Galaxy Digital eyes bankrupt crypto assets following successful FTX deal

Cryptocurrency financial services firm Galaxy Digital has announced plans to pursue the acquisition of more assets from bankrupt cryptocurrency companies, as reported by the Financial Times.

The decision follows its success in securing a deal in August to manage, hedge and sell Bitcoin, Ether and other digital assets owned by crypto exchange FTX. The deal substantially increased Galaxy’s assets under management from $1.7 billion to $5.3 billion. In addition, Galaxy obtained court approval to sell FTX’s shares in Grayscale and Bitwise investment funds.

Galaxy Digital also actively seeks to enhance its balance sheet by targeting assets from FTX’s extensive real estate and venture capital portfolio. Among these assets is an investment in Anthropic, a rival to OpenAI. This move comes after the firm’s court permission to liquidate FTX’s crypto assets.

Rosenblatt Securities’ Analyst Andrew Bond believes handling FTX’s holdings might be a turning point for Galaxy Digital, eventually leading to securing more profitable mandates in the future.

Galaxy’s global head of asset management, Steve Kurz, informed the FT that the company plans to replicate similar efforts with other bankrupt entities, including the companies FTX invested in. After a series of bankruptcies within the crypto industry, various firms are navigating intricate financial circumstances. Celsius and BlockFi, for example, have received court approval to begin paying their creditors and embark on restructuring endeavors.

Last December, Galaxy secured an auction win to acquire GK8, a self-custody platform, from the bankrupt Celsius Network, based in New York.

“We have a crypto venture team that has been investing off our balance sheet for five years,” Kurz said. “The record that we have on that side of our asset management business means we’d be a good candidate for something like that.”

These efforts are part of Galaxy Digital’s recovery from the market collapse in 2022. The company still recorded a $94 million loss in the third quarter and a $77 million loss linked to the FTX collapse.

Despite this, Galaxy made successful investments in other crypto firms like Fireblocks and Polygon Labs. Additionally, it is collaborating with the DWS Group of Deutsche Bank and Dutch market maker Flow Traders to introduce a euro-backed stablecoin.

Applying for ETF

Aside from its focus on distressed crypto assets, Galaxy Digital is broadening its reach in various sectors by collaborating with CME Group and Invesco to pursue a Bitcoin exchange-traded fund (ETF) to expand its offerings and strengthen its position within the crypto financial services market, among others.

It bears mentioning that the company’s expansion efforts did experience a hiccup, however, as the U.S. Securities and Exchange Commission (SEC) announced on December 13 that it is postponing its decision on the spot Ether ETF proposed by Invesco and Galaxy Digital due to a proposed rule change. The new rule will facilitate the Cboe BZX Exchange’s potential listing and trading of shares for the Invesco Galaxy Ethereum ETF.

Initially, the committee is expected to conclude on December 23, 2023. However, in the notice, the body explained it needed more time for consideration. Consequently, it set February 6, 2024, as the deadline to approve, disapprove, or commence proceedings to determine disapproval of the rule change.

Previously, the SEC also announced a delay in its decision regarding Grayscale’s proposed Ethereum spot ETF. The SEC cited the need for additional time to evaluate a proposed rule change enabling NYSE Arca to list and trade shares of the Grayscale Ethereum Trust.

Alongside Galaxy, firms like BlackRock, Hashdex, ARK 21Shares, VanEck and Fidelity have sought spot crypto ETFs. Representatives from these asset managers recently engaged in meetings with SEC officials to discuss their respective ETF proposals.