FTX Enlists Galaxy’s Expertise Amid Bankruptcy Proceedings

Key Insights:

  • FTX turns to Galaxy for expert guidance on its substantial $3 billion crypto assets amid bankruptcy challenges.
  • Galaxy’s mandate includes hedging FTX’s bitcoin and ether, staking crypto, and advising on asset liquidation.
  • FTX’s bankruptcy backdrop reveals concerns over returning funds, with Galaxy’s expertise sought to ensure optimal outcomes.

FTX, the bankrupt crypto exchange, has turned to U.S.-based crypto firm Galaxy for guidance. Court documents released late Wednesday indicate FTX’s intent to manage its significant crypto assets, estimated at over $3 billion, with Galaxy’s expertise.

Galaxy’s Mandate: Hedging, Staking, and Liquidation

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FTX’s move to collaborate with Galaxy arises from the necessity to address potential financial challenges. Consequently, Galaxy, steered by Mike Novogratz, will advise FTX on hedging its Bitcoin and ether assets. This approach shields FTX from unpredictable price fluctuations before these assets find buyers. Additionally, Galaxy will support FTX in staking its crypto, a method where cryptocurrency is lent to validate blockchain activities, thereby accruing interest.

Furthermore, the court documents emphasized Galaxy Asset Management’s digital asset management and trading proficiency. This SEC-approved advisory segment of Galaxy possesses the required knowledge for FTX’s current needs.

The backdrop of FTX’s Bankruptcy

FTX’s bankruptcy declaration in November 2022 was a significant event in the crypto sphere. Accusations centred on the mishandling and losing vast sums in customer crypto deposits. However, in a recent court hearing in Wilmington, Delaware, FTX’s attorney, Brian Glueckstein, conveyed optimism. He mentioned FTX’s plan to finalize its bankruptcy by the second quarter of 2024, despite the court-appointed committee’s push for a more rapid mediation.

FTX aims to return funds to its creditors in fiat currency, avoiding Bitcoin or Ether. Under the guidance of restructuring expert John J. Ray III, FTX exercises caution. They believe selling their entire crypto reserve at once could negatively impact prices, benefiting short sellers and other market entities. Hence, FTX is consulting with market experts to determine a strategy, potentially involving weekly sales limits.

Galaxy’s Involvement and Safeguarding Interests

It’s pertinent to mention that Galaxy Digital (GLXY), another branch of Novogratz’s operations, had considerable stakes in FTX during its bankruptcy. Recent documents detail measures to ensure Galaxy’s actions remain in FTX’s best interests.

In April, FTX revealed its liquid crypto assets totalled $3.4 billion. By July, the firm planned to transition these assets to cash before client distribution. However, some international customers might interact with a renewed exchange platform. Other crypto entities facing bankruptcy, like lender Celsius, have opted for liquid cryptocurrency distributions.

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The Delaware bankruptcy court is set to review these proposals. Additionally, the court was informed of FTX’s escalating legal costs, touching $1.5 million daily. Moreover, FTX’s founder, Sam Bankman-Fried, recently countered revised fraud allegations related to his company’s management with a not-guilty plea.

In conclusion, FTX’s collaboration with Galaxy highlights the intricacies of manoeuvring the crypto domain, especially during financial setbacks. As events progress, industry participants and observers keenly await FTX’s next steps.