Q3 2022 Galaxy Digital Holdings Ltd Earnings Call

Good morning, and welcome to Galaxy Digital's third quarter 2022 earnings call. Today's call is being recorded at this time I would like to turn the conference over to <unk>.

Ballard head of Investor Relations. Please proceed.

Good morning, and welcome to Galaxy Digital's third quarter earnings call before we begin. Please note that our remarks today may include forward looking statements.

Results may differ materially from those indicated or implied by our forward looking statements as a result of various factors, including those identified there aren't filings with the Canadian Securities regulatory authority on SEDAR.

And available on our web site or in future filings, we make with other securities regulators.

Forward looking statements speak only as of today and will not be updated in addition, none of the information on this call constitute the recommendation solicitation or offer by galaxy digital or its affiliates to buy or sell any securities, including Galaxy digital security.

With that I'll turn it over to Mike Novogratz, founder and CEO of Galaxy.

Good morning, everyone.

We gotta love to cover today.

Would seem strange not to start with the events of the last 72 hours.

In some ways. This is the year where.

The bad news in Crypto has just kept coming.

Reminds me that this is a very young and new industry.

Part of the growing pains us.

Is.

Weeding out the bad actors are.

The excesses are and.

Pivoting towards you know something thats more trusted.

Irony quite frankly, and that's one of the reasons I got into crypto.

Was transparency was that crypto has the potential to make.

Financial markets far more transparent far more efficient far more egalitarian.

Yet you know we've had two to three four episodes in the last 12 months.

Not really.

Dented the momentum of this.

And so it will be.

The angry and frustrated.

But resolved.

That galaxy has a role to play in a very good role to play as a strong transparent.

Smart.

Mismanaged focused institution.

Listen we we put out in the report today that we have $77 million of exposure to F. T X.

Of course that doesn't make me happy.

That said our job is to provide liquidity to 850 different clients and so we are trading on every major exchange are the major exchanges that we deem worthy of trading on them. We have a credit committee that goes through they meet all the time.

In this case, we were already taking risk down Sunday night.

Uh huh.

By the time we.

They in essence dated.

Withdrawals, we've got roughly half of our risk offset off the exchange that are left with.

Being a.

Hey.

For yes cynical.

Depositor.

Our creditor.

You don't expect.

This from.

An organization that was heralded as one of the good good organizations that were close to regulators that we're close to some of the the biggest investors in the world.

And so you know frustrating I mean, the good news is it's 4% of our capital, it's 2% of our assets the wallet stings.

It's by no means.

That detrimental.

I also like to prepare for the worst and hope for the best it's way too early.

Totally understand what happened there it's way too early to understand what recovery will be if we indeed get our capital back.

Or we end up getting some portion of it back.

But it does.

Really.

I think hold our space in context for this year.

The firm yesterday.

I certainly was angry.

But it was also optimistic right it gives galaxy.

It gives galaxy or lane to Blake right why did we.

Get into this business in the first place right got it because I saw crypto would make a difference as all of our employees did.

Because bitcoin as a store of value in a world where populist governments continue to print money is.

Is it inevitable is inevitably going to succeed.

Cause block change are showing up all over the place.

You can see Instagram MAU.

The poly chain blockchain.

I'm sorry, the polygon blockchain, you can see financial institutions moving into this space.

On a monthly and weekly basis and so.

I am more certain there's an inevitability that.

<unk>.

This.

Space will grow we are really laser focused on our place in that.

On the one hand.

Competition is changing the landscape completely changing a lot of our competitors are blowing themselves to smithereens we've.

We've lost lots of people in the credit business.

Fire Celsius.

Yep.

Voyager name a few.

That said trade by institutions are moving into the space.

We are preparing to move into this space.

And so we're laser focused on how we preserve our lead.

Break that domain expertise are staying on top of this business. It is.

Risk management is relationships with those 850 trading accounts in the investment banking accounts in the asset management accounts.

<unk> Trust.

And.

Listen I think you'd come to work everyday you do that over time, we will survive. This.

There was an Iot in that.

The macro environment with shifting in crypto was really starting to look good as of last middle of last week.

This is another.

Step back and it will be a setback right, there's going to be regulatory headaches galore like sandbags and spent more time than anyone in Washington, and so regulators are going to take a new look at this.

And so that's frustrating.

Confidence in institutions.

