QUICK TAKE:
Half of Galois Capital’s assets are trapped on the defunct cryptocurrency exchange FTX
The amount is estimated to be around $100 million
Kevin Zhou wrote in a letter to Galois investors that it could take “a few years” for the company to recover “some percentage” of its funds
Crypto hedge fund Galois Capital is the latest company to be caught off guard by the FTX fallout. It is worth noting that nearly half of its assets were trapped on the now-defunct cryptocurrency exchange. Further, as per a news journal, the amount is estimated to be around $100 million. Notably, the hedge fund founder was credited with predicting the collapse of the cryptocurrency network Terra and its tokens UST and Luna this year.
Furthermore, in a letter, Galois co-founder Kevin Zhou told investors that while the hedge fund had been able to pull some funds from the exchange, it still had “roughly half of our capital stuck on FTX.” As per the news journal Zhou wrote,
I am deeply sorry that we find ourselves in this current situation. We will work tirelessly to maximise our chances of recovering stuck capital by any means. It could take “a few years” to recover “some percentage” of its assets.
Nonetheless, as per another news journal, Zhou said that the funds invested in FTX totaled around $40 million. Further, depending on the outcome of the bankruptcy proceedings, it may take some time for Galois or any other FTX investors to recover any of their funds. Zhou wrote in a letter to Galois investors that it could take “a few years” for the company to recover “some percentage” of its funds.
He further told the investors,
We will work tirelessly to maximize our chances of recovering stuck capital by any means.
Defunct FTX Traps Funds
Galois is one of the industry’s largest crypto-focused quant funds. It has more than $200 million in assets as of this summer. Its primary trading activity is as a market maker, which allows it to profit from the trades of other investors. Further, as per industry insiders, the fact that FTX was used by so many hedge funds and was regarded as one of the world’s safer crypto trading venues means that many managers may have money trapped on the exchange.
Already, the FTX contagion has spread throughout the cryptocurrency industries, and several companies face cascading losses. This includes Sequoia Capital and SoftBank, both of whom this week decided to write off multi-million dollar investments in the exchange. Furthermore, after a previously promised cash injection from FTX couldn’t materialize, crypto lender BlockFi halted customer withdrawals.
Other companies that have funds stuck on the exchange include CoinShares. It has proprietary assets worth up to $31 million deposited on FTX.
The companies may have to wait for a long time for their funds to be returned back. After failing in a last-ditch effort to secure a rescue package, FTX CEO Sam Bankman-Fried resigned on November 11. It came after a turbulent week in which the exchange admitted to having a shortfall of funds. Further, it raised concerns that clients could suffer significant losses. Moreover, FTX even filed for chapter 11 bankruptcy protection on November 11.
