FTX Estate Seeks to Freeze Payouts in 49 Crypto-Restricted Countries

Introduction

The FTX Recovery Trust, managing the bankruptcy estate of the collapsed cryptocurrency exchange FTX, has filed a motion in a U.S. bankruptcy court to freeze creditor payouts in 49 countries with restrictive or ambiguous cryptocurrency regulations. This move, affecting approximately $825 million in claims—82% of which originate from China—aims to mitigate legal risks stemming from local crypto bans. The proposal has sparked outrage among creditors, who face delays or potential forfeiture of funds. This article explores the reasons behind the freeze, the affected jurisdictions, creditor reactions, and the broader implications for FTX’s recovery process.

Why the Freeze? Navigating Legal Risks

On July 2, 2025, the FTX Recovery Trust filed a motion in Delaware’s U.S. Bankruptcy Court to pause distributions to creditors in 49 jurisdictions, including China, Russia, Nigeria, and Pakistan, where crypto trading is banned or heavily restricted. The Trust argues that payouts could violate local laws, exposing the estate to fines, penalties, or criminal charges. For example, China prohibits crypto trading but allows holding digital assets, creating uncertainty for USD-based payouts. The Trust seeks court approval for a “hold-and-review” framework to ensure compliance, prioritizing the estate’s legal protection over immediate distributions.

Affected Jurisdictions and Claim Values

The 49 countries flagged as “restricted” include major markets like China, which accounts for 82% of the $825 million in disputed claims, despite representing only 5% of total claims. Other nations, such as Russia, Nigeria, Fiji, and Zimbabwe, face similar restrictions due to outright bans or unclear regulations on crypto transactions or distribution agents. The FTX estate has already distributed $6.2 billion in two rounds, with $5 billion paid out in May 2025, but these restricted jurisdictions complicate the process, potentially delaying or nullifying claims if legal clarity isn’t achieved.

Creditor Backlash and Legal Challenges

Creditors, particularly in China, are pushing back against the freeze. Some, like user @zhetengji, argue that China’s laws permit holding crypto and receiving USD via offshore accounts, questioning why wire transfers aren’t facilitated. Affected creditors have 45 days to file objections under the proposed “Restricted Jurisdiction Notice,” requiring acknowledgment of U.S. court authority. Failure to object or resolve disputes by the distribution deadline could result in claims being forfeited to the estate. Legal experts like Aaron Brogan of Brogan Law note the complexity of cross-border compliance, while creditors like Sunil Kavuri are mobilizing legal action to contest the freeze.

Implications for FTX’s Recovery and Crypto Regulation

The FTX collapse in November 2022, triggered by former CEO Sam Bankman-Fried’s fraud, wiped out billions in customer assets, making its bankruptcy one of the most complex in crypto history. The proposed freeze underscores the challenges of navigating global regulatory disparities, particularly in jurisdictions with anti-crypto policies. If approved, the hold-and-review framework could set a precedent for handling international claims in crypto bankruptcies. However, it risks further eroding trust in centralized exchanges, as creditors face prolonged delays. The Trust is working to reduce restricted jurisdictions through legal opinions, but the July 22, 2025, court hearing will be pivotal.

Conclusion: A Balancing Act in Crypto Recovery

The FTX Recovery Trust’s move to freeze payouts in 49 crypto-restricted countries highlights the intricate legal landscape of global cryptocurrency regulation. While aimed at safeguarding the estate from legal risks, the proposal has sparked fierce opposition from creditors facing potential losses. With $825 million in claims at stake, particularly in China, the outcome of the July 22 court hearing will shape the future of FTX’s recovery efforts. This case underscores the broader tension between crypto’s borderless nature and fragmented regulatory frameworks, urging the industry to seek innovative solutions to protect investors while complying with diverse laws.