Bankrupt crypto exchange FTX is looking to leverage the expertise of Galaxy Asset Management to oversee its digital assets and trading operations, according to court documents filed on Wednesday. The exchange aims to employ the knowledge of Mike Novogratz’s crypto firm as an advisor to hedge and liquidate its crypto holdings.
Hedging in the crypto space is a common strategy to mitigate potential losses from existing portfolio positions. By hedging its Bitcoin (BTC) and Ethereum (ETH) holdings, FTX, which faced collapse in November 2022, seeks to reduce its vulnerability to adverse price fluctuations before executing their sale.
FTX’s legal team requested permission from the bankruptcy court for activities like staking its crypto assets, among others. Galaxy would assist in the staking process, generating interest income when crypto is lent to validate blockchain transactions. The filing explained that the debtors plan to “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.”
FTX’s approach aligns with its strategy to return funds to creditors in fiat currency rather than in BTC or ETH. This approach aims to avoid adversely affecting the value of its $3.4 billion crypto holdings. According to an April filing, FTX currently holds $6.2 billion available for stakeholder recovery.
This initiative is part of FTX’s “Digital Asset Management and Monetization Program,” which aims to engage Mike Novogratz and Galaxy Digital as investment advisors. Their role is to “create and preserve value” for the FTX estate, given the substantial amount of funds held in cryptocurrencies.
As the exchange’s customers await refunds, FTX is cautious about selling its crypto holdings all at once, fearing a significant price drop.
According to FTX attorney Brian Glueckstein, the now-defunct company is on track to conclude its bankruptcy process in the second quarter of 2024. The recent filing includes a set of guidelines, many of which require approval from the victims of the collapsed exchange.
Earlier this week, FTX’s founder, Sam Bankman-Fried, pleaded not guilty to charges from a newly revised indictment. The allegations are a modified version of the original indictment, involving fraud and money laundering tied to the collapse of his crypto empire. The trial is scheduled to begin in early October, with Bankman-Fried currently facing multiple charges, including securities fraud and money laundering.
