Galois Capital, a US-based crypto hedge fund with approximately $200 million in assets under management, has closed its flagship fund after losing almost half of its capital in the FTX collapse. The news was confirmed by the hedge fund in a Twitter thread, where it stated that it had lost almost half of its assets in the FTX collapse and later sold the claim for cents on the dollar. The closure marks the end of an era for Galois Capital, but the hedge fund emphasized that it is among the few closing shop with an inception-to-date performance that is still positive.
Galois Capital, a cryptocurrency hedge fund, has recently closed down due to the collapse of its trading partner FTX. According to reports from the Financial Times, investors have received a letter stating that trading has ceased and open positions are being rolled back.
In the letter, co-founder Kevin Zhou expressed regret over the situation and elaborated that the collapse of FTX made it impossible for the fund to continue its operations.
According to Zhou, investors will receive 90% of the available capital, while Galois Capital will hold the remaining 10%.
The fund's closure was a direct result of Galois Capital's significant funds being stuck on FTX. While the hedge fund admitted to this issue last November, it did not pursue the option to use the "Bahamian method" loophole to retrieve the funds. At the time, the firm had assured investors that they were still up from inception. However, the collapse of FTX has had a more significant impact on Galois Capital than previously anticipated.
This situation underscores the inherent risks associated with cryptocurrency investments. The collapse of trading partners can lead to significant losses for investors. As cryptocurrency continues to gain traction as a legitimate investment option, it is crucial to approach such investments with caution and be fully aware of the risks involved.
Despite this, the hedge fund did not give the impression at the time that it would be forced to shut down. On the contrary, the firm stressed on Twitter that investors in the fund "are still up from inception."
As early as 2018, Kevin Zhou stated he noticed red flags regarding the accounting practice at Alameda Research, the crypto trading company associated with FTX and Sam Bankman-Fried. "In retrospect, there were sort of clear warning signs and signals for the risks that were to come," Zhou said in an interview with podcaster Laura Shin about what he saw at Alameda.
It was announced in early November last year that FTX and its affiliates had filed for bankruptcy under Chapter 11. It is expected that the massive liquidation process for the former crypto empire will take several years to complete under the leadership of bankruptcy expert John Ray III.
Galois Capital specializes in over-the-counter (OTC) trading and algorithmic market-making in crypto markets. The closure of its flagship fund is a cautionary tale for other crypto hedge funds and investors, emphasizing the need for rigorous risk management and due diligence in the volatile and rapidly evolving crypto market.
