Welcome to a special Weekend Market Beat—today’s topic was too good not to write about. Cheers!
To The Moon
When people look back at economic history, I believe one of the most interesting little footnotes will concern people’s willingness to dump money into things that they should know are worthless.
Consider, for example, the run-up in Bed Bath & Beyond’s stock in the days prior to its bankruptcy. It wasn’t a secret. Management wasn’t hiding the troubles, or waving people aboard as if everything was fine. Yet, people proved more than willing to dump their hard-earned cash into to stock even as the lawyers drafted the bankruptcy filings.
Today we have a real-time example of such irrationality playing out but at an arguably larger scale of stupidity:
Behold, the price of FTX Token, FTT. Yes. The FTX Token. The one associated with FTX. You know. The highest profile fall from grace-slash-ponzi scheme since Bernie Madoff. I could go on, but you get it.
In the last three days the price of this otherwise worthless coin (it says so right in the warning box [!!] above the quote!) has quadrupled. I suppose this is good news for John Ray and FTX’s creditors since the holdings could be liquidated1, but it leaves unanswered the biggest question I have:
Why?
Why is this happening in the first place? Well, it seems to be happening on the back of comments from SEC Chairman Gary Gensler (aka the crypto boogeyman), who stated a few days back that FTX could—could—be revived as a business if all the t’s were crossed and the i’s dotted.
People with an ounce of sense will know that this is pretty much meaningless. Enron could be revived as a corporate entity if done within the confines of the law—why would FTX be different? Further, why would you want to? FTX doesn’t possess any special sauce (as we all know now), it doesn’t have any sort of reputation worth trading on, and its assets are going to be liquidated (read that last part again).
In other words, you’d probably be better off starting a new exchange from scratch.
People with less than an ounce, however, smell opportunity.
The thinking goes that if FTX is back, then the legions of HODLers will be back as well, and business will resume as usual and FTT will trade up in the $70 range again. This, however, isn’t how things go.
Page 6 of FTX’s Chapter 11 Plan of Reorganization makes it clear that FTT holders are being lumped in with equity investors, which is a bad place to be in a bankruptcy. Essentially, you’re last in line.
Perhaps some confusion has arisen around the idea of the Effective Date (which is the date on which all obligations to debtors have been satisfied)—perhaps these buyers believe the Effective Date is in the past? And that any new holders of FTT won’t be subject to liquidation? I don’t know. Most likely they’ve just read Gensler’s comments and come down with another bout of To-The-Moon-itis.
What will happen—or is most likely to happen by an overwhelming margin—is that these holders will be wiped out. It’s what is stated above, after all.
For the nail in the coffin on what will happen to FTT, consider the following from Page 28 of the Plan of Reorganization:
No Holder of a FTT Claim shall receive any Distributions on account of its FTT Claim. On and after the Effective Date, all FTT Claims shall be canceled, released and extinguished and shall be of no further force and effect, whether surrendered for cancelation or otherwise.
That’s about as plain as it gets. FTT holders are in all likelihood going to get zero—nothing, nada, zilch.
Now, is there some universe where the debtors are satisfied and FTT holders are restored? Sure. But that’s not our universe. The virtual certainty in this case is that FTT holders will wake up one day to see a $0 balance in their accounts, and that will be that. Of course, we’ll hear about it on Twitter (ugh, X) endlessly, but what else is new?
Disclaimer—I am not a lawyer and nothing in this post is legal or investment advice. Do your own research. This is a work of opinion.
though, of course, it’s not likely that much of the coin could be liquidated for $4—there are only so many rubes out there.