Cryptocurrency giant FTX is turning to the court for permission to increase its weekly crypto asset sales. Planning a restructuring, FTX is considering collaborating with the renowned investment manager – Galaxy.
FTX, one of the leading cryptocurrency exchange platforms, has filed a petition in bankruptcy court for permission to hire Galaxy Digital Capital Management LP (hereinafter referred to as “Galaxy”) as an investment manager.
According to the application, FTX’s goal is to engage Galaxy to provide investment management services concerning certain crypto assets owned by FTX. As part of the proposed agreement, Galaxy would manage and trade these assets, converting them to traditional currencies or stablecoins. Additionally, Galaxy would be tasked with protecting FTX from excessive exposure to fluctuations in popular cryptocurrencies like Bitcoin or Ether.
In exchange for their services, Galaxy would receive a monthly management fee consisting of two components: a security fee based on the average net value of the secured assets and a liquidation fee based on the total income from the liquidated assets.
Court documents indicate that hiring an experienced external investment manager like Galaxy is beneficial for FTX. Galaxy has specialized knowledge that allows it to sell significant cryptocurrency positions without exposing the market to excessive fluctuations. Moreover, Galaxy can carry out transactions confidentially, protecting against unwanted signals about FTX’s intentions and unintended influence on prices.
If the court accepts the application, Galaxy will be obligated to act in the best interest of FTX while managing these digital assets. FTX’s documents also describe procedures Galaxy has to avoid conflicts of interest.
A key issue is the fact that the proposed engagement is meant to support FTX’s restructuring efforts by monetizing their significant cryptocurrency holdings.
However, the final decision will be in the hands of the bankruptcy court, which must review the application and determine whether hiring Galaxy as an investment manager is in the best interest of both FTX and its creditors.
FTX also filed another application on August 23, asking the court’s permission to establish guidelines for managing and selling some of their significant crypto asset holdings. This application is likely related to the earlier request regarding collaboration with Galaxy.
Court documents indicate that FTX is seeking authorization to hire an investment advisor to assist in selling specific coins and tokens over time. The proposed guidelines would allow FTX to sell crypto assets worth up to $100 million weekly, with the possibility of temporarily increasing this limit to $200 million.
However, any guidelines concerning FTX’s crypto asset sales and the sought permissions remain under the bankruptcy court’s purview for approval after proper notification and hearing.
FTX argues that selling crypto assets using an experienced investment manager will help maximize sales revenue while minimizing price fluctuation risks. They also request the court’s permission to enter into hedging contracts for specific cryptocurrencies like Bitcoin and Ethereum.
Moreover, FTX seeks permission for “staking” – locking up a certain amount of crypto assets to generate passive income. Such an action is becoming more popular in the cryptocurrency world, as it allows users to achieve profits without active trading. The debtors argue that such measures are a reasonable use of judicial discretion and will benefit creditors by minimizing market risk.
Yet, all these applications and guidelines submitted by FTX are subject to bankruptcy court approval. Such a process involves notifying interested parties and a hearing after which the court makes the final decision.
This is a pivotal moment for FTX, as their decisions regarding crypto asset management could have broad implications for the entire cryptocurrency market. At a time when the cryptocurrency industry continues to grow and attracts more and more investors, moves by big players like FTX are closely watched and analyzed.
FTX faces the challenge of balancing its financial needs with responsible management of its crypto assets. Choosing Galaxy as a potential partner indicates a pursuit of professionalism and efficiency in this area. However, the final decisions remain in the court’s hands, which will consider what is best for FTX, its creditors, and the entire cryptocurrency market.
Photo by Mariia Shalabaieva on Unsplash
