Q1 2021 Galaxy Digital Holdings Ltd Earnings Call
[music].
Good morning, and welcome to Galaxy Digital's first quarter 2021 earnings call.
Today's call is being recorded and this time all participants are in a listen only mode.
And in the formal remarks, we'll conduct a question and answer session.
Webcast participants can submit a question online directly through the webcast further instructions will be provided as Q&A begin.
At this time I'd like to turn the conference over to Galaxy <unk> Investor Relations team. Please go ahead.
Thank you and good morning, and welcome to Galaxy Digital's first quarter shareholder update call.
Before we begin please note that our remarks today may include forward looking statements actual results may differ materially from those subsidiaries and the from those indicated or implied by our forward looking statement as a result of various factors, including those identified in our filings with the Canadian Securities regulatory authorities on SEDAR and available on our websites or and future filing.
And as we make with other securities regulators.
Forward looking statements speak only as of today and we will not be updated in addition, none of the information on this call constitutes a recommendation solicitation or offer by galaxy digital or its affiliates to buy or sell any securities, including Galaxy digital securities with that I'll now turn it over to Mike Novogratz founder CEO and chairman of Galaxy digital.
Thanks, guys.
And we're at a beautiful New York Spring day.
Almost summer.
And our spring is about growth.
Our earnings are sector, our company is all about growth.
And my job today is to kind of highlight some key level things that happened in the quarter and that are happening.
And our space and I'm going to turn it over after that.
To Chris' Damian and Alex to give you the details to fill in the blanks I don't want to Bury the headline listen $860 million earnings.
For the first quarter.
Pretty spectacular from where we said that's.
Three times, what we delivered in the fourth quarter, which we thought was pretty great our counterparty and trading value grew 50% quarter on quarter, 290% year on year, our asset management increased 58% now and the quarter, our largest and most mature business lines are now running at a profit we are on track to continue this trend.
And the quarters ahead, we've continued to rapidly grow our team Onboarding World class talent at a staggering rate.
And this just this since last I spoke to you. We have added 30 employees and and now nearly 200 people across the globe and that's pre bid go and by the time, we integrate big co will be 350 plus employees.
I said earlier this is about growth we see this space as a unbelievable growth space.
And I'm going to talk a little bit about what I see.
Z to get buried in the volatility of the day Elon Musk Twitter comments.
Bitcoin going.
<unk> 4000 points and and everyone starts running around like chickens with their head cut off.
I don't want to Miss the Big picture the Big picture that is this space is growing right total crypto assets right now are about two trillion dollars, that's a half a percentage of global growth.
All the trends, we see have that heading towards 2% to 3% of global growth and the next 24 months to 36 months. So the.
The expansion of our opportunity set.
Is really really exciting.
Where is that coming from it's coming from institutional adoption as investors right, we see hedge funds insurance companies pension funds.
All walks of investors.
Participating in this space at an accelerating rate, but we also see corporates.
And new companies building in this space at an accelerating rate right. The tech companies are moving in.
The banks are the traditional investment banks, all moving in and so.
And you can see that this quarter just by the acceleration of the theory and price right. You wanted to talk about like the Big picture building blocks of what's happening.
Bitcoin that continues to be bought as a store of value by more and more institutional investors that continues to be a strong thesis, especially was the monetary and fiscal backdrop that we have around the world.
But almost more exciting right now you have this explosion of the theory and ecosystem and ecosystems like a theory.
Where people are building the new generation of financial market companies, we call. It <unk>.
The new generation of <unk>.
And the IP creativity art, collectibles, and and Ftes and each of these spaces, we are well positioned right we've been investing.
And blockchain and day five from the very beginning we've got a wonderful investing team.
Galaxy interactive.
And with Sam Engelbart and Richard Kim.
And a real pioneers and the NFC space I mean, we were literally investing and this 253 years ago and no. One else was and so we have a wealth of knowledge and a portfolio of wonderful companies that are benefiting in this space I would tell you to stay tuned we're going to have a big announcement and the next few weeks, but we think this is going to be a big part of it.
And the future and so when I when I add it all up and I see what else is happening and <unk> got clean basis list listing the institutional institutionalization realization of this space is happening.
We are well positioned and we feel like we're in the middle of it.
And so I couldnt be more bullish.
Our company I couldn't be more bullish the overall space.
Before I turn it over I also want to talk about.
Two senior two senior additions, we have announced as before but I want to highlight Michael Daffy, who had been the chairman of global markets and Goldman Sachs is joining us and September as the chairman of our board I think that's important because <unk> has probably has been probably the best client.
And on Wall Street for the last 25 years.
By bringing them in and we wanted to be loud and clear that we are a client first.
Merchant bank for the 20, <unk> century, and we think his relationships as judgment. His energy is going to do nothing but help us.
