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Collapsed cryptocurrency exchange FTX plans to appoint US billionaire Mike Novogratz’s investment group Galaxy Digital to help it manage and sell its stockpile of coins and recover money for its creditors.
The failed exchange, now led by bankruptcy expert John Ray III, has chosen Galaxy’s digital asset management arm to advise, sell, hedge and stake FTX’s bitcoin and ether coins, according a court document filed late on Wednesday.
Ray has been exploring ways to make creditors whole and manage the company through bankruptcy after being appointed FTX chief executive to replace Sam Bankman-Fried.
The exchange, once valued at $32bn, collapsed in November owing customers $8bn. The scandal has sparked a clampdown by US regulators on illicit activity in crypto markets this year.
The administrators say they have clawed back $7bn in cash and digital assets. Ray has also overseen the sale of assets such as crypto derivatives platform LedgerX for $50mn, and is trying to claw back funds from other companies that he argues rightfully belong to creditors.
Galaxy has “extensive experience in areas relevant to digital asset management and trading, including with respect to the types of transactions and investment objectives”, FTX wrote in the filing.
At the time of FTX’s bankruptcy, Galaxy also had exposure of almost $77mn in cash and digital assets to FTX, of which $47.5mn was being withdrawn.
FTX is seeking court permission to appoint Galaxy, which it said was chosen in consultation with the official committee of unsecured creditors and after considering other potential investment advisers.
“They believe that Galaxy Asset Management is well-qualified and able to provide digital asset management and trading services in a cost-effective, efficient and timely manner,” the filing added.
The agreement — subject to weekly limits — allows Galaxy to sell FTX’s crypto holdings for cash and Galaxy will also help manage the exchange’s exposure to possible adverse price moves as it sells down its piles of bitcoin and ether.
In addition, Galaxy will be allowed to stake FTX’s crypto in order to generate returns.
Staking is a common investment strategy in crypto markets for investors to earn a return on their assets. Users lock their crypto in their wallet — often kept on an exchange — for a set period but give permission for that third party to stake their crypto on other projects that offer interest or a yield.
Galaxy was also hard hit by the crypto crash last year that claimed FTX and other established crypto companies such as lender Celsius and hedge fund Three Arrows Capital. In the second quarter of last year, Galaxy recorded a $555mn loss after the firm was hit by the collapse of failed stablecoin terra and its sister crypto token luna.
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