And so I'm not trying to be pollyanna ish I certainly think this makes the operating environment.

Environment more challenging for the next.

Period of time.

But I want to emphasize I have not lost any of my medium and long term belief that this space is inevitable.

Let me see where I'm going here.

Right.

So let me focus on a few things that we're going to do.

That we have done and we're going to do to make sure galaxy remains important.

Important player in this ecosystem.

One.

We looked at our cost we looked at our head count and we made.

Some adjustments that was free.

This MTX.

Scenario, though I don't think we will change anything going forward.

And it was roughly 15% or 14% of head count.

Those are painful decisions, we love our employees.

This was not performance based this was looking at what.

What we thought the business could do over the next.

12 to 18 months and where we wanted to invest I would point out that we're increasing.

Our investment in engineering and in security and in legal.

Expensive parts of the business, but we really think are essential to build a company that will withstand.

What institutional investors wanting what regulators want.

So.

Again.

I feel.

It's always painful to let people go but I think we've right sized the ship.

And you'll feel good about that.

We also have an announcement Damian Vanderbilt who has been our president for the last two years, along with Chris Ferraro at the end of the year is going to transition.

Running our global markets business to being a senior advisor working on strategy and joining the public company Board.

And lots of ways Damian goodness job.

Since he came here, we hired a world class CLO and Erin.

CFO and Alex.

T O.

A CMO and a chief security and so I now look at the team and we have a very strong senior management team almost every bucket.

And so I feel great about where the firm is in <unk>.

Terms of management, we know our mission.

In some ways, it's relatively simple we're going to make a big bet on building a client forward strategy in the sales and trading or the intermediation business all.

And around what we call Galaxy, one prime or G. One prime.

I think and we think this is a must win we need to win in this space.

We've elevated.

One of our smartest guys in the firm.

Catherine This mission.

We've allocated 35 employees solely focus on building this out.

Our treasurer, Tom Harris.

Now assume a linear responsibilities worked closely with this team.

Capital efficient strategies for our clients, the offering integrates trading and lending and cross portfolio margining derivatives.

Alongside access to qualify custodians for institutional investors.

There are other people working on prime we really think we are going to.

The best in class and we're making a big bet on that.

Other than that we are.

Really going to focus on our asset management business.

We've lifted up with clients once it's going to be a client first driven strategy.

Because of that we're making a bunch of strategic realignments to ensure we show up with the best product, we hired a young man named Mike G and Papa to join our venture team.

We'll shortly be moving our on balance sheet venture.

A team that's made over 107 portfolio investments in companies like fire blocks, one inch bullish global that team is going to move in asset management, where we'll allow outside investors to a launch invest alongside the capital Galaxy has always put into that space.

I think that's exciting hopefully.

That that group is in <unk>.

First half of next year.

In the market.

We're going to focus on higher margin fee products.

That said, we are going to retain our access products with regional partnerships, we're going to announce very shortly in Latin America, and we are working really closely at thinking deals in Europe and in Asia.

Help distribute our products.

And so if I think about it.

On a go forward basis, we're focused on prime we're focused on pivoting.

Pivoting asset management, we still have a big mining operation.

It's no surprise to anyone mining has been a tough environment.

This year.

But we are long term believers in bitcoin.

We have a tax incentives or.

Tax advantage.

And mining bitcoin.

Yeah.

The mining business is relatively straightforward if you get the cheapest electricity.

A very efficient team and by your chips cheap.

Cheap.

You went out for mining overtime, and even when hash rate goes real high.

As.

Those other factors make it more and more difficult the low cost producer with.

We have a long term horizon on this.

Traditionally we were using.

We're outsourcing.

Our miners to two other places.

We always had a idea that we've averted vertically integrate this exciting that in January we're going to open our first.

Wholly owned site in Texas.

And the plan is over.

Over time transition all our mining sites we own.

We think that'll be a very good business for us in the in the medium to long run.

<unk>.

Alright, what else do we focus on.

Our balance sheet our.

Our financial health.

For for Us and for our investors is wildly important to us.

That you know the news as it is fairly good we have at quarter end, we had over $1 billion of cash and ability to have dollars of liquidity.

Our cash today I, just checked with our treasurer kind of coming into this space is roughly the same.

So we have plenty of cash.

Prosecute what we're looking to do.

Our stock.