We also are bringing and Aaron Brown, who will be.
Joining as our COO effective immediately.
And.
Has great experience.
And recently, serving as the chief risk officer and jumped trading.
And we think about.
Big go we think about building our business. This fast Aaron is really going to be the chief integration officer as we put this stuff together, we need someone with her expertise.
Her acumen and so couldnt be more excited to welcome Erin as well.
With that I'm going to turn it over to Damian.
Co President and head of capital markets.
Thank you Mark and good morning, everybody.
I'd like to start by extending.
A warm welcome to Aaron Brown.
Chris I know.
And saying that we're both delighted to have her part of the executive team and to work with US and this period of hyper growth and the company.
Today I'd like to focus my remarks really on three key areas.
Key industry trends and client discussions we're having.
A strategic overview of the Big go deal and.
And and update for our asset management and investment banking businesses.
I've spent the last few months for that business leaders and clients learning about their goals pain points and ideas really with an eye towards scaling the galaxy platform.
The biggest news I would say on the client discussion front is the shift from how do we get into crypto too.
What more can you offer me and crypto and now that we're here.
Some of the client trends, we've been predicting for the past year and now really coming to fruition.
Clients, who started out just trading and bitcoin looking at more force.
<unk> into the crypto space and using us as a thought partner and how to achieve this positioning across markets and asset management and investment banking.
Growth equity and strategic capital is making its way into the sector quickly it's.
And it's beginning to appear now as early as several series I rounds.
And valuations are at significant hires and some clients are coming to us to play catch up nothing that they are really under white crypto and asking for guidance on how to get appropriate exposure sensibly.
Our investment banking business is also seeing increasing inbounds from crypto companies companies and our sector.
And we're actively pursuing M&A or spec combination strategies.
Our growing sales team is connecting clients to galaxy products and teams to meet this growing demand for varying degrees of crypto exposure.
And I am excited to report a marked uptick and requests to net new products from existing galaxy customers, Chris and I will share some examples across our business lines lighter and our remarks today.
Okay.
And our initial feedback from clients is that they are.
Absolutely thrilled with the addition of <unk>.
And how it will allow them to get the benefits of <unk> offerings, while remaining a client of alpha and the galaxy.
And for some clients, particularly hedge funds and being able to transact prime and custody digital assets with the same firm is preferable and valuable.
Of the Clos will prefer to diversify where the digital assets and custody.
We can now that both and provide clients with the combination of products and services that exactly fits their needs.
Yes.
Speaking of <unk> and before I jump into some highlights of our operational performance.
And I want to spend a moment reiterating some of the strategic and cost benefits that the <unk> acquisition will bring.
First off our combined client base, which supports galaxy is robust long term growth through cross selling opportunities.
Vic go alone is going to add 400, plus net new claunch to Galaxy on day, one representing a huge opportunity for us to cross sell.
Galaxy offerings into the big client Bush and of equal importance to show bigger products to our existing clients and galaxy.
This transaction solves a frequent friction point from Galaxy launch for.
Providing a scaled reliable custody product that doesn't require these costs to look outside of our doors.
And we're adding over 10 experienced sales leaders to our institutional sales team globally.
Secondly, adding petco enhances both our product innovation and our development capabilities after.
After this deal closes we will have a stuff thats a lot more balanced between technology and finance expertise roughly 50% of <unk> R&D and engineered personnel.
Mike Bell. She also brings significant technology experience and credentials to the combined company and we're adding a west coast presence via because Palo Alto headquarters.
And third post close we're going to be able to tell clients that they have the option to custody, where they transact which is the request of our clients have made frequently.
We think this could really will be the linchpin to mainstream digital assets for institutions.
All that being said, we will continue to support all of our current custodial relationships and allow clients to custody with any on boarded and approved external custodians and that they would choose to do so.
Now turning to our business units I'll provide an update for our asset management and investment banking segments and.
Chris will provide updates on principal investment portfolio trading and mining.
Beginning with our asset management business, we continue to see strong demand for both passive and active exposure to crypto currencies, and we remain committed to providing affordable and diversified portfolio of solutions for investors seeking exposure to this asset class.
We saw significant net inflows into our funds since we last updated you as we recently reported our assets under management grew to $1 6 billion.
As of the 13th of April.
To give a sense of drivers of that growth approximately 37% of the increase in AUM you Tonight is attributable to net inflows and <unk>.
Fact.
And nearly as much and year to date inflows as we head and assets under management a year ago.
We launched the Galaxy, a theory and ETF on the Toronto stock exchange, which is the world's first ETF to invest directly into ether.
This ETF is designed with our clients and the industry's needs in mind as a convenient and expedient way to gain exposure to either the crypto currency built on the theory and book Shine through and institutional quality platform.
