- Strategic Move: Bankrupt FTX seeks Galaxy’s counsel to stake, hedge, and liquidate its massive $3 billion cryptocurrency portfolio.
- Preserving Value: Aiming to return creditor funds in fiat, FTX’s careful strategies hope to maintain crypto asset values.
Mastering the Crypto Liquidation Labyrinth
Post its November collapse, FTX, a former crypto exchange juggernaut, is gearing up to sell, stake, and hedge its substantial cryptocurrency assets. This move isn’t made in isolation. Mike Novogratz’s esteemed Galaxy is on the radar as a potential advisor, illuminating recent court filings.
FTX’s primary objective is clear: return funds to creditors in fiat forms, such as dollars or euros, rather than in volatile cryptocurrencies like bitcoin (BTC) or ether (ETH). By doing so, they aim to prevent eroding the value of a hefty over $3 billion in cryptocurrency assets. FTX’s documentation, as presented by their legal team, sheds light on their strategy. Hedging, particularly against assets like BTC and ETH, can function as a safety net against market downturns. Moreover, by staking specific digital assets, they aim to reap low-risk returns on assets that would otherwise remain stagnant.
This isn’t merely about protecting value; it’s also about growth. FTX envisages the accruement of interest on its extensive crypto reserves. Such interest can then be channeled back to waiting customers, restoring their lost funds. Spearheaded by the restructuring maestro, John J. Ray III, FTX is acutely aware of market dynamics. They understand that liquidating their entire crypto pool at once could lead to a market crash, which could then be exploited by short sellers and other players. Thus, a phased approach, such as setting weekly sales limits, might be on the horizon.
Highlighting the credentials of their potential ally, the documents extol the virtues of Galaxy Asset Management. Recognized and approved by the Securities and Exchange Commission, this entity under the Novogratz crypto umbrella is seasoned in digital asset management and trading. To address any perceived conflicts of interest – given Galaxy Digital’s prior investments in FTX – stringent protocols will be put in place, ensuring Galaxy solely acts to further FTX’s interests.
In previous disclosures, FTX declared possession of crypto assets valued at $3.4 billion. Their eventual goal is converting these assets into cash for customer restitution. This approach contrasts with other bankrupt entities in the crypto world, like Celsius, which has chosen to reimburse in cryptocurrencies.
The proposed actions await greenlighting by the Delaware bankruptcy court. Meanwhile, FTX grapples with a mounting legal fee, reportedly costing them a staggering $1.5 million daily. Adding to FTX’s woes, founder Sam Bankman-Fried faces a renewed slew of fraud charges linked to his company stewardship, to which he has pleaded not guilty.