According to Bloomberg, betting on bankruptcy claims on cryptocurrency exchange FTX is bringing lucrative profits to hedge fund Diameter Capital Partners. The transaction price of the FTX debt acquired by Diameter has exceeded its face value, far beyond the company's original estimate.

Diameter initially bet that claims on FTX assets would be sold at a price of 20 cents per $1 (i.e. 20% of the face value of the debt), however, the prices for these debts have risen to over 100 cents per $1.

Managing partners Scott Goodwin and Jonathan Lewinsohn stated in an investor letter this month (a copy of the letter seen by Bloomberg) that this transaction was the biggest contributor to the profits of Diameter's two major funds in the second quarter and remains a significant part of the company. According to the content of the letter and information disclosed by insiders, the company currently has an exposed position of over $400 million in FTX debt.

FTX applied for bankruptcy protection in November 2022. In March of this year, a US judge sentenced FTX co-founder Sam Bankman Fried (SBF) to 25 years in prison for his crimes.

Bankman Fried still caused the holders to lose all the appreciation of their cryptocurrency, with an appreciation of about 230% as of the end of the quarter. So he went to jail, while Diameter performed well, "Goodwin and Lewinsohn wrote." This is one of the obvious win-win situations we have seen

The acquisition of FTX debt will become one of the best non-performing debt transactions in history. In the weeks following the bankruptcy of FTX, these debt trading prices were only in single digits, but according to the recently announced restructuring plan, FTX customers may receive a distribution of 120 cents per $1, bringing huge victories to buyers who bought debt in the early stages of the company's bankruptcy.

Diameter had previously anticipated that FTX clients' claims would be settled in US dollars based on the relevant token prices recognized on the day of bankruptcy filing, but the company did not anticipate that its originally estimated worthless assets (including equity in the artificial intelligence startup Anthropic) would be liquidated at a high price during the course of the case. According to reports, even as the value of debt increases, Diameter continues to buy.

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