Hedge fund Galois Capital, one of the victims of the FTX collapse, has officially given up after half of its assets were trapped in the bankrupt crypto exchange. The fund has finally decided to close and return its remaining assets to investors.
The reasons behind Galois Capital’s closure after the collapse of the FTX crypto exchange
On 12 November 2022, the hedge fund admitted in an announcement from its official Twitter account that it had significant exposure to crypto exchange FTX.
For the record, yes we did have significant funds stuck on FTX. No, we did not use any Bahamian method to move funds out.
— Galois Capital (@Galois_Capital) November 11, 2022
According to a Financial Times report, the fund has now told investors in a letter that all trading has been halted and the fund has reinstated its positions.
Kevin Zhou, the co-founder of Galois Capital, apologized to their investors and stressed that the severity of the FTX situation makes them unable to justify the continuation of its operations.
In addition, the hedge fund said that investors will receive 90% of the available funds that are not trapped in the FTX exchange. The remaining 10% will be held temporarily by the company until discussions are concluded.
In addition to these, Zhou also expressed an inclination to sell the hedge fund’s receivables instead of waiting for a lengthy bankruptcy process that could take a decade. According to the Galois Capital co-founder, buyers of these claims are better able to pursue claims in bankruptcy courts.
FTX’s bankruptcy has frozen millions in corporate funds, including companies such as New Huo Technology and Nestcoin. Galois Capital is one of many victims of the FTX debacle, with at least $50 million in funds frozen in the crypto exchange.
Meanwhile, similar to Galois Capital’s approach, Mt. Gox‘s largest creditor also opted for an early payment option instead of waiting for a lengthy legal process that could take years. On 17 February, Mt. Gox Investment Fund said it decided to be paid in September, instead of waiting longer to get its assets back.
Mt. Gox is also suffering the consequences of the collapse of the FTX crypto exchange
Mt. Gox’s main creditor chose to have an early payment in Bitcoin, deciding not to wait longer for an even higher payment.
Mt. Gox Investment Fund, the largest creditor of the defunct cryptocurrency exchange, has reportedly decided to take its chances with a lower but upfront payment rather than wait for all legal processes to be resolved.
This means the creditor will be paid by September of this year instead of potentially waiting another nine years before getting its funds back.
According to Bloomberg, opting for early payment means that the creditor will receive 90% of what they are owed and the bankruptcy trustee does not have to sell tokens to acquire fiat funds for payment, since the creditor has also opted to be paid in Bitcoin.
This will alleviate market concerns, as token sales of this magnitude could potentially have a negative impact on the cryptocurrency market.
The exchange’s other creditors also have until 10 March to decide whether they want to wait for a higher payout percentage or accept early repayment in September.
On 6 January, Mt. Gox trustee Nobuaki Kobayashi urged creditors to complete the necessary steps before the deadline. Kobayashi wrote that creditors who fail to do so will not be able to receive their funds or will have to take the documents to headquarters in Japan and receive payments in Japanese yen.
Mt. Gox was considered the world’s largest cryptocurrency exchange before it went bankrupt in 2014 after 750,000 BTC of its customers and 100,000 of its own Bitcoin were stolen. At the time of the incident, the funds were worth only about $473 million. However, at current market prices, it is worth about $20 billion.
The damage suffered by companies after the collapse of FTX
As we know, the collapse of the FTX cryptocurrency exchange has had knock-on effects throughout the cryptocurrency industry, with several cryptocurrency-focused companies reporting significant amounts of their capital stuck on FTX.
Between November 11 and 14, three companies announced large losses, with one of them having to lay off workers to cope with the crisis.
As anticipated, in November, cryptocurrency hedge fund Galois Capital announced it had “significant funds” stuck on FTX, with a Financial Times report on 12 November stating a possible $50 million worth of Galois assets stuck on the exchange.
Other cryptocurrency-focused companies have reported that their funds are locked on the now-bankrupt exchange. New Huo Technology, the owner of Hong Kong-based cryptocurrency platform Hbit Limited, announced on 14 November that it had failed to withdraw cryptocurrencies worth $18.1 million before FTX stopped processing withdrawals.
Of this loss, $13.2 million is digital assets owned by Hbit users with the company saying it will continue to take steps to withdraw cryptocurrency as soon as possible, admitted Hbit in the wake of FTX’s bankruptcy filing.
According to the announcement, Li Lin, the company’s controlling shareholder and founder of the cryptocurrency exchange Huobi, has agreed to lend the company up to $14 million to be used for withdrawal processing.
Nigerian Web3 startup Nestcoin also announced that it had failed to withdraw funds from FTX. The company’s CEO, Yele Bademosi, posted a letter previously shared with investors on Twitter on 14 November.
The letter specified that Nestcoin would lay off workers because they held assets (cash and stablecoin) at FTX to manage operating expenses and it no longer has the funds to pay some of the staff.