Galois Capital, the hedge fund that has been credited with spotting cryptocurrency Luna’s decline this year, was caught off guard after half of its holdings in crypto exchange FTX filed for bankruptcy protection on Friday.
Galois co-founder Kevin Zhou wrote to investors in recent days, in a letter seen by the Financial Times, that while the fund was able to take some money out of the exchange, it still had “about half of our capital stuck. FTX”. Based on Galois’ assets under management as of June, that could be around $100mn.
“I am deeply sorry to find ourselves in this current situation,” Chow wrote. “We will work tirelessly to maximize the chances of recovering any trapped capital.”
He added that it may take “a few years” to recover “some percentage” of its assets.
FTX said Friday Sam Bankman-Fried resigned As chief executive, after a last-ditch effort to secure a rescue package failed. It follows a tumultuous week in which the exchange admitted it was unable to meet customer withdrawal requests without external funding, raising fears that customers could face big losses.
Chapter 11 of FTX Bankruptcy filing A federal court in Delaware includes FTX’s U.S. subsidiary, Bankman-Fried’s proprietary trading arm Alameda Research and about 130 affiliated companies. A few months ago his empire was valued at $32bn.
FTX was used by many hedge funds and was seen as one of the safest in the world, industry insiders say Crypto Trading positions means many managers may have money stuck in the exchange.
Galois did not immediately respond to a request for comment.
Galois is one of the largest crypto-focused quant funds in the industry and had more than $200mn in assets under management this summer. Much of its trading activity is as a market maker, allowing it to make small profits on other investors’ trades.
Zhou, who worked at digital exchange Kraken before founding Galois, is best known for his early criticism of the cryptocurrency Luna and its associated stablecoin TerrauSD. A $40bn decline In May.
He said in the letter that his fund was left with money in FTX because it had “a ton of open positions” that needed to be closed and “underestimated the credit risk by keeping our funds in FTX.”
Galois would become a creditor if FTX files for bankruptcy, he said.
If that happens, “I would expect to recover some percentage of our assets in FTX in a few years,” he said.