You don't trades unbelievably cheap if you think about what our published quarter end book equity was roughly $7 $5 Canadian and where our stock closed yesterday, it's almost a 40% discount to NAV.

Almost trading on top of.

Pete.

Gross cash level.

And so that's frustrating to all of US here and I'm sure. It's frustrating to you as investors, we're going to try everything we can to <unk>.

Change that we did buy.

Roughly $50 million worth of stock over the last.

Four months five months.

The Canadian exchange has.

Relatively specific rules of how much you can buy and when and how much volume you can be and so you can.

Be assured that we certainly are thinking about our stock price thinking about.

Using our assets to drive it up because we just think the stock is woefully cheap.

Alright.

But not least what.

What do I think the world looks like if.

If MTX hadn't happened.

It's going to tell you a story of.

Increased narrative if.

If it was.

Fidelity launching a retail product or.

Instagram building.

<unk> on a blockchain.

All across the board.

More than ever as Elon Musk at one point using crypto and Twitter.

That was getting people more and more excited and.

Bitcoin.

Cerium, both for trading like they wanted to go higher.

We were seeing more customer.

Engagement doing more trades and we're positioned.

You know for a fall rally as it was.

Kind of.

Market sense that when the fed flinches or when the fed stops raising rates and at one point they will.

Crypto was really going to take the next leg up.

That seemed to be a pretty good framework.

This has put a short term wrench in the AR.

The oil.

And I think we're gonna have to.

It'll be nimble and agile for the next.

Due to 12, two to 12 weeks as this digests and people really make sense of what happens.

That said.

This space.

Digested from mountain Gox way back on.

Hello ups scandals.

Bubble Pops and there is a resilience to the crypto space that I've seen at almost no markets that comes from the real belief that people have and the underlying mission and so I'm confident that the macro will take back over.

Again, if I had a crystal ball I would tell you exactly when but I would I would think within a quarter.

We're back correlated to macro and we're not.

And event driven space.

So I'll leave it at that I think it's going to be a challenging environment I think.

Galaxy is well healed and well positioned to navigate it we have a senior group of.

Risk managers.

Senior.

Senior people that have been through the worst before.

And so we'll leave it at that.

Alex is now going to kind of hit you on the financials.

Thank you Mike good morning.

Our businesses performed well under market conditions continued to be challenging.

We ended the quarter was $1 billion in cash.

And $1 8 billion in equity capital.

We reported a loss of $68 million for the third quarter.

Partially related to unrealized markdowns on our private investments.

Due to difficult conditions for bitcoin mining in this quarter, we conservatively.

Impairments on our mining equipment.

And reserve for a portion of receivables from mining Counterparties.

Both amounts were reflected in higher G&A expenses, but.

Neither impairment was material.

We continue to be bullish on bitcoin mining and believe that this dislocation in mining provided.

Provided opportunities.

Who look for undervalued assets.

Our total liquidity at the end of this quarter was $1 5 billion.

<unk> of $1 billion in cash.

It's an 87 million of net liquid digital assets.

And $236 million of stable coin.

Predominantly U S. D C you shouldn't buy circle and a small amount of tether.

I will now hand, the call back to the operator for questions. Thank you.

We will.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speaker. Please pick up your handset before pressing the case if you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Okay.

Today's first question comes from Chase White with Compass point. Please proceed.

Thank you good morning, guys.

So a couple of questions. If I may so the first one is kind of high level, but yes.

In terms of the MTX news.

I'm curious what you what you think the impact to your counterparty trading business and lending business could be I mean is this.

Something that you think over the coming months and quarters, where Youll see counter party is becoming a little more averse, especially to using leverage in general could this impact the interest rates you can charge as other shops try to compete for the remaining business out there.

Just curious how you think about that and then I have a follow up thanks.

Yeah, I would say in the short run people will pull back.

Everyone, everyone would be nervous until.

They see you know listen we feel lucky in some ways that we're a public company and we just published our financials and I. Just told you that we basically have the same cash position.

And we're not saying, we're not going to tell you something thats not true.

So I do think over time, having a strong balance sheet and having relationships with people will allow that business actually grow.

But I think in the short run people are nervous.

You know the.

The interesting thing is people need a place to deposits there.

Crypto and so there will be places and I think at one point.

You're going to see the industry really push.

And maybe force real transparency on the lenders.

And we haven't seen it you would've thought after Celsius people would have demanded more than I think.

