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Galaxy Digital will help FTX return funds to its creditors while making sure that the value of FTX’s $3 billion of crypto holdings doesn’t subside.
As per the court filing submitted on Wednesday, August 23, bankrupt crypto exchange FTX is looking to hire crypto firm Galaxy Digital to start staking or hedge its massive crypto holdings.
FTX, which collapsed in November 2022 last year, wants to return funds to its creditors in fiat currencies instead of Bitcoin (BTC) or Ether (ETH). However, it believes that careful trading could prevent any fall in the value of its $3 billion worth of crypto holdings. In the filing, the FTX lawyers noted:
“Hedging bitcoin and ether will allow the Debtors [FTX] to limit potential downside risk prior to the sale of such bitcoin or ether. Staking certain digital assets… will inure to the benefit of the estates – and, ultimately, creditors – by generating low risk returns on their otherwise idle digital assets.”
FTX is aiming to utilize the interest earned on its cryptocurrency holdings to supplement the stock it can distribute to customers awaiting refunds. The company is concerned that liquidating the entire amount at once might lead to a sharp drop in prices, benefiting short sellers and other market participants. To navigate this challenge, FTX is seeking insights from market experts to develop strategies that prevent such a scenario, potentially through methods like implementing weekly sales limits.
The document highlights the expertise of Galaxy Asset Management, a Security and Exchange Commission-approved investment advisor that operates within Mike Novogratz’s crypto conglomerate. This expertise is relevant to digital asset management and trading, aligning with the types of transactions and investment objectives under consideration.
FTX Liquidating Assets to Return to Creditors
Galaxy Digital, which is also part of the same group, had a lot of money invested in FTX when FTX faced financial problems. New documents show how they will make sure that the people managing these assets make choices that are best for FTX.
In April, FTX mentioned that it had valuable cryptocurrency assets worth $3.4 billion. In July, they said they planned to convert these cryptocurrencies into cash and then give money back to customers. However, people from other countries might still be able to use a new version of the FTX exchange. Some other crypto companies that had financial troubles, like Celsius, have decided to give their customers cryptocurrencies like Bitcoin and Ethereum.
The court in Delaware needs to agree to these plans. On Wednesday, the court discussed that the legal fees for handling this situation were costing FTX $1.5 million every day. The day before, the founder of FTX, Sam Bankman-Fried, said he wasn’t guilty of charges related to how he managed the company.