The insolvent exchange aims to reimburse creditors with USD while safeguarding asset value. FTX, the bankrupt crypto exchange, is planning to engage in the sale, staking, and hedging of its substantial crypto holdings. It is reportedly seeking consultancy services from Galaxy, led by Mike Novogratz, as indicated in recently submitted court documents. Following its collapse in November the previous year, FTX desires to repay its creditors in fiat currency, rather than bitcoin (BTC) or ether (ETH), with the intention of minimizing any erosion in the value of its crypto holdings, which amount to over $3 billion.
The lawyers representing FTX articulated in their filing that by hedging bitcoin and ether, the exchange can mitigate potential downside risks before liquidating those assets. Additionally, staking specific digital assets is seen as a strategy that could generate modest and secure returns on dormant digital holdings, ultimately benefiting both the company and its creditors. This exchange envisions that the interest gained from its crypto reserves will contribute to the pool of resources it can distribute to customers who are still awaiting reimbursement.
Under the stewardship of restructuring expert John J. Ray III, FTX is concerned that an immediate mass sale could trigger a rapid decline in prices, thereby favoring short sellers and other market participants. As a countermeasure, this exchange is contemplating methods to circumvent this scenario, such as enforcing weekly sales limits. Galaxy Asset Management’s extensive proficiency in digital asset management and trading, sanctioned by the Securities and Exchange Commission, positions it as a valuable collaborator in FTX’s strategic initiatives.
FTX’s Integration
Galaxy Digital, another division of Mike Novogratz’s conglomerate, has previously disclosed its substantial financial involvement with FTX at the time of its insolvency. The newly outlined procedures ensure that asset managers prioritize FTX’s best interests. Earlier filings from April underscored FTX’s possession of major and liquid crypto assets worth $3.4 billion.
In July, the company projected the conversion of crypto into cash prior to customer reimbursement, although international clients might regain access to a revamped exchange. Conversely, insolvent crypto companies like Celsius have chosen to allocate distributions in liquid cryptocurrencies such as BTC and ETH. The proposed actions are subject to approval from a Delaware bankruptcy court, which has acknowledged the company’s daily legal expenses amounting to $1.5 million during the winding-up process. Moreover, FTX’s founder, Sam Bankman-Fried, recently pleaded not guilty to revised fraud charges related to his management of the company.