as FTX creditors are poised to receive over $12 billion in payouts. This influx is anticipated after a court-approved repayment plan, which raises the question of whether this substantial sum could rejuvenate a currently sluggish market.

FTX Creditor Payouts Could Spark Crypto Market Revival

In June, the bankrupt exchange reported it had $12.6 billion to return to customers. More so, estimates suggests this could increase to $16.5 billion as more assets are liquidated. The initial distributions, totaling about $1.1 billion, are relatively modest but are expected to provide a much-needed boost to the crypto market, particularly Bitcoin.

FTX creditors will benefit from this payout schedule as the process gains momentum. Galaxy Digital Holdings Research Head Alex Thorn noted that these payouts could drive liquidity back into the market. This will be a catalyst for price movements in major cryptocurrencies.

Most recently, Judge John Dorsey officially sanctioned the bankruptcy plan, setting a clear timeline for repayment. According to the approved plan, the initial distributions to FTX creditors will commence in December for smaller claims. Similarly, the team plans to address the larger claims in the first half of next year.

This structured payout plan will see a gradual return of funds to the FTX creditors, with the entire process possibly extending up to three years. The controlled release of funds is a strategic move to prevent sudden fluctuations. It caps the potential immediate market impact.

Impact on Crypto Volatility and Market Dynamics

The crypto market has been in a state of dormancy, with the top 100 coin gauge showing a monthly 3% decline. October, typically a strong period for digital assets, has not sparked the expected rally this year. In contrast, the market has experienced major crypto selloffs in the first week of the anticipated Uptober rally.

However, the upcoming payouts to FTX creditors might change this narrative by reintroducing liquidity to markets. Co-chief investment officer at Magnet Capital,  Benjamin Celermajer commented,

“It’s very likely that we see some of this flow back into crypto, providing a potential price catalyst to liquidity-starved markets.”

Additionally, research firm K33 estimates a “latent demand from FTX reallocators” at around $2.4 billion. However, the firm cautions that the crypto market could experience a muted impact, with effects spread over the next year as payments are distributed in waves.

While immediate changes may not be drastic, the gradual infusion of funds could help stabilize and elevate market valuations over the coming months.