FTX to enlist Galaxy as ‘investment adviser’ to manage its crypto

As per Wednesday court filings, bankrupt cryptocurrency exchange FTX is hoping to utilise the “extensive experience” of Galaxy Asset Management to manage its digital assets and trading. It wants to hire the billionaire investor Mike Novogratz’s crypto firm as an advisor to hedge and sell its crypto holdings.

Hedging in crypto is a popular trading strategy that is used to mitigate the downside risk of existing portfolio positions. By hedging its stockpile of Bitcoin ($BTC) and Ethereum ($ETH), FTX, which collapsed in November 2022, will be able to lessen its exposure to adverse price movements before their sale.

The request made by FTX lawyers yesterday also asked the bankruptcy court if it’s allowed to stake, among other activities, its crypto holdings. Galaxy would help in this staking process which would get some earning interest when the crypto is lent to validate blockchain transactions. The filing said that the debtors will “stake certain of their digital assets in order to generate passive yield”.

The document continued: “Galaxy Asset Management has extensive experience in areas relevant to digital asset management and trading, including with respect to the types of transactions and investment objectives contemplated.”

The court filing stating this plan of action comes in as FTX prepares to return funds to creditors in fiat currency rather than in $BTC or $ETH. In doing so, it hopes for careful trading so that it doesn’t end up denting the value of its $3.4billion in crypto holdings. According to an April filing, FTX currently has a whopping $6.2bn available for stakeholder recovery.

All of this comes as a part of FTX’s “Digital Asset Management and Monetization Program” which aims to to enlist Mike Novogratz and Galaxy Digital as its investment adviser. These two entities will be charged with “creating and preserving value” for the FTX estate given a significant amount of funds are currently held in cryptocurrencies.

As customers of the collapsed crypto exchange wait for their money back, FTX worries that selling its crypto pile all in one go would cause the price to plummet.

According to information revealed by FTX attorney Brian Glueckstein, the now-defunct company remains on track to conclude its bankruptcy in the second quarter of 2024. The recent filing also includes a subset of guidelines, a majority of which must be approved by the victims of the collapsed exchange.

Earlier this week, the FTX founder, Sam Bankman-Fried, pleaded not guilty to the charges of the newly formulated indictment where the allegations were a modified version of his first indictment. It included fraud and money laundering charges tied to the collapse of his crypto empire.

The new charges are linked to his original indictment that was filed last December. His trial is set to start in early October. However, just about two months ahead of this, Bankman-Fried ended up in jail on seven different charges, including securities fraud, wire fraud, commodities fraud and money laundering.