Key Insights

• Galaxy Digital manages and profits from FTX’s $3.4 billion crypto liquidation amid bankruptcy, with significant returns from Solana token sales.
• FTX’s bankruptcy auctions see substantial SOL token sales, positioning Galaxy Digital and hedge funds for massive gains despite market volatility.
• Criticisms arise over Galaxy Digital’s dual role in FTX auctions, yet strategic investments promise high returns, as evidenced by their stock surge.

FTX’s bankruptcy has opened the door for significant gains for savvy investors. Following the collapse of Sam Bankman-Fried’s crypto empire, the estate has been tasked with liquidating $3.4 billion in cryptocurrencies to satisfy creditor claims. A major player in this scenario is billionaire Michael Novogratz’s Galaxy Digital Holdings, appointed to manage and sell these assets.

FTX’s Crypto Assets and Galaxy’s Role

When FTX declared bankruptcy, the firm’s assets included a diverse portfolio of digital tokens. The estate’s lack of experience with cryptocurrencies initially led to losses during attempts to consolidate these funds. In September 2023, Galaxy Digital’s asset management division was brought in to oversee the process. Galaxy’s responsibilities included selling, hedging, and staking these digital assets.

A substantial portion of FTX’s holdings was in Solana (SOL), the native token of the Solana blockchain, which Bankman-Fried had heavily invested in. Approximately 60 million SOL tokens, mostly locked, were acquired by his companies between August 2020 and May 2021. With the token’s value rising significantly by the end of 2023, the estate sought to liquidate these assets through a series of auctions.

Auctions and Investment Funds

The first auction of FTX’s SOL tokens occurred in late March 2024. Around 25 to 30 million tokens were sold at $64 each—a significant discount from the market price. Buyers included hedge funds like Pantera Capital and Neptune Digital Assets and Brevan Howard Digital and Multicoin Capital entities. 

Galaxy Digital was a notable participant, purchasing tokens through a special-purpose fund that raised $620 million and charged a 1% management fee. This acquisition positioned Galaxy to realize substantial profits, with their SOL holdings already valued at over $1 billion at current market prices.

A second auction followed in late April 2024, during which the FTX estate sold 1.8 million SOL tokens at prices ranging from $95 to $110 each. Again, Galaxy Digital and Pantera Capital participated, with Galaxy raising additional funds from investors. The tokens sold during this auction also generated considerable potential profits, further boosting Galaxy’s investment outcomes.

Market Reactions and Concerns

Galaxy Digital’s involvement on these transactions’ buy and sell sides has raised eyebrows. Critics argue that this dual role could pose conflicts of interest despite FTX’s management and the Official Committee of Unsecured Creditors (UCC) assuring that the process adhered to court-approved frameworks. Some creditors have expressed concerns over possible unfair access to information and insufficient price discovery.

Nonetheless, the UCC and other oversight bodies have approved the sales, citing that the prices paid by Galaxy and other buyers were fair and competitive. Galaxy’s significant investment in the SOL tokens has also been reflected in its financial performance, with its stock appreciating by 161% over the past year, contributing to its $3.6 billion market capitalization.

SOL token sales have continued, with the most recent batch sold in May 2024. Figure Markets, a new crypto exchange, purchased 800,000 tokens at $102 each. Based on current market values, these sales have collectively generated substantial returns, estimated to exceed $130 million.

FTX creditors and customers have voiced frustrations over the bankruptcy management, claiming substantial value has been lost. Despite these criticisms, the strategic liquidation of FTX’s crypto assets through Galaxy Digital’s expertise has resulted in notable financial gains for participating funds.