FTX Taps Galaxy to Reimburse Investors While Liquidating $3 Billion Crypto Holding
Will Galaxy serve as FTX's investment manager? | Credit: Shutterstock
- FTX aims to engage in staking and hedge BTC and ETH sales.
- Collapsed exchange is liquidating its $3 billion crypto assets.
- It is seeking assistance from Mike Novogratz’s Galaxy to optimize sales value.
According to a court document posted on FTX’s claims agent website on August 23, the collapsed exchange has requested court’s permission to appoint Galaxy Digital Capital Management LP (“Galaxy”) as an investment manager.
Will the Court Accept FTX’s Request?
According to FTX petition , former SBF’s exchange wants to hire Galaxy to handle investment management for some of its digital assets.
Galaxy would maintain and trade these assets under the proposed agreement in order to convert them into fiat money or stablecoins and also hedge FTX’s exposure to risky cryptocurrencies like Bitcoin and Ether.
In exchange, Galaxy would get a monthly management fee made up of two parts: a hedging charge determined by the average net asset value of the hedged assets; and a liquidation fee based on the amount of proceeds from sold assets.
Court records state that FTX thinks it is preferable to hire a seasoned external investment manager like Galaxy since it has the knowledge to liquidate sizeable Bitcoin assets without flooding the market.
To avoid disclosing FTX’s intentions and unintentionally affecting prices, Galaxy can also execute trades in a private manner.
If accepted, Galaxy would have a fiduciary obligation to FTX to manage the digital assets in FTX’s best interest. Galaxy’s rules and practices for preventing conflicts of interest while carrying out this requirement are also described in FTX’s submission.
In accordance with Section 363(b) of the Bankruptcy Code , FTX claims that hiring Galaxy is an appropriate use of its business judgment. This clause permits a debtor to use an estate property outside of normal commercial operations.
Through the proposed partnership, FTX hopes to support its efforts to restructure by making money off of its significant Bitcoin holdings.
However, the final say lies with the bankruptcy court, which must examine the motion and decide if hiring Galaxy as an investment manager is in FTX and its creditors’ best interests.
As a reminder, during a court hearing in Wilmington, Delaware, on Wednesday, August 23, 2023, FTX’s lawyer Brian Glueckstein stated that FTX is still set to finalize its bankruptcy proceedings in the second quarter of 2024.
FTX’ stance opposes the court-appointed committee’s request for an accelerated mediation, which represents FTX creditors.
Request For Property Sale
On August 23, the FTX debtors filed a second petition, possibly in response to Galaxy filing, asking the court to approve the creation of rules for the management and sale of some of their significantdigital assets holdings.
The court records state that FTX is asking permission to hire an investment consultant to help sell specific coins and tokens over time. FTX would then be able to sell $100 million in digital assets per week, with the option to temporarily raise the cap to $200 million.
FTX claims that using a seasoned investment manager when selling digital assets will help maximize sale revenues and minimize volatility exposure. Furthermore, the motion requests that the court permit FTX to enter into hedging contracts on legal cryptocurrencies like Bitcoin and Ethereum.
In order to produce passive revenue, FTX is also asking for permission to stake some idle crypto assets. Debtors contend that by reducing market risk, these actions are an ethical application of business judgment that will benefit creditors.
Bankruptcy court has still to approve FTX’s digital asset sale rules and desired authority following a notice and a hearing.
