Summary: Their companies’ creditor claims have traded higher throughout the year, raising hope that the recovery value is higher than initially expected. FTX’s FTT token rallied (intraday) +334% while Celsius’s CEL rallied by +114%. It all started with a misleading headline, ‘FTX Creditors’ Lawyers Promote Deal Giving Investors 90% of What’s Left in SBF’s Empire’. But why, and will those price gains last?

Analysis:

There is now an interesting pair trade opportunity: Long Celsius CEL and short FTX FTT tokens.

The commonality between the two founders of the FTX exchange (Sam Bankman-Fried) and Celsius (Alex Mashinsky) is that they both issued their tokens and ran into enormous personal legal troubles. Recently, their – near worthless – tokens rallied significantly. But why, and will those price gains last?

Their companies’ creditor claims have traded higher throughout the year, raising hope that the recovery value is higher than initially expected. FTX creditor claims have increased from 12% earlier this year to 52% and claims for Celsius have reached 36.5%. It might not be as bad as feared for traders with assets locked in those platforms, but claims on the assets (such as Bitcoin, Ethereum, etc.) differ from claims on the tokens these companies have issued.

Any rally for those speculative tokens could crumble as reality sets in.

FTX’s FTT token rallied +334% (intraday) and still has a market cap of nearly $1bn, while Celsius’s CEL rallied by +114% and reached a market cap of $124m - all within a week or two.

It all started with a misleading headline, ‘FTX Creditors’ Lawyers Promote Deal Giving Investors 90% of What’s Left in SBF’s Empire’. Some interpreted this as if everybody with funds locked up on FTX would receive 90% back. However, this proposal indicated that 90% could be returned after the bankruptcy process concluded. In addition, everybody who withdrew money 90 days before the bankruptcy filing could be liable for clawbacks. Here, the creditors offer only a 15% withholding if the money is returned.

FTX also has a $500m investment stake in Anthropic that might be valued at $2-3bn currently. Amazon announced it plans to invest up to $4bn into the AI company. This had already raised hope for a higher recovery value for FTX creditors.

We also learned months ago that the FTX creditor team will announce the winning bid for the FTX exchange in December – which still has customer data of 8 million people and a globally recognized brand among its assets. We would estimate that the exchange could fetch $2-3bn – especially with the recent rally in crypto markets. This will continue to benefit FTX creditors but will have little impact on FTT as the new owners are unlikely to take over those coins. A large correction in FTT token price looms.

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On the other hand, Celsius Network received US bankruptcy court approval for a restructuring plan that will shift the company’s focus on mining new Bitcoin and earning staking fees by validating blockchain transactions. Celsius has 80,000 mining rigs, of which 47,000 are in operation. While this might be a lengthy process, customers could expect to receive a higher amount of claims. The manager of this reorganized business will also buy a $50m minority stake and list the company on the Nasdaq, with customers receiving stock as part of their bankruptcy claim.

The restructuring plan includes a settlement that values the CEL token at $0.25 – right where it trades now but explicitly mentions that the CEL could guarantee the token’s survival with intrinsic value. This $0.25 level could be perceived as the (valuation) floor, and any below level might be a margin of safety – as long as Bitcoin prices stay current and Celsius can deploy the other 33,000 Bitcoin mining machines.

While trading here ‘worse’ vs. ‘bad,’ this pair trade could make sense as the new FTX owners could disclose their intention NOT to use the FTT tokens in their new business endeavor, as we would expect.

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