This remains the largest day three ETF and the world.
We also saw notable inflows into Galaxy fund products during the first month of our partnership with Morgan Stanley, which we announced last quarter.
Turning to actively managed fund solutions. The Galaxy Interactive fund has seen some significant financing rounds and their fund one portfolio companies, providing healthy uplift to market positions across numerous names.
Building on the successful deployment of fund one and we're excited to announce today and initial close on $80 million of capital into the Galaxy interactive strategy, which will accelerate our ability to invest more in the intersection of blockchain technology and interactive content.
Yeah.
Moving now to our investment banking team, who have successfully converted a number of exciting mandates recently.
And when I spoke to you last quarter, we share the team has increased client coverage to over 90% of target universe and.
I'm now proud to share details about some of the key activities, we're working on and the advisory space.
And the team is heavily involved in two separate spec transactions within the crypto space and as an advisor on a large M&A deal.
We're also working on a significant life stage capital rise for a well non large crypto player, which we'll be excited to share more about and subsequent calls.
And last but not least our investment banking team provided some invaluable internal support for a big transaction.
Overall, I'm really excited by the growth I am seeing and our asset management and advisory businesses and the infrastructure, both Steve and Michael and their teams are building to support future growth.
Before I turn the call to Chris I'd like to leave you with a few points about galaxy strategy going forward.
And knowable addressable market is expansive and growing quickly.
And by increasing institutional demand and a significant serviceable Tam as discussed during our announcement of the <unk> acquisition.
But the industry is still nascent enough that the sophisticated infrastructure institutional investors demand isn't yet widely offered.
Backlogs are asking for nexgen technology that can adequately handle sophisticated needs safely.
But thats also tailor made for crypto.
When we close on pick a class will have the option to custody, where they transact and galaxy will own and the entire client lifecycle of transacting and holding digital assets.
This is transformational for both galaxy and because clients as.
As all current galaxy clients and the other 400 net new <unk> institutional clients will have access to a one stop infrastructure and financial services provider with critical institutional grade security and functionality.
I'd now like to turn the call over to my co President, Chris Ferrara, who will walk you through some of the investment trends, we're focused on additional business details and some more color on the big acquisition.
Thanks Damian.
Before jumping in and I want to spend some time on the <unk> transaction and what it means for galaxy.
Damian highlighted some of the strategic merits and I'll hit on some of the financial impacts, but remember galaxy <unk> means we can now deliver increased value to our clients with a comprehensive suite of solutions covering the entire ecosystem.
As a reminder to the transaction details, we're acquiring 100 per cent of the outstanding shares of <unk> and a stock and cash deal with an implied value of $1 $2 billion U S. Based on Galaxy is closing share price on May four 2021.
The purchase price reflects the strength of <unk> technology focused reoccurring revenue business model and the strong growth prospects, we see for our combined businesses.
The cash portion of the purchase price was funded using galaxy balance sheet, and we will issue incremental common stock to acquire big goes and net digital assets at closing.
The transaction is expected to close in Q4 of 2021 subject to regulatory approvals approval of our domestication to the United States by Galaxy shareholders and other customary closing conditions.
Turning to <unk> financials. This deal Diversifies Galaxy business with the addition of revenue streams are significantly less correlated with digital asset prices.
About 75% of that goes revenue is reoccurring in nature and the form of contractual monthly fees based on transaction volume through wallets average assets under custody and other ancillary recurring services with monthly minimum speed requirements and some cases.
We will also benefit from the roughly 50% of revenue coming from clients abroad.
<unk> has demonstrated a strong ability to build a high value reoccurring revenue customer base and grow assets under custody and through its core wallet and customer services technology as well as growth key new lines of business and its institutional custody business sitting with over $40 billion and assets under custody.
Which they have now grown grown 150% of this year alone <unk> is one of the largest crypto custodian providers in the market.
While that progress includes asset price appreciation, new inflows client accounts for over 50% of that growth over the prior year.
We're also really excited about that goes more nascent crossover product offerings like prime lending and trading, which we believe will fit well with and galaxies institutional trading and lending offering on day one.
And additional platform services like bit goes portfolio and tax products will be excellent value added offerings for clients.
As we progress to build or single dealer platform out.
I would now like to spend some time walking through the performance of our trading and investing businesses and share some of the specific opportunities and trends I am seeing across the space.
Our trading business continued the momentum we reported last quarter, resulting and yet another record quarter across all our key operational measures, including counterparty trading volumes cyber counterparty loan book and gross counterparty loan book originations.
Counterparty trading volumes were up over 50% quarter over quarter, and Q1, and nearly 300% year over year from Q1 and 2020.
