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, it’s a way to potentially make 10x your money.
But there’s a twist here — and it might make you change how you invest forever.
So let’s dive in.
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 comedian (and Seinfeld creator) Larry David. 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 of — stealing billions in customer funds to support his lifestyle, and to make a variety of investments.
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 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 40 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. Check this out:
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 a whopping $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 hits a $30 billion valuation, FTX’s stake could be worth around $4.5 billion.
The thing is, FTX needs “only” $4.5 billion to make its customers whole. In other words, if its Anthropic stake turns out to be worth $4.5 billion or more — i.e., about 10x what it paid for it — customers will get back 100 cents on the dollar.
Furthermore, investors in FTX claims — the ones who scooped up claims for about 11 cents on the dollar — will also get back 100 cents. That’s nearly a 10x return. Talk about a great trade!
Ready to Trade Yourself?
So, after hearing this story, are you ready to start investing in distressed debt? Maybe even the debt of FTX?
As you can see, the price of FTX claims is still skyrocketing:
If so, here’s a link to Claims Market, a platform where you can invest in claims to FTX and others.
But if what you’re really looking for is the potential to earn 10x returns, I’ve got 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.
Two Easy 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
