There’s a million ways to make a buck, right?
Today I’ll tell you a story about one of the stranger ones.
After you hear about it, you might be tempted to try it yourself. After all, if a bunch of oddball investors could use it to make 10x their money, maybe you can, too.
But there’s a surprising twist here…
And it might make you change how you invest forever.
Larry David Adds His Credibility
While watching the 2022 Super Bowl, a man named Bhagamshi Kannegundla saw an ad for a crypto platform called FTX.
The ad featured Larry David, the comedian and Seinfeld creator. The presence of David gave Kannegundla comfort that the platform was legitimate, so he started using it to trade cryptos.
But just nine months later, FTX collapsed. The company’s founder, Sam Bankman-Fried, was accused of — and eventually convicted and sentenced to twenty-five years in prison for — stealing billions in customer funds.
Kannegundla had $174,000 on the platform. But after FTX collapsed, he couldn’t withdraw it — and potentially it was gone forever.
I say “potentially” because, although FTX had billions of dollars of liabilities, it also had significant assets — cash, cryptos, real estate, and a bunch of investments it had made. It wasn’t clear what they were worth, but they were certainly worth something.
In situations like this, investors who focus on “distressed” assets step into the fold. Such investors buy the claims of creditors like Kannegundla at a discount — say, 10 cents on the dollar.
Basically, they’re betting that the claim will eventually be worth more than 10 cents on the dollar. For example, maybe the bankruptcy process will recover 20 cents on the dollar, or 60 cents, or even more.
Kannegundla found an investor who’d buy his $174,000 claim for $19,000. In other words, instead of waiting around and hoping he’d get more from FTX in the future, he settled for an upfront payment of 11 cents on the dollar.
But then there was a strange twist…
The Expected Payout Surges
Big investors started piling into FTX credit claims.
As Bloomberg reported, investors including Silver Point Capital, Diameter Capital Partners, and Attestor Capital eventually bought more than $1 billion worth of FTX debts.
Again, the basic bet they were making was that FTX customers would recover more than the pennies-on-the-dollar that others were expecting.
But why was the expected payout soaring?
Well, for starters, the lawyer shepherding FTX through the bankruptcy process managed to identify $7.3 billion of assets. These assets included $3.4 billion in crypto-currencies, and $200 million worth of real estate in the Bahamas.
Another reason was that investors started to view a reboot of FTX (some were calling it FTX 2.0) as a real possibility. That could have brought in even more cash.
But there was also a third reason…
And this was the most interesting reason of all…
A Game-Changing Startup Investment
You see, one of the investments Bankman-Fried made with stolen FTX funds turned out to be prescient: an investment in a private artificial-intelligence (AI) startup called Anthropic.
FTX invested $500 million into Anthropic in April 2022, when the AI startup was still flying under the radar. But today, Anthropic is viewed as a serious competitor to Open AI, the company behind ChatGPT that’s currently valued at about $90 billion.
In fact, the FTX 2.0 Coalition, a group representing FTX creditors, speculated that if Anthropic hit a $30 billion valuation, FTX’s stake could be worth around $4.5 billion.
The thing is, FTX needed “only” $4.5 billion to make its customers whole. In other words, if its Anthropic stake turned out to be worth $4.5 billion or more — i.e., about 10x what it paid for it — customers would get back 100 cents on the dollar.
And lo and behold — look what happened next…
All Their Money Back — Plus Interest
As media outlets from Bloomberg to the Financial Times have reported over the last couple of weeks, FTX customers are now poised to get all their money back — plus interest!
But for investors like us, here’s what’s even more interesting:
“Oddball” investors in FTX claims — the bankruptcy traders who scooped up claims for about 11 cents on the dollar — would also get back 100 cents.
As you can see from this Fortune headline, the biggest winners are “bankruptcy traders”!
After all, they quickly made a nearly 10x return…
And it’s all thanks to the investment FTX made in the AI startup, Anthropic.
Ready to Trade Yourself?
So, after hearing this story, are you ready to start investing in distressed debt?
If so, here’s a link to Claims Market, a platform where you can invest in bankruptcy claims.
But as you can imagine, such trades can be complicated.
If what you’re really looking for is the potential to earn 10x returns, here’s a far easier way to accomplish the same thing:
Invest in Startups
As long-time readers of Crowdability already know, we target a minimum 10x return for every one of our startup investments.
Here are two easy (and free) ways to get started.
First, check out our weekly “Deals” email. We send this out every Monday at 11am EST, and it contains a handful of new startup deals for you to explore. Many of them have investment minimums of just $100 or so.
Second, check out our white papers like “Tips from the Pros.” These easy-to-read reports are chock full of wisdom about how to separate the good deals from the bad.
Why mess around with complicated bankruptcy proceedings when you can invest in high-potential startups like Anthropic?
Happy Investing!
Best Regards,
Founder
Crowdability.com
