Crypto hedge fund Galois closes after losing $40M in FTX exposure

One of the largest crypto hedge funds, Galois Capital, is closing down after having lost $40 million in the FTX collapse.

As reported by Financial Times, Kevin Zhou, co-founder of Galois Capital, wrote in company documents:

Given the severity of the FTX situation, we do not think it is tenable to continue operating the fund both financially and culturally. Once again I’m terribly sorry about the current situation we find ourselves in.

Shortly after the crypto exchange collapsed, CoinDesk reported Galois’ $40 million exposure to FTX. At the time, Zhou considered several options for how the fund should operate before recovering the funds: as usual, through an acquisition, or by becoming a proprietary trading shop.

In the letter to investors, Zhou wrote:

We will work tirelessly to maximize our chances of recovering stuck capital by any means.

Then the company added on Twitter:

On February 20, the Financial Times reported that Galois Capital sold its bankruptcy claims for 16 cents on the dollar. Galois’ customers will get 90% of their money back if it’s not stuck on the FTX exchange. The remaining 10% will be held until discussions with administrators and the auditor are completed.

Zhou wrote in a note seen by the FT:

This entire tragic saga starting from the luna collapse to the 3AC credit crisis to the FTX/Alameda failure has certainly set the crypto space back significantly. However, I, even now, remain hopeful for crypto’s long-term future.

FTX filed for Chapter 11 bankruptcy in November after failing to meet redemption demands from its customers, leaving a long line of creditors seeking to retrieve the funds. Galois Capital could have had around $100 million stuck on the exchange, based on the firm’s assets under management as of June.