Our lending business continues to be a source of strength and we've added and multiple sophisticated clients and the past months.
And the first quarter, our lending book grew in excess of 290% over the previous quarter to approximately $440 million and our gross counterparty loan originations grew over 500% to approximately $670 million.
And just to give you a line of sight into activity to date that dramatic growth and our loan book has continued through April of this year and I am thrilled to share our inception to date counterparty loan originations are now well over $1 billion as of last week.
We're also excited to see multiple bespoke lending deals alive over the last few months, notably a partnership with honey and multiple long term credit facilities for our clients across the globe.
Turning to derivatives under the leadership of Rob Bogusky, who joins US who joined US late in 2020 and its been working side by side with Jason and urban and building out the franchise trading business.
More than doubled client facing derivative trading volumes over the previous quarter, and we're seeing strong demand for hedging and volatility management strategies on the derivatives desk.
The demand for hedging strategies has migrated from just bitcoin and ethereum based to defy Aaron's and names like UNICEF unit swap and Selina.
Also I am thrilled to share we onboard over 100, new clients to our trading business in the quarter and increased the number of tokens, we make markets and over 90%.
We believe the scale and scope will continue to offer our clients unparalleled access to liquidity and bespoke hedging strategies for nearly all of the tokens, they hold and want to transact and.
This quarter the trading businesses income increased to $509 million, excluding additional unrealized gains and other items of additional 162 million of income versus a loss and the prior year.
Period.
Moving to our principal investments business, we've continued to invest and the most compelling opportunities across the defined blockchain ecosystem now holding approximately 80 investments across 60 portfolio companies.
And Q1 of this year, our team made 12, new investments, including bullish global radical growth labs commodity new cash rate anchor and tax pit as well as add and add on its pro rata into firebox a series C to just name a few.
We remain focused on ensuring that not only are we out and the marketplace and gaining access to all the most cutting edge cryptocurrency and blockchain network projects early but we can also provide a value add above and beyond just capital to these founders and teams invest.
Investing it's a network protocols is not just about capital deployment.
There is no such thing as set it and forget it and crypto.
We believe that investors also need to be community builders contributors and most importantly, participants and this new world and so to that and we are currently and the process significantly expanding our principal investments team to include a diversity of talent and background experienced across fundamental investing software engineering data analytics and advanced mathematics.
Finally, as we mentioned during our Q4 earnings the team successfully realized $125 million U S liquidity event this quarter from one of our portfolio companies.
Now turning to mining where the team has had a busy quarter as we shared last quarter. The team closed their first two mining finance deals for two separate North American miners. The deals are structured to provide clients with mining project and equipment finance needs as our clients were struggling with procuring next generation mining devices from Asia due to high down payments ranging from <unk>.
<unk>, 50% to 100% and significant lead times.
We were also excited to announce our partnership with HUD eight one of the largest bitcoin mining players on a tailored lending deal that will enable us to earn yield on a bitcoin on their balance sheet, while simultaneously minimizing their fiat expenses by providing access to a $20 million U S credit facility.
We look forward to offering more bespoke deals to clients like honey and the future demonstrating the synergistic ability of galaxy to provide access and offerings to the unique needs of all infrastructure and investment players and the ecosystem.
And of course, we continue to mind, bitcoin and a proprietary basis and continue to do so at a significant discount to start mining at greater than 80% discount to farm and fair market value and the quarter.
And I'm excited to share that we have forward purchase commitments that we expect will allow us to achieve mining capacity of just shy of 2000 and <unk> with monthly deliveries slated through the end of 2022.
As in excess of 1% of the total bitcoin net rig network cash rate as it stands today.
With that I would now like to welcome Alex to his first earnings call with Galaxy and turn it over to him to walk through the specifics of our financial performance.
And.
Thank you. Thank you Chris it's good to be here.
Some of what I say will be a repeat but we think these are important measures.
Galaxy had a record first quarter, we earned $860 million and the three months ended March 31.
This was the second consecutive record setting quarter for us as we earned 336 million and the fourth quarter of last year.
And this quarter each of our product clients set new records as Mike theme and and Chris already described.
However, profits and the quarter came predominantly from our trading segment <unk>.
And the gains were driven by higher digital asset prices during the quarter as.
And as well as performance of our proprietary and counterparty trading desks.
In addition in this quarter, we realized a gain of $155 million from principal investments, primarily driven by one investment that came to fruition.
Our portfolio of investments continues to grow with 12, new investments and this quarter currently we hold positions and 60 companies, which we expect to gain value overtime.
Turning to expenses operating expenses for the quarter were $130 million compared to $15 million in the same period last year as.
And as Mike mentioned mentioned expenses increased from the year ago quarter, reflecting our growing employee base. However.
