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Businesses The Almighty Buck Technology

Hedge Fund Galois Closes After Half of Assets Trapped on Crypto Exchange FTX (ft.com) 57

Posted by msmash from the dominoes-effect dept.
A hedge fund that was one of the highest-profile victims of the FTX scandal when half its assets were trapped on the collapsed cryptocurrency exchange has decided to close and return its remaining money to investors. From a report: Galois Capital, which last year had been managing about $200mn in assets and was one of the biggest crypto-focused quantitative funds, told investors that it had halted all trading and unwound all its positions as it was no longer viable, according to documents seen by the Financial Times. "Given the severity of the FTX situation, we do not think it is tenable to continue operating the fund both financially and culturally," wrote co-founder Kevin Zhou. "Once again I'm terribly sorry about the current situation we find ourselves in."

The FT revealed in November that Galois, despite pulling out some money, still had about half its assets stuck on FTX when the exchange collapsed. In a situation reminiscent of Lehman Brothers in 2008, hedge funds were left with billions of dollars trapped on the exchange, with many having viewed it as one of the more reputable trading platforms in an often lightly regulated or unregulated industry. As many as 1mn creditors have been identified in FTX's Delaware bankruptcy. Its founder, Sam Bankman-Fried, is due to face trial in October on fraud charges, to which he has pleaded not guilty. Since sending the letter, Galois has sold its claim for approximately 16 cents on the dollar.
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Hedge Fund Galois Closes After Half of Assets Trapped on Crypto Exchange FTX More

Hedge Fund Galois Closes After Half of Assets Trapped on Crypto Exchange FTX

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  • This is why I don't want crypto (Score:5, Insightful)

    by rsilvergun ( 571051 ) on Monday February 20, 2023 @10:05AM (#63308213)
    in my finance system. This is a $200m fund that lost half it's money. That's $100m dollars just gone. Depending on who got suckered into that fund this'll have implications outside of crypto. At they very least I'm sure some people lost their shirts. Even if I'm not one of them it affects me, because now there's a whole bunch of investors in dire straights, spending less, investing in fewer actual, useful businesses, etc, etc.

    • Re:This is why I don't want crypto (Score:5, Insightful)

      by Rei ( 128717 ) on Monday February 20, 2023 @10:11AM (#63308239) Homepage

      It boggles the mind how this was allowed to go on almost entirely unregulated as long as it was.

      Apparently, all you have to say to regulators is "New Revolutionary Technology!" and they'll give you a free pass on anything. Kind of like how Uber got away with running an illegal taxi service for so long. "Something something 'ride sharing' something something 'innovation'!"

      • Re: (Score:2)

        by rgmoore ( 133276 )

        Apparently, all you have to say to regulators is "New Revolutionary Technology!" and they'll give you a free pass on anything.

        The regulatory state is deliberately slow moving. It takes time to come up with good regulations, and even more time for those regulations to work their way through the courts. This is a big reason regulators try as much as possible to fit new ways of doing things into existing regulatory frameworks.

        Also, don't forget all the politicians who were touting crypto, and whatever new

      • And decades of laissez-faire. I've seen multiple quotes from people in the SEC who just flat out said they didn't want to go after it because they wanted to see what it developed into. They'd already figured out that it couldn't survive simple regulation but they wanted to see if something profitable came out of it that could be considered legal.

        I think even most of them are at the point where they don't think that's going to happen and they're just letting it be dismantled slowly to limit the damage. T
      • I believe it was allowed to go on so it could fail spectacularly and used as pretext to cancel crypto.

    • Re: (Score:2)

      by DarkOx ( 621550 )

      and there is group of people who rode FTX up from nothing cashed out - essentially receiving these funds, and now will do other market activities with them.

      In that sense this one really is a zero sum game here. A lot of times a bankruptcy does represent real wealth destruction, but in this particular example speculative entity just handed a bunch of cash to other speculators.

      • Right. Some people are still enamored with SBF as some kind of failed shark, who did poor risk management, in a manner that was probably criminal. That is not the really important big picture here.

        Alameda and FTX were not sharks. They were a bunch of very fat minnows in a barrel waiting for a bullet. Some "business partners" walked away with the winnings from Alameda's many big losing bets. There are billions that went into the pockets of people who saw the matheletes for the suckers they were.

        The madn

    • Re: (Score:3)

      by Barny ( 103770 )

      This is a $200m fund that lost half it's money. [...] I'm sure some people lost their shirts.

      Well, to be fair, they lost half their shirts.

    • You don't want crypto but you aren't talking about crypto. You are talking about unregulated exchanges. My bitcoin from 2015 is still in my private wallet untouched for 7 years. It's humans that are the issue

      • Sure, if all you want is to do nothing with a cryptocurrency, you don't need an exchange.