MTX.

And Sam.

Had this halo and so maybe people that are.

Pushed as hard as they should have I don't know what you will see what comes out on that.

It's unbelievably frustrating because it certainly.

Isn't what you're used to doing business.

And you know I feel immensely bad for all the people that have.

Los fortunes are elite how fortunate at risk right now.

The game people are in you lose money when you make the wrong bet not one.

Somehow your deposits get.

Waste away.

And so I do think the market is going to push that way.

And it will take some time and I think but I don't think the credit business is going away in crypto.

Okay.

I'll just add.

Couple of things to what Mike said I think from a risk perspective, we are laser focused on.

On identifying and managing any potential second third fourth order exposure and so that's that's that's.

Counterparties, who may themselves of Counterparties, who may have direct our direct exposure to FDA et cetera, we feel very good about where we sit in that equation.

And our risk management on that side.

So we don't have any any concerns there and that's on the originator side on the go forward business side I agree with largely with everything Mike said.

We saw it happened earlier this year.

With three arrows and the other lending platforms.

And who themselves went out of business and had counterparties market participants who are our customers and Counterparties, who also hurt took a took paint what.

What we saw there was that makes the short term the market is slowing down.

After after the dust settles, but then we have demonstrably started to win market share, albeit from a smaller pie and so I would expect that same dynamic to happen, where we continue to be in the market. We have capital as we've told the world. Our business model is focused on servicing those clients and.

So, albeit the pie will likely be smaller for a short period of time, we will continue to take market share today.

And so as the pie grows our share of that growth should be significantly larger than when we entered the year.

To start before all this stuff happen. So that's how we see it playing out.

Great that's very helpful. Thanks.

And the second question is yes.

For the self mining business I mean is there an opportunity out there to take advantage of the distress in the industry and pick up some some mining data centers or mining rigs on the cheap in the coming months or or even a possibility that you take ownership of collateral underpinning the equipment loans that could benefit you guys.

I'm just curious how you think about that.

Yes, I'll take this one.

From a from a mining lending perspective, we.

We have largely de Minimis exposure, we said we did three small deals in the quarter you can see that the total amount that we did ah aggregate to lets say $8 million. So our position on lending against basics has largely been cautious for.

For most of the year so.

From our side and that's how I like we will not be will not be a foreclosing on collateral opportunistically in any way in size because of that.

We do see.

There are players who took significantly larger exposures doing that who will likely have issues in terms of collateral that they may or may not foreclose on it and then what to do with it and so we are very focused on secondary activity.

Basics, both from direct miners as well as lenders, who who will end up.

At the end of the day long that exposure.

And we are situated in a very good position to.

Help provide liquidity at good values for that equipment.

The other point, you made which I think is which we think is a very interesting one.

Which we are spending a lot of time on is are there bigger longer longer lived infrastructure assets that are available and would make sense for us to accelerate our plans to sort of vertically integrate that is that is something that we have.

And entire team spending all of their waking hours on and have been for the last few months here.

So I can't I can't point to anything specific yet, but no debt that we are very active in evaluating what's out there right now.

Perfect. Thanks, guys I appreciate the color.

As a reminder, please limit yourself to one question so that management may answer all questions.

The next question comes from Michael Legg with benchmark. Please proceed.

Thanks, and good morning.

Could you talk a little bit about what you're seeing on the private market. So that's what we're all sitting in the public market.

That's your portfolio seems to have gone down to 152 investments I think we're over 200 previously.

Just kind of want to understand what youre seeing private versus public and what's going on with regard to your portfolio. Thanks.

Sure I'll take it I think just to clarify I think the the number with a two handle you referred to likely included both galaxy digital balance sheet investments as well as investments that are in managed funds, including interactive fun. So the one thing to it.

With 200, so we haven't had a decrease in number of investments.

Okay.

The what are we seeing there so we.

We have seen still for most of this year, a fairly stubbornly wide bid ask spread in terms of valuation in the private markets on the ash side versus sort of public crypto currency prices public equity prices et cetera, and so we have continued to make.

New investments I would say on average those investments have been smaller in notional dollar amount because.

Because we've leaned more earlier stage, where we think.

How you exist are significantly better than <unk> companies, who earlier in the year. We're further along the growth spectrum and we're trying to hold onto what we now view as sale valuations from 'twenty to 'twenty. One so we've done a smaller number of deals smaller dollars being deployed for that reason because.

