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Home/Blog/Market/The FTX Crash Fallout: Galois Capital’s Demise and Lessons for Crypto Investors

The FTX Crash Fallout: Galois Capital’s Demise and Lessons for Crypto Investors

The FTX Crash Fallout: Galois Capital’s Demise and Lessons for Crypto Investors

To long time hodlers,  the concept of volatility is all but natural in the cryptosphere. However, too much volatility is simply too much as seen in the FTX collapse which took the market by surprise and sent shockwaves throughout the industry. The impact was huge, and many investors have been left to pick up the pieces after suffering substantial losses. 

Galois Capital, a crypto hedge fund, was shut down following a loss of $40 million in the FTX collapse. So, what happened and what does this mean for the future of crypto?

What caused the closure of Galois Capital? 

It was a series of events following the infamous FTX crash in November 2022, that led to the downfall of Galois Capital. To put it simply,  Galois put most of its eggs in one basket and the basket was called FTX. 

Galois Capital- founded in 2017 by former executives from Goldman Sachs and Bridgewater Associates, was known for its focus on algorithmic trading strategies and had raised nearly $200 million in assets under management.

According to reports, Galois Capital had a liaison with FTX exchange and invested heavily in its products. When FTX experienced a massive crash, the hedge fund was caught in the crossfire, resulting in losses too much for them to recover from.

Galois Capital loss was around $40 million due to the FTX crash. The company’s founderi, Kevin Zhou announced that they sold the claims on collapsed crypto exchange FTX for 16 cents on the dollar. This was a significant blow to the fund, which had previously been performing well. 

What percentage of deposits will investors get back?

Financial Times reported that 90% of Galois’ remaining assets, which are not on FTX, will be returned to the fund’s clients. The rest of the funds will be held temporarily until discussions with administrators and auditors are finalized.

“In spite of that, I am proud to say that although we lost almost half our assets to the FTX disaster and then sold the claim for cents on the dollar, we are among the few who are closing shop with an inception-to-date performance which is still positive.” confirmed Galois Capital Co-founder Kevin Zhou on Twitter. He also hinted at potential future projects related to Galois, but they are still remained to be seen. 

Galois Capital admits over 50% of its capital was locked up in FTX. Co-founder, Kevin Zhou, has explained that around $40 million of Galois Capital is locked up in FTX

Losses suffered due to FTX crash 

Galois Capital is not the only company to suffer from the FTX collapse. Several other firms have been affected, and the ripple effects are being felt across the industry. 

With FTX’s bankruptcy, 130 related entities followed suit. Companies such as Genesis Trading, Galaxy Digital, and Voyager Digital were significantly exposed to FTX, with Genesis Trading losing $175 million held on the platform. The contagion effect of frozen funds is causing a ripple effect for customers and business partners. This, combined with the bankruptcies, created chaos in a market still too young to withstand major shocks – and one that took a long time to fully bounce back from the collapse of the Luna network last year. 

Such major shock raised a question that we believe has a simple answer. First, the question:

Is there hope for the crypto industry?

Since the early days of cryptocurrencies, there are different opinions on the future of crypto. Some strongly argued that Galois Capital case is just a bump in the road for crypto, and that the industry has weathered worse storms in the past. Others believed that the FTX crash was a sign of bigger issues within the crypto world, and that it’s only a matter of time before the whole thing comes crashing down. 

What’s next?

It’s unclear what the founders of Galois Capital will do next, but they may continue to work in the crypto industry or pursue other ventures. While the loss of $40 million due to the FTX crash was a significant blow, it’s possible that they will use this experience to become more cautious and diversify their investments in the future. It’s also worth noting that other firms have suffered similar losses, and the industry has continued to evolve and adapt. 

Despite the doom and gloom, there is still hope for the future of crypto. While Galois Capital may be gone, other firms are still soldiering on, and new players are entering the market daily. Plus, with the rise of decentralized finance (DeFi) and the increasing mainstream crypto adoption, there are plenty of reasons to be optimistic. 

Who knows, there may be other collapses like FTX in the future, but the lessons learned from this event and others will help investors make more informed decisions and approach the market with a more cautious yet optimistic attitude.