However, most of the increase was from setting aside a larger amount of discretionary equity and cash based compensation.
We determined this amount as a proportion of profits to.
And to be fair. This is not a set parameter we plan to make adjustments to this allocation as we go through the year, depending on market conditions and the absolute total set aside for the bonus.
As a result of our strong profitability. We also recorded a 48 million $48 million and tax expense and the public company corresponding to the share of income allocated to the public holders at the relevant corporate tax rate.
And finally balance sheet.
Our equity grew to $1 7 billion.
At the end of this quarter up from $800 million at the end of last year.
And giving us flexibility to take advantage of market opportunities.
Now back to the moderator for questions.
Okay.
Thank you we will now be conducting a question and answer session.
Webcast participants can submit a question online directly through the webcast.
And if you would like to ask a question by phone. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is and the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Our first questions come from the line of Joseph <unk> with Canaccord Genuity. Please proceed with your questions.
Yeah.
Hey, everyone. Good morning, Congratulations and thanks for taking my question, maybe I'll start one kind of more on an operational and.
And go forward basis, I know you mentioned, the counterparty loan book growing nicely and growing again in April.
What does what does the addition of co due to that.
That part of the business moving forward in terms of now being able to custody and house.
Relative to.
Lending and counterparty loans, Thanks, and then I have a quick follow up.
Yes, thanks for the question and Great to have you on the call. This is Chris here.
The most immediate and simple answer for us and the combination is.
<unk> has over $40 billion U S.
Assets under custody with clients, who currently today.
And while they interact also with because lending book don't have a product ties direct access for yield for example on their assets and so on.
Our.
And our near term opportunity that makes the most sense of the world has to offer up to their custodial clients access to different types.
Types of yield strategies, one of which would be allowing participate with our lending book and getting yield on their assets. So for us that's a.
A huge well of client demand that we are not currently accessing today and EBIT, because not really fully fully monetizing it.
Okay. That's helpful and then and.
High level, when we kind of think about some of the different digital currencies out there.
And if Mike still there.
On the call.
How do we think about a theory and being kind of a store of value I mean, clearly bitcoin to store value but.
And if this is a theorem network continues to gain value and and part of the value of any.
Digital asset is the underlying blockchain itself is the theory and become a store of value as well as bitcoin.
And other digital assets are used for other things just some thoughts there at a high level. Thanks, Scott. So I think it's a theory is better thought of as a network and network effects. So the more people that build on it right. The more people that build on top of it and use it to be the base layer of <unk>.
Just for for their transactions and more valuable it is going to be.
It's hard to differentiate.
<unk> store of value switches to use right, it's got to get its value because it's used.
And it's going to be used a lot and and I think there is not an easy mathematical calculation on what debt.
And how to value it is and so I would probably say.
We think of it as network effect.
And not just pure store value, but it would be naive to think.
People don't want to put some value and if you think about you could have bought into the internet and and bought into the base level base level of the internet.
Youre storing some of your money there just like Youre starting Google.
But I don't see it the same goals and I know this is kind of a wishy washy answer.
Golar is the only element on the periodic table that really just gets value because there is a social construct it says its valued and I think bitcoin has that space and the crypto universe.
And I don't think a theory would be where it is today if it wasn't for all the <unk> being built on and all the entities being built on it all of the.
The stable coins Central bank as your digital currencies and I think could be built on it and so it really becomes.
The web three point out debt and to be clear there are competitors, there and lots of them right and I call them <unk> <unk> change in name only.
And they are less decentralized.
Theory of and therefore, much more efficient and faster right now and so there is a grand experiment going on with lots of other ecosystems.
And there's going to be a day.
It's not going to this debate and not going to get settled and the next six months or even few years.
Tons of innovation is happening.
<unk> ecosystems, like Salon opera, Terra or the buying and smart chain.
Which quite frankly don't have near the the decentralization and a theory and does but we'll see what the consumers demand.
I think in the long run regulators and consumers will demand a very decentralized blockchain and so.
So my thought is even though these other inflections are flourishing and theyre going to either have to.
Figure out how to decentralize our tie into a theory of at one point and so I guess that whole ecosystem really.
Isn't just store of value, it's where the growth of the financial system is going to happen.
But if you looked at the market cap now at $400 billion. It's hard it's really hard to do a discounted cash flow model to get you anything close and so you have to assume that there is a lot of we're in this transitional state going from a non blockchain world to a blockchain world and so there is certainly store value is <unk>.
Of the non performing right now.
Sorry, if that was a calm diluted and I don't know that was helpful. Mike I get it and it's moving it's evolving fast it's not just a store of value. It's the actual blockchain itself theres going to be competitors theres going to be a lot of thought as to how it evolves, but it is going to evolve somehow but some.
