Galaxy Asset Mgmt Secures FTX Crypto Sale Bid; Weekly Cap Set at $50M
Zach Anderson Sep 14, 2023 11:10
Jeff Dorman, CFA and CIO of Arca, discusses the court-approved sale of FTX's crypto assets by Galaxy Asset Management. The sale is expected to be gradual and opportunistic, with a maximum sale of $50 million per week. Galaxy's goal is to outperform a static portfolio, not converting the estate into a L/S fund. The sales process is expected to be systematic, strategic, and potentially slower than expected.
Key Takeaways
Galaxy Asset Management winning the bid.
The court-approved sale of FTX's crypto assets.
The capped sale of $50 million per week.
Jeff Dorman, CFA and CIO of Arca, shares updates regarding the court-approved sale of FTX's crypto assets. Contrary to rising concerns, Dorman sheds light on the meticulous and strategic approach to the asset sales.
Galaxy's Role and Regulations
Galaxy Asset Management, distinct from its trading desk, emerged victorious in its bid for the crypto assets. They have been mandated to function as fiduciaries, implying sales must be gradual and opportunistic. Notably, court documents restrict sales to a maximum of $50 million per week. Moreover, sales necessitate a written notice prior to their execution, while hedging remains at the discretion of the investment manager, presumably Galaxy.
Market Sentiment and Realities
Galaxy's win has spurred massive reverse inquiries, ranging from legitimate funds to mere fishing expeditions. However, over-the-counter (OTC) sales are expected to dominate the buying process, reducing the likelihood of extensive selling on exchanges. Contrary to some speculations, Galaxy is unlikely to impulsively sell $3 billion in futures. Dorman asserts that the objective is to outperform a static portfolio, rather than converting the estate into a L/S fund.
Legal Constraints and Planning
It's imperative to understand that Galaxy can't "front-run" the sales for internal profit, as such a move would be illegal. Their asset management business remains insulated from their prop desks & Novgratz's PA. As Dorman emphasized, this isn't a hasty plan but a result of prolonged collaboration with courts.
Bankruptcy and Sales Strategy
Bankruptcies, particularly those as intricate as FTX, require time. The endgame is to maximize the estate's value rather than expedite distributions. This approach might limit short-term gains but ensures there's no hurried sale into weakness.
Market Makers & Selling Dynamics
Market dynamics often witness traders selling more than anticipated ahead of known block sales. To illustrate, if PIMCO sells $100 million of bonds and ten funds sell $50 million each in preparation, the actual coverage of the $500 million sold remains questionable.
Sales Tempo
If the market observes swift sales, it indicates strong demand and the market's capacity to absorb it - a bullish sign. Conversely, slower sales suggest a lack of bids, which can also be seen as bullish or at the very least, neutral in its market impact.
In summary, Dorman believes that the sales process will be systematic, strategic, and potentially slower than expected, ensuring an organized transition. Traders and investors are advised to be informed and cautious in their decision-making.
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