        • You don't need an exchange for nothing. I can send someone bitcoin for a TV or even a car. No exchange needed. Zero

          • Except I can't buy a car at my local dealership that way, they don't take bitcoin. Hell, where I live, there's not a single business that takes bitcoin. I can;t order pzza and pay for it, can't buy a book at the local store, a suit...nada.
            So I need cash (bank card) or credit for those.
            How do I exchange bitcoin for cash? Oh, right, at an exchange.
            Without exchanges bitcoin is pretty useless to most people in the world.

    • That's $100m dollars that never existed.

      There, fixed that for you. Something that does not exist does not just disappear. It is not the fault of crypto that scams exist. It could just be done again with tulip bulbs. It is the fault of the financial "market" that these scams are tolerated.

    • Re:This is why I don't want crypto (Score:4, Insightful)

      by Opportunist ( 166417 ) on Monday February 20, 2023 @11:51AM (#63308565)

      That money isn't gone. It's either with someone else or it never existed in the first place.

      If I buy something for 10 bucks and for some weird reason it's then valued at 1000 bucks, then 3 months later it's valued at 10 bucks again, did I win? Did I lose? Or did that value not exist at all?

      If I sold it to you for 1000 bucks and you're now stuck with an item worth 10 bucks that you paid 1000 for, are those 990 bucks gone? No, I have them.

      • the money's gone. This isn't fake crypto money, it's an actual hedge fund. People gave them USD to invest and they invested in FTX.

        Real money changed hands and real money is gone here.
        • At least they did the ethical and responsible thing and shu8t down instead of looking for greater fools. This manager is officially good people.

        • It's not gone. It's just in someone else's hands.

        • It's an actual hedge fund with $200 million in assets. That doesn't mean that they ever had $200 million in real money, and since this is a crypto fund there's no reason to believe that they ever had anything worth more than fifty cents.

          I was just going to say that getting a 16% return, in real money, on an illiquid imaginary asset seems like it might not have been such a bad deal.

    • Re: (Score:2)

      by shanen ( 462549 )

      Interesting FP, but I think you need to distinguish between electronic money and cryptocurrency (and related scams). Money has already gone electronic for the most part, though small folks like you and I don't have fair access to that electronic part of the economy... That's part of the fake lure of cryptocurrencies, but, as you noted, the suckers continue to get sucked. (Funnier than the passive construction "suckered"?)

      I've mostly written my pieces on what's wrong with Bitcoin in particular and cryptocurr

      • Why would you record them with a blockchain? We have write-only records and contracts without blockchain tech, all blockchain ever brought to the table was voting for transactions. Take that away and you just need a database configured for immutable transactions.

        • Re: (Score:2)

          by shanen ( 462549 )

          I think I fully agree with you, and my more general statement (from previous occasions) is that I have yet to see a problem for which blockchain was the answer. Or even a better answer than other technologies or approaches. A "solution" that can't find its problem scarcely deserves the label. (Reminds me of that Chromebook I bought last year. I have yet to find any application for which it's the best tool. The main thing I've been using it for is restaurant reviews...)

          • Yes, totally agree.
            I really like the little Lenovo Chromeook I picked up new for 140$, it makes an awesome browsing tablet.

            • Re: (Score:2)

              by shanen ( 462549 )

              I have a Lenovo Duet, but it cost more than that. Any advice on turning it into an Android tablet?

              • Nope, I can;t recall doing too much to it, think I maybe enabled developer mode. I just browse using Chrome with the same extensions as I use on PC, use cloud-based apps like Keep and Gists for note sharing to myself on the PC. Works right out of the box just fine.
                I wouldn't mind setting up a little C++ and/or C# dev environment on it, but haven't bothered yet.

                • Re: (Score:2)

                  by shanen ( 462549 )

                  Well, I had an Android tablet for a few years and it was a heck of a lot more useful than this Chromebook has ever been. I'm not clear on your situation, but maybe you are just using it without the keyboard most of the time? I've only done a little of that, and it was still much worse than Android.

                  • Yes, I just browse the web with it mostly. It has a nice detachable KB though that works well.

                    • I wouldn't be so kind to the keyboard as to describe it as nice, but it's mostly language-related problems in my case. Also I learned to treat it carefully when I popped a key.

                      My guess based on your cost is that you caught a previous model as it went out of production. That was where most of the best values were when I was working retail...

                      I should have mentioned that I also tried enabling the developer mode, but I was searching for the Android emulation and I never found it. In the best case I might have e

    • spending less, investing in fewer actual, useful businesses, etc, etc.