That's helpful. Much appreciate it and Mike Thanks.
Yes.
Okay.
Thank you. Our next question comes from the line of Jamie Friedman with Susquehanna. Please proceed with your questions.
Hi.
And for taking my question.
Chris in your prepared remarks, you talked to the recurring revenue attributes and co.
Was wondering if you could.
Revisit that.
Elaborate on it because.
Because I wasn't sure.
Intuitively why.
And so recurring.
Sure.
So it goes.
Most mature business lines.
Make up over seven five percentage of the company's revenues and where we are working towards and we will have.
And more detailed disclosure around <unk> and galaxy and what they can go and Galaxy look.
And together combined as we go here and the next couple of months those business lines. The company generates revenue and a couple of different ways. One way most part and it is the company has contracts with clients.
Net are.
And some cases single year, and some cases multi year in nature that generate monthly recurring fees that are driven by a percentage of value transacted through bit goes wallets.
But those transactions also have minimum monthly fees associated with them as well and so there's a there's a recurring revenue nature to the business model as well as the way, we think about it as a sort of kicker to the upside depending on volumes, which are denominated in dollars and also correlated with price and the upside to protect on the downside and benefit on the upside just from a just.
From a.
Revenue model basis same thing on the custody side, we think about it more as reoccurring revenue.
And that our custodial clients, there don't have necessarily a long term contract, but certainly we view those assets generally as sticky and the revenues are generated on a monthly basis and are driven by the total value and custody.
Does that is that helpful. Yeah, that's perfect and that makes sense and if you don't mind, if I could ask one more.
If you guys were to isolate just a couple of Kpis.
Day.
You used to run the business and I realize in the business maybe.
Two general because there is a lot of businesses here.
But yes, and if there's someone in our seat.
There's a couple of things you could boil it down to what should we be looking at.
It's a good question I mean to some degree we are correlated to the growth and this whole ecosystem.
And so you can look at.
Total.
Growth the total market cap of.
Of crypto assets.
I'd like to thank as that grows we grow faster.
And that our economies of.
Scale, and our first mover advantage and the knowledge base, we have should let us continue to take.
Take a bigger share of the market, but I think first and foremost this is a growth industry and so I would look at total crypto market cap.
As the primary.
And because we're playing it and so many ways, we're playing it as a primary investor right. So a lot of our.
Near term.
Big wins are going to come from these bets, we make and the <unk> space, because we're making really early bets and.
And as those things mature they mature fast those are big wins.
And our more stable longer term money is going to be connecting to all of these institutions are slowly getting involved and it takes time to get them involved and they start small and they have to get on boarded they've got to get comfortable I got to get the risk management systems in place and so we're making a giant investment.
And connectivity to those organizations right, so that salesman and that's operations that's.
And risk.
And.
But if I'm right on my assumption that we're going to go from two trillion dollars of of total wealth and the space.
And three to four times that all of those businesses should really grow if I'm wrong and if that if we were sitting here next year and Thats a one trillion dollars number we're going to have looked at a little bit.
Overly aggressive and hiring as many people as we're hiring.
Right I mean, we are making a growth bet.
And so that.
And maybe it's too macro of an answer for you, but I think thats the thats the easiest way to think about.
Yeah.
And the company internally.
We have so many different pieces kicking.
And we're hoping that gives us a diversity of earnings.
Ian and normally when.
And <unk> have a down day.
Our arbitrage businesses have a good day and so we're trying to build in.
Both long term and short term diversity of earnings.
Net.
To create some stability, but when you are trading and instruments that are 80 vol 90 volume 100 volume.
And I don't want to mislead people that to think our earnings are going to be.
As stable as.
More traditional businesses right, we're in a really high high growth volatile industry.
Got it thanks for that.
Thank you. Our next question comes from the line of Rich Repetto with Piper Sandler. Please proceed with your questions.
Good morning, and.
This question is for I guess, Michael and you mentioned I believe you mentioned regulatory issues earlier and I'm, just trying to understand and.
And the U S. You have a new head.
<unk> regulator that Jim and the FCC Gary Gensler.
And really familiar I believe is thoroughly familiar with.
And with blockchain and bitcoin and.
I believe you know them pretty well as well so I guess the question is what regulatory changes.
Could come out.
To increase the adoption or not and what are you expecting from a regular regulatory stance I guess and.
Some of the specifics as well that might benefit the space.
Yes, that's a great question.
Listen I think first and foremost which is going to be helpful is just clarity right the old SEC Ted.
And Jay Clayton.
And for whatever reason didn't really want to engage and crypto.
And we didn't completely.
Disengaged, but there were plenty of things that he just passed on and I think Gary will will address dose.
The most positive thing could be a regulatory sandbox for smaller projects to get started without.
The same.
