FTX, the now-bankrupt cryptocurrency exchange, is pursuing a strategy to recover its losses and return funds to its creditors by exploring new avenues. Remember that FTX experienced a downfall spanning 10 days in November 2022.
The leading crypto platform went bankrupt following reports that Alameda Research, a quantitative trading company managed by Bankman-Fried, possessed $5 billion worth of FTT, the governance token of FTX. However, FTX intends to employ tactics such as staking, selling, and hedging to preserve the value of its sizable crypto holdings.
The exchange’s primary objective is to prevent the depreciation of its over $3 billion worth of crypto assets as it moves to repay its creditors.
Leveraging Galaxy’s Expertise For Optimal Recovery
Accordingly, FTX has turned to the expertise of Mike Novogratz’s Galaxy empire. This partnership aims to maximize the value obtained from the sales to adequately refund the firm’s creditors.
FTX’s aspiration to return funds to its creditors in traditional fiat currency rather than cryptocurrencies like Bitcoin (BTC) or Ether (ETH) underscores its careful approach to mitigate any potential negative impact from the market. The exchange aims to reduce its exposure to market risks through hedging its bitcoin and ether holdings.
This approach not only safeguards the interests of FTX but also benefits the creditors by securing the value of the crypto holdings. Furthermore, FTX is exploring the concept of staking certain digital assets.
This practice allows the exchange to generate low-risk returns from idle crypto assets. The benefits of staking are two-fold.
First, it adds to the stock that FTX can distribute to customers awaiting reimbursement. Also, it generates additional returns that contribute to the creditors’ interests.
This strategy highlights FTX’s innovative approach to managing its assets even during financial distress. John J. Ray III, the current CEO of FTX, is leading the charge in implementing these strategies.
Recognizing the potential consequences of a sudden mass sell-off, which could lead to a price collapse, the company is considering alternative methods to ensure a controlled and gradual distribution. The aim is to prevent opportunistic short sellers from benefiting at the market’s and its participants’ expense.
One approach under consideration is the implementation of weekly sales limits, allowing for a more balanced and measured liquidation process.
Mitigating Risks: Hedging And Controlled Sales
To execute these strategies effectively, FTX has sought the assistance of Galaxy Asset Management, a division of Mike Novogratz’s crypto conglomerate. The extensive experience of Galaxy Asset Management in digital asset management and trading positions it as a valuable advisor in FTX’s efforts.
The entity’s expertise aligns with FTX’s goals, providing insights into the best practices for managing crypto assets during challenging times. It’s worth noting that Galaxy Digital, another component of Mike Novogratz’s empire, has previously disclosed its significant investment in FTX before it went bankrupt.
Clear conflict-of-interest procedures have also been outlined to ensure the integrity of the advisory process, emphasizing that the asset managers will prioritize FTX’s best interests.
Navigating Legal Landscape and Founder’s Challenges
A Delaware bankruptcy court is closely monitoring FTX’s financial situation. The court will determine whether to approve the crypto exchange’s proposed strategies, including staking, hedging, and controlled sales.
Ultimately, FTX’s approach to recovering from bankruptcy involves strategic partnerships and forward-thinking strategies. By harnessing the expertise of Galaxy Asset Management, the exchange aims to safeguard the value of its crypto holdings while gradually repaying its creditors.
Through staking, hedging, and controlled sales, FTX is paving the way for a more sustainable and measured recovery process that benefits all stakeholders involved. Meanwhile, the FTX founder, Sam Bankman-Fried, is currently in prison and facing serious legal challenges.
One of the executives at Alameda Research (Caroline Ellison) accused Bankman-Fried of forcing her and other executives to perform various illegal financial practices.