Bankrupt FTX Exchange Plans to Return Funds to Creditors in Fiat with Galaxy’s Advisory

Bankrupt FTX Exchange Plans to Return Funds to Creditors in Fiat with Galaxy’s Advisory

FTX, a crypto exchange that faced insolvency in November of the previous year, intends to embark on initiatives involving the sale, staking, and hedging of its substantial crypto assets. In this endeavor, the exchange is actively pursuing the expertise of Mike Novogratz’s Galaxy as an advisory partner. This intention was revealed through court documents submitted on a late Wednesday evening.

FTX’s primary objective is to repay creditors in fiat currency, specifically in dollars, as opposed to utilizing Bitcoin (BTC) or ether (ETH). The exchange’s strategy hinges on careful trading practices to prevent eroding the value of its crypto holdings, which surpass $3 billion.

The legal filings by FTX’s legal representatives state that employing strategies such as hedging for bitcoin and ether can provide a safeguard against potential downward risks before the actual sale of these digital assets. Additionally, staking specific digital assets is seen as a way to generate low-risk returns on dormant holdings, ultimately benefiting the estates and the creditors.

FTX envisions that the interest generated from its crypto assets can augment the pool of resources available for distribution to customers still awaiting their refunds. The company, under the guidance of restructuring expert John J. Ray III, is concerned that an outright sell-off could trigger a significant price drop, potentially benefiting short sellers and other participants in the market. As a preventive measure, FTX seeks insights from market experts to determine the optimal approach, including strategies like implementing weekly sales limits.

The court documents acknowledge Galaxy Asset Management’s extensive expertise in digital asset management and trading, aligning with the contemplated transactions and investment objectives. This advisory role is attributed to Galaxy’s status as a Security and Exchange Commission-approved investment advisor, integrated into Mike Novogratz’s cryptocurrency conglomerate.

Galaxy Digital (GLXY), another component of this conglomerate, has previously disclosed its substantial involvement with FTX during its period of insolvency. New filings specify the implementation of conflict-of-interest protocols to ensure that the asset managers prioritize FTX’s best interests.

In an April filing, FTX reported holding major, highly liquid crypto assets with an estimated worth of $3.4 billion. In July, the company communicated its plan to convert crypto assets into cash before initiating the refund process. However, international customers might have access to a restructured version of the exchange. In contrast, other insolvent cryptocurrency entities, such as Celsius, have chosen to distribute assets in liquid cryptocurrencies like BTC and ETH.

The proposed strategies and actions await the approval of a Delaware bankruptcy court. Earlier on the same Wednesday, it was revealed that the company was incurring daily legal fees of $1.5 million as part of its winding-up process. On a separate note, Sam Bankman-Fried, the founder of FTX, pleaded not guilty to a revised set of fraud charges linked to his management of the company.