According to the Financial Times, Galois Capital, one of the largest crypto-focused quantitative funds that managed around $200mn in assets last year, has decided to close and return the remaining funds to investors.
This decision comes after the fund suffered significant losses due to the FTX scandal, where half of its assets were trapped on the collapsed cryptocurrency exchange. Co-founder Kevin Zhou has stated that the fund is no longer viable and all trading has ceased, with all positions unwound.
Kevin Zhou, the founder of @Galois_Capital one of the biggest crypto-focused quantitative funds, announced that his primary fund would be shutting down. This decision came after the fund lost nearly 50% of its assets due to the collapse of the #FTX cryptocurrency exchange. https://t.co/sRhPuGQFG0 pic.twitter.com/0zC5vAwZo3
— Share_Talk ™ (@Share_Talk) February 20, 2023
According to documents viewed by the Financial Times, Galois Capital, one of the largest crypto-focused quantitative funds that managed approximately $200mn in assets last year, has halted all trading and unwound all its positions. Co-founder Kevin Zhou wrote that the fund is no longer financially and culturally feasible due to the severity of the FTX situation. Zhou expressed regret for the current circumstances.
The Financial Times previously reported that despite withdrawing some funds, Galois had half of its assets stuck on FTX when the cryptocurrency exchange collapsed. This was similar to the Lehman Brothers situation in 2008, where hedge funds were left with billions of dollars trapped on the exchange, which was viewed as one of the more trustworthy trading platforms in a lightly regulated or unregulated industry.
FTX’s Delaware bankruptcy has identified up to one million creditors, and its founder, Sam Bankman-Fried, has pleaded not guilty to fraud charges that are due to be heard in October. Galois said in a letter to clients that 90% of their money not trapped on FTX would be returned upon the fund’s closure. The remaining 10% would be held back temporarily while discussions with administrators and auditors were concluded.
Zhou stated in the letter that he preferred selling the fund’s claim on FTX rather than going through a lengthy legal process. He noted that bankruptcy proceedings could last over a decade, and distressed buyers of such claims were better equipped to pursue claims in bankruptcy court. Galois has sold its claim for around 16 cents on the dollar since the letter was sent.
Zhou, who had previously worked at digital exchange Kraken, gained recognition for his early criticism of the cryptocurrency luna and the linked stablecoin terraUSD, which both collapsed last year, causing losses of $40bn. Galois mainly acted as a market maker, allowing them to make minor profits on other investors’ trades.
Zhou stated in writing that the tragic sequence of events, beginning with the luna collapse, then the Three Arrows Capital credit crisis, and concluding with the FTX/Alameda failure, has significantly hindered the crypto space. Nevertheless, Zhou remains optimistic about the future of cryptocurrencies.
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