Galois Capital, one of the firms with massive exposure to the FTX exchange, has announced it is shutting down its business. The hedge fund will also be returning the remaining funds to investors.
Galois Capital forced to shut down after FTX exposure
Last year, Galois Capital was one of the biggest hedge funds in the crypto market, managing about $200 million in assets. The fund has now told its investors that it will stop all trading activities and close all open positions since they are no longer sustainable.
I appreciate the outpouring of support today when the FT article came out. Thank you all for the kind words. Yes, it is true that our flagship fund is shutting down.
— Galois Capital (@Galois_Capital) February 20, 2023
The co-founder of the hedge fund, Kevin Zhou, commented on this move saying that the effects caused by the FTX collapse were severe and it was not sustainable for the firm to continue its operations.
Zhou said,
Given the severity of the FTX situation, we do not think it is tenable to continue operating the fund both financially and culturally. Once again I’m terribly sorry about the current situation we find ourselves in.
Galois Capital sent a letter to investors saying that the closure of this fund would see the clients receiving 90% of the money that was not trapped on the FTX exchange. The hedge fund said it would temporarily hold back the other 10% until it finalized talks with the administrators and auditors.
In the letter, Zhou also said that he preferred selling the claim the hedge fund held on FTX instead of being part of the lengthy bankruptcy process. According to Zhou, bankruptcy proceedings could last at least a decade, but the buyers of such claims have more knowledge and expertise. Galois has already sold its FTX claim for around 16 cents on the dollar.
Zhou referred to the collapse of crypto firms as a “tragic saga,” adding that the collapse of Three Arrows Capital, Terra, FTX, and Alameda had set the crypto sector back. However, he said he was still optimistic about the long-term future of the crypto industry.
Zhou was a major critic of the Terra Luna ecosystem and the UST stablecoin before it collapsed in May, triggering a $40 billion loss and even shorting the token. However, despite identifying the red flags with Terra, Zhou missed the red flags with FTX and Alameda.
According to FT, hedge fund Galois Capital decided to stop all trading and close all positions. Galois Capital is famous for shorting LUNA, but nearly half of its assets are stranded in FTX and cannot be raised.https://t.co/Zk9pObkL0y
— Wu Blockchain (@WuBlockchain) February 20, 2023
Hedge funds affected by the crypto crisis
Hedge funds have been at the receiving end of the recent crisis witnessed in the cryptocurrency sector. Galois Capital was dealt a huge blow after the collapse of FTX despite the fund withdrawing some money from the exchange. Around half of the exchange’s assets were stuck with FTX after the latter filed for bankruptcy.
However, even before the FTX debacle, hedge funds were already feeling the pressure of dropping prices. Three Arrows Capital, once one of the largest hedge funds, filed for bankruptcy after exposure to Terra. The co-founder of this hedge fund, Zhu Su, later blamed Alameda for its collapse saying that the FTX sister company was actively hunting its positions.
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