Hedge fund Crypto Galois Capital has confirmed it is closing the doors on its flagship fund after reports continued to emerge about the fund’s exposure to FTX. Galois joins the ranks of BlockFi, Sequoia Capital, Genesis, and others who have been caught in the crossfire of FTX.
It takes time for the dominos to fall, and despite the FTX collapse being nearly 4 months in the making, Galois’ collapse is no surprise to some. Let’s review what was revealed in the early stages of the company’s closure.
Early stages: what we know so far
It’s a huge fall from grace from what used to be one of the largest private cryptocurrency hedge funds; Galois at one point managed nearly a quarter of a billion dollars in assets at his peak. In November, just after the fall of FTX, Galois was largely believed to have nearly half of its assets on the FTX platform.
A report from the Financial Times on Sunday largely confirmed these suspicions, comparing the fall of Galois to that of hedge funds that occurred at the behest of the collapse of Lehman Brothers in 2018. The FT report cites a letter from Gallois that claimed that 90% of funds not in the pipeline will be returned. FTX platform for clients, with the remaining 10% retained pending further discussion with reviewers. Since then, Galois has sold FTX claims for 16 cents on the dollar.
The hedge fund was led by Kevin Chu, a respected crypto expert who has made plenty of “right calls” in his day, including fading in time on Solana and Terra. In his departing Twitter thread (posted below), Zhou confirmed the shutdown, noting that despite FTX’s exposure, Galois will be shutting down as one “among the few closing shop with a performance from inception to date that remains positive.”
FTX's collapse is largely best articulated by one look at the chart behind it's platform token, FTT. | Source: FTT-USD on TradingView.com
FTX Fallout: Galois is not alone
Just last month, our team covered the narrow escape of Digital Surge, an Australian cryptocurrency exchange offering nearly $25 million in exposure on FTX. Digital Surge suspended operations after the FTX shutdown, and has since received a partial bailout and signed a recovery plan that allows the exchange to continue operations this week.
However, not all operations were so lucky. The aforementioned BlockFi and Genesis exchanges have filed for bankruptcy since the FTX crash, and the repercussions of the FTX crash are still being felt today, over 3 months later. Galois probably wouldn’t be the last domino to fall either.
The news is largely a net loss for the cryptocurrency atmosphere. Zhou is generally well respected in the space, with many of the most well-known cryptocurrency faces offering support on the fund’s Twitter thread; As the old saying goes, “This too shall pass.”
Encryption will continue. These setbacks are temporary and will happen. Be strong and good luck. I’ll see you guys around.
– Galois Capital (Galois_Capital) February 20, 2023