      The real money didn't evaporate or spontaneously combust... it's just transferred to the people who were smart enough to get out in time...

    • There are also some people who are $100MM better off than they were before surely
  • Another instance of deregulation/unregulated industries SOOO good for society

    • Seems like a highlight reel of the history of the banking system, especially the 1929 crash.

    • Deregulation doesn't mean making fraud legal. Using customer inflows to pay withdrawals still isn't legal, and no-one in the 'deregulation' camp is proposing to make that legal. I'm not a fan of any of the existing crypto implementations for various reasons, like throughput, and the fact that many of them (most of them?) are only an exercise in greater fool theory; however, that doesn't mean that all crypto is bad for simply being crypto. And allowing the creation of new products should be allowed, in an

    • Re: (Score:2)

      by Zak3056 ( 69287 )

      Another instance of deregulation/unregulated industries SOOO good for society

      YEAH! We should have some sort of... maybe a commission, and they should regulate securities and exchanges. Surely that will put a stop to shenanigans like this!

  • The chips keep falling (Score:3)

    by quonset ( 4839537 ) on Monday February 20, 2023 @10:10AM (#63308235)

    Another week another crypto or investment firm closing up shop because they were swindled.

    If you haven't got all your money out by now, do it. The clock is ticking.

    • Re: (Score:2, Informative)

      by Rei ( 128717 )

      No, MAN, you like DON'T GET IT. My collection of Party Ape Billionaire Club NFTs, Betting Kongs NFTs, Stoner Cats NFTs, Magic Mushroom Club NFTs, The Humanoids NFTs, Ether Gals NFTs, Cool Cats NFTs, Pro Camel Riders NFTs, Stick Humans NFTs, World of Wojack NFTs, Magic Marbles NFTs, Beverly Hills Car Club NFTs, Oni Ronin NFTs, Cash Cows NFTs, Long Neck Cartels NFTs, Pug Force NFTs, Hood Punks NFTs, Gorilla Club NFTs, Alien Archives NFTs, Betting Buddhas NFTs, Fighting Turtle Club NFTs, The Iconimals NFTs, B

    • Most of the major exchanges will not let you take your money out and increments smaller than 100,000. If you're a small retail investor then unless you get lucky and find a bigger fool there's a good chance you're going to get stuck.

      There does appear to be a couple of whales manipulating the price of Bitcoin. That's why it keeps dropping below 20K and then jumping back up to 25k. If you can manage to catch that during one of their upswings before they cash out you might limit your exposure. But either w

  • ...and it's gone (Score:4, Insightful)

    by 0101000001001010 ( 466440 ) on Monday February 20, 2023 @10:41AM (#63308343)

    "Trapped" implies that valuable assets still exist. It's gone. Like putting your money with Madoff. Poof.

    But I'm sure the hedge fund executives enriched themselves with fantastic, tax-preferred compensation while the scam was running. So what do they care. Say you're sorry and rip off the next group of investors. None of them are going to prison.

  • Diversification (Score:4, Interesting)

    by PPH ( 736903 ) on Monday February 20, 2023 @11:31AM (#63308505)

    Galois may not have (stupidly) put half their funds in FTC. Or maybe they did. But when the market consists of funds of funds and funds of funds of funds, it's not surprising that when you dig to the bottom, it's all in the same place. Same sort of thing happened with Bernie Madoff. Investors spread their money around. But fund managers figured that this Bernie guy was doing so well that they'd all put the money there.

    In the stock market, you can buy shares yourself and be relatively certain of what you own. But in an unregulated market, you can't be sure that FTX isn't a front for some other outfit. In cryptocurrency, the only coin you are sure of owning is the stuff you store on your secure USB stick.

    • In the stock market, you can buy shares yourself and be relatively certain of what you own. But in an unregulated market, you can't be sure that FTX isn't a front for some other outfit. In cryptocurrency, the only coin you are sure of owning is the stuff you store on your secure USB stick.

      Exactly. In the crypto world, you only own that which you have sufficient competence to manage directly.

      But crypto basically sucks for everything except for outlier use cases (or criminals). Thus exchanges look so attractive to "investors" and speculators who should know better.

  • I thought the point of hedging is having positions that cover each other when something bad happens. Ooops!

  • They all invest in crypto, and sell off everything else... like rental property (they're the biggest buyers of rental property since '08). Housing prices drop, rents drop....

    And then the hedge funds lose everything. Boo-hoo-hoo.

  • Too may shenanigans are possible when investing in Crypto. Too much imaginary value. I'll stick to Dutch Tulips.
  • Triple bonuses for all Galois brokers and fund managers! Quadruple bonuses for all execs! Way to go team!

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