The same safeguards that larger and larger products would be that's where innovation happens.
And so I think everyone's pushing for some form of that.
There's going to be clarity around.
And ETF at one point I'm, almost certain that some point and the next 12 months.
We will get and ETF and I.
I think that will will help retail adoption.
And there's a lot of.
Wonder on what is a decentralized enough for the SEC not to think of it as a security.
They've already said <unk> is in that bucket and the theory is most likely in that bucket, whether they said that theory and that bucket.
But there are lots of other projects are they going to be seen as securities are not securities and so just tighter.
Tighter definitions I think listen and lots of ways, the institutional market will benefit and a big way.
And from clarity from the SEC.
It allows us to know what bets to make should you build offshore onshore right now our uncertainty is pushing lots of people to develop things offshore which isn't good for the U S and the long run and so I do think he has only been in the seat for less than six weeks.
Give give give the new administration and a six months and I think we'll have a lot more clear rules.
Okay, and one other follow up I guess more broad as well.
But you have corn base public they do some other things.
Not certainly not us.
And I believe it's.
Broader.
And in business lines as you all but do you view them.
Certainly do custodian and have and institutional focus.
And you them as competitors or do you sort of view.
Helping to grow the space I guess, yes.
Yes, the interesting thing about the whole community and people that operate and crypto as all of us for a kind of frontiersman and.
And it has been this collaborative slash competitive environment.
<unk> has mostly been focused on retailer they are moving more and more and to institution, where they were a retail based business right they've got an amazing.
And that that pulls and tons of.
Retail investors and we've been focused almost solely on institutional.
But but listen we'll compete with them and some things will and will collaborate with them and some things and I think thats the spirit of the crypto community.
In general like I.
I said, none of this is going to work for any of us if.
Yes.
Year or two years or three years from now the overall market cap of the space is a lot lower and not a lot higher and so I think Brian Armstrong and claim base and all of our competitors slash collaborators.
And are making the same bet that this crypto revolution this shift to a blockchain based ecosystem.
Is happening and it's going to happen and accelerating rate and.
And so.
And I hope that's not a wishy washy answer for you that's the way we think about it.
Yes.
Understood. Thank you very much very helpful.
Thank you I would now like to turn the call back over to Galaxy and Investor Relations team for any webcast questions.
Thank you.
The first question, we're getting from the web Chris you gave some good detail on the investments made through the quarter and.
Trends that youre seeing or large liquidity events that we should be expecting going forward sure.
Trend wise I would.
Breaking into two different buckets.
The sort of.
Centralized.
Crypto infrastructure businesses custodians wallets exchanges centralized exchanges.
And that side of the business we're seeing.
Big players breakout in terms of both performance and valuation and.
And consolidation on the lower and and so we have a number of companies and our portfolio.
That will likely get consolidated and enrolled into bigger platforms and were seeing pretty widely across the space.
And as you guys have seen we are.
Likely to be a day player and that as well and we're very focused on it.
On the decentralized side our team is spending the most time.
On the <unk>.
Sort of forefront of new technologies.
And building web three and decentralized finance and so the trends we're seeing there are rapid rapid rapid fire pace of development capital investments.
And proliferation proliferation of new technologies, and so whether it's.
Figuring out how to bring in real world real World data through oracles on chain, whether it's creating.
Bridges that allow cross chain compatibility.
All of those different kinds of automated market, making technologies that debt that function.
And as to centralize exchanges and allow for quick peer to peer transfer value all of those.
And at different technologies, which are summarized on test based on our actually launched commercially and being used at increasing scale is what our team is focused on like I articulated and my comments. The most important thing for us to focus on.
And is not about us just finding those projects early and committing capital to them, but having the full force and weighted the galaxy team our expertise behind supporting those projects actually getting in and helping develop where we can participating on network.
And being community builders those projects, that's where where the real value add and the real gains are going to be made for us, we think and for the whole industry.
Great. Thanks, Chris We just got another one and here.
Is there any comment that you guys have around tweets and new slow impacting the recent price of bitcoin and bid and the volatility related to that does it have any impact on our fundamentals and the overall growth to industry beyond Galaxy digital and would you expect it to be part of the crypto development going forward, let's ensure crypto grew up.
And in some ways on Twitter.
It's where information is passed it's where our communities are built and so I think Twitter will continue to be a big part of the crypto ecosystem.
Elon Musk has caused a lot of.
A lot of volatility and the last.
Few weeks, certainly and the last few days.
The way I am.
Take it and look at it is to take take the guy at face value.
He pointed out that.
With the growth of big client comes to the growth of electricity use with the gross electricity use means not all of it is going to be green and he wants to see.
Bitcoin universe, and the overall electricity universe migrate to more green sources now he has got a vested interest to do that right.
