FTX, the once-promising cryptocurrency exchange, has fallen from grace and is now struggling to keep its head above water. The fallout from its decline is rippling through the entire crypto market, leaving many firms in its wake to fend for themselves. Crypto firms that once relied on FTX for liquidity and trading volume are now facing a harsh reality. Without the support of a robust exchange, these firms are struggling to find the liquidity they need to operate effectively, and many are being forced to make tough decisions about their future. According to a recent report from Financial Times, the once-promising crypto hedge fund Galois Capital has officially shuttered its doors after losing a staggering $40 million to the now-infamous cryptocurrency exchange FTX. The collapse of the hedge fund is the latest in a string of casualties resulting from FTX’s decline, and it has sent shockwaves throughout the entire crypto market.
FTX Fallout Claims Another Victim As Hedge Fund Collapses
Galois Capital, a hedge fund that fell victim to the collapse of FTX, has made the difficult decision to close its doors for good. With half of its assets trapped in the bankrupt exchange, the fund has been unable to recover, forcing it to return its remaining assets to its investors.
According to documents, Galois Capital, once one of the most significant crypto-focused quantitative funds managing around $200 million in assets, has ceased all trading and unwound its positions after acknowledging its non-viability to investors. Last year, the hedge fund revealed that a whopping $40 million was trapped in FTX due to its sudden collapse.
Co-founder of Galois Capital, Kevin Zhou, said, “Given the severity of the FTX situation, we do not think it is tenable to continue operating the fund both financially and culturally. Once again, I’m terribly sorry about the current situation we find ourselves in.”
Galois Clients Will Get Their Money Back
Galois had been a well-regarded player in the crypto hedge fund scene, known for its innovative investment strategies and its team of expert traders. But despite its reputation, the firm was unable to withstand the brutal impact of FTX’s downfall. The loss of $40 million to FTX was a devastating blow for Galois, leaving the hedge fund struggling to find a way forward. With its assets depleted and its investors demanding answers, Galois ultimately made the difficult decision to shut down its operations.
Similar to the Lehman Brothers collapse in 2008, numerous hedge funds found themselves with billions of dollars stuck on the FTX exchange, which was once regarded as one of the more trustworthy trading platforms in a loosely regulated industry. In addition, FTX’s Delaware bankruptcy has identified up to a million creditors, with its founder, Sam Bankman-Fried, set to face trial on fraud charges in October, to which he has pleaded not guilty.
According to a letter from Galois, the hedge fund’s closure means that clients will receive 90% of the money not trapped on FTX, with the remaining 10% temporarily held back until discussions with the administrators and auditor have concluded.
In the letter, Zhou expressed a desire to sell the fund’s claim on FTX instead of undergoing a prolonged legal process, citing the possibility of bankruptcy proceedings that can last ten years or more. He further noted that distressed buyers are better equipped than the fund to pursue claims in bankruptcy court. Following the letter’s dispatch, Galois sold its claim for roughly 16 cents on the dollar.
Zhou said, “This entire tragic saga starting from the Luna collapse to the 3AC [Three Arrows Capital] credit crisis to the FTX/Alameda failure has certainly set the crypto space back significantly. However, I, even now, remain hopeful for crypto’s long-term future.”
The demise of Galois has sent shockwaves through the crypto community, with many experts wondering whether FTX’s downfall could spell the end for the industry as a whole. Unfortunately, the once-booming crypto market has already seen a significant downturn in recent months, with many investors turning to more traditional assets as a result.