And well invested and and Green and so I think there is too much conspiracy theory stuff going on.
In the market.
Right now I do think youre going to see and ESG response from the crypto community, specifically around bitcoin, but all crypto knowing that all companies need and ESG response, and every single industry is moving towards some carbon neutral 2040 are carbon neutral 2050 or carbon neutral.
And some point and I don't think our industry will be any different.
It is unfair to point out one one reason.
Victory, and particularly gets it gets criticized for electricity use is that.
Yes.
It is very clear about and exactly how much it uses.
And there's plenty of interest if I told you that Youtube users as much electricity or more.
Kind of scratch, your head or hairdryers or all kinds of things and so I do think I would have rather had those those comments pointed at.
And the power business in general.
But I think it's going to be here to stay and we're going to address it as a company address it as an industry.
I don't think its long lasting damage I think it's cause short term volatility.
I do think funds.
Fundamentals of our industry are so strong and accelerating that.
Some of this stuff is meant to be.
It is expected to happen right when you get so much capital flowing in and have a space people get too long and then they get scared for something and so we're not going to go from being a volatile space to a non model and the space overnight, it's going to take years.
Anyway <unk>.
Long answer.
Fair enough next question from the web is could you speak more about your tariff lunar partnership.
Yes listen we.
Invested into.
And Doe and.
A while ago I met him years ago, and Korea and did invest the first time, which was a mistake.
And Luckily got invested.
I don't know how many months ago now.
Seven months ago or something maybe eight.
And we're just impressed he is one of the most impressive.
Young Ceos and the space. He has built a amazing ecosystem I like the <unk> payment system is kind of one of the first examples of of crypto being used beyond kind of the crypto sandbox and Theres, a real real life use application and Korea for payments.
I Havent kept up last night, so I think it was like 7% of all payments.
And the payments get processed and <unk> as opposed to six days and so consumers are enjoying using a blockchain based system better than.
The system they were using before and so he is an innovator.
We're supportive of stuff he does.
But the world is kind of simple and some ways Brett when you bet on someone and they make you money and they build something great and you want to keep adding on.
And we're hoping and each of these cases that we provide value to those ecosystems, we provide value to.
Our investment expertise and advice, we provide value by using their products by promoting their products by shining light, where other people might not see them and.
So we think there's a symbiotic relationship with all the guys we invest with.
Great.
Next one is a follow up from Owen Lau with Oppenheimer do you think the theory and to point out and Lightning network and starting and can be clean your option and crypto.
Okay.
Hum.
Again, its a interesting question.
And some ways bitcoin is supposed to if you think about bitcoin as a store of value, which is a trillion dollars hopefully going into Fortunately and $5 10 trillion, who knows it's supposed to be expensive.
To secure right if it wasn't I'd be scared.
And so I think the bigger question is how do we get and and this whole energy of clean coal.
Question of clean we're going to see.
Most electricity usage.
And towards towards Green and seven eight years only because it's.
And it's going to be by far the cheapest rate people still migrates and cheap electricity and I think and the interim youre going to need to see.
Youre going to need to see <unk>.
Stopgap measures right, if it's carbon sequestration.
And credits or some version of that.
And like you're going to see with every industry not just our industry.
The faster processing.
Ecosystems are certainly can be part of the solution and 100%.
But I don't think we should steer away from light.
And and shy away from the fact that this is a really important new industry and it is going to use a lot of electricity just like all important electricity industries do.
Thanks for the question there Owen.
One we have here and the Q any comments or progress to speak to on blockchain NFC related gaming company investments from Galaxy Interactive.
Just that.
It's one of the most exciting parts of our portfolio I was actually out with.
I guess, what I'd call the founder of the NFC yesterday morning for brunch.
And.
Got it and Eric <unk>, who we've invested with for a long time and it's just.
Such an exciting space and so that Galaxy interactive portfolio has I don't know 40, 50 investments and it.
Sprinkled all around that ecosystem, and so I expect that to be a big contributor in the future.
And are adding to the assets that they manage we're putting stuff both on balance sheet and.
And and.
<unk>.
And third party managed funds and.
And that space and so I couldnt be more excited about that.
Okay.
Great that concludes our Q&A I'll now turn the call back to Mike for closing remarks.
Guys I just want to reiterate two things one is unbelievably grateful to the hard work of.
And the Galaxy <unk> and the <unk> team out in California and.
Where else they are.
And the last five months has been on and.
<unk> pace for our industry, but certainly for our two companies.
I am bullish on this space I hope it comes loud and clear that we see ourselves as a growth company, we're going to continue to invest in this space, both with our own capital and other projects, but and our company and.
And.
And look forward to see and you guys are talking to you guys next quarter.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines.
And have a great day.