But it is starting to it is starting to happen and what I mean it started happened is these companies who are doing great things and are building great products in early stages.

Eventually.

Have runways and we'll go to looking rates raise capital and the capital available to invest them has has shrunk dramatically clearly valuations both in the cryptocurrency market and the public equity markets have come down dramatically across the board and so there.

There is always a lag in that market.

And so you know.

And our positioning with the cash balances we have the team that we've invested in who are who are focused on finding the best companies at the right valuation. We are best positioned right now for that the private market to finally come our way after what has been truly years of really up into the <unk>.

Right and really lofty expectations. So.

It is starting to happen it is much slower than the public markets.

And all we've done is positioned herself with capital and talent to be able to take advantage of that opportunity.

Okay, great. Thanks, and then just.

Got it.

So I'll just say one other thing I was going to just to emphasize the point might fade in the prepared remarks.

Our intention going forward is to do that activity, both with firm capital as investors in product, but really opening that product up to.

External investors, it's good for Lps and that they can get direct access to our access and investment prowess. It's also great for shareholders.

Aleksey because shareholders, regardless, we will still get the same kind of exposure that they have today in terms of direct access via our balance sheet, having likely seat the existing portfolio as well as seeding new portfolios, but galaxy shareholders also in that regard, we're going to get much more predictable management and incentive fees.

Revenue streams that are high margin streams, as we build out that franchise and so that I just want to emphasize the strategic shifts that we've made is that we're making as a company.

As we think about our investing activity and how it manifests itself ultimately to shareholders.

Great. Thanks, So just one quick follow up.

When Washington, Sandbags and foods, obviously, it's been down there a lot could you talk a little bit about your efforts in Washington, like whether you members of the blocks of association and what Youre doing to get Galaxy's voice heard.

Yeah.

I was actually just down in D C, probably six weeks ago for two days and met with <unk>.

13, 14, congressmen and senators.

We have a full time.

Full time.

Who grew up on the Hill, who seems to know everyone. Tyler Williams and he is doing an amazing job for US. We also have Neil <unk>, who is our on our advisory Board.

<unk> is very well plugged in who can help guide Tyler and so we are quietly engaged.

As opposed to as publicly as some of our peers have been trying.

Trying to educate and.

And help.

Drive legislation.

We'll see the.

Assuming the.

Republicans actually take the house.

Pretty certain this morning, I think the landscape is going to shift there pretty quick.

The new head of the financial Services Committee.

As a crypto guy and he is very focused.

And I think youre going to see a much more aggressive.

Congress when it comes to the.

The SEC this FTC and the like.

Yeah.

Great. Thank you good back in the queue.

Yeah.

The next question comes from Deepak Kaushal with BMO capital markets.

Hey, good morning, guys. Thanks for taking my questions I'll try not to put you in what I'm trying to ask here.

So given all of this that <unk> clearly there is a lack of transparency on the leverage the assets as collateral and the true value of some of these assets.

And shallow markets with not a lot of visibility on trading volumes.

How are you guys, ensuring that when you make your own private investments.

Valuations are completed by low liquidity all coins.

<unk> truly equity.

Well.

Let me, let me take part of that and Chris can answer if he wants.

From a.

Trading perspective, one of our screens is.

Total value versus floating value right.

Is it a real price or not and so.

If I'm going to buy a coin or short of coin that's.

Big input into it.

From our venture side, we rarely available almost ever by just coins, there's been one or two occasions, where we bought claims and great projects at big discounts, because we were willing to lock them up.

But most of the venture investments we make are early stage, where you might get claims.

In addition to the equity or investing it.

And so.

I have been very skeptical since 2016 of high valuation low float.

And I'll pick it up from here and then even Alex you're probably jump in.

When when so a typical life lifecycle of a particular early stage crypto investments, where we make a.

A small dollar investments.

And in early emerging Prelaunch protocol would be we would make an investment in that investment would be held on balance sheet.

Pretty much it cost for the for the longevity of that investment.

As a new token launches.

Once there is an established market for that token.

Likely tokens that we own will have some locked up vesting schedule, where over time, they get released and we get liquidity along with other market participants in that scenario Deepak we have a very robust.

Robust and fairly aggressive.

Meaning conservative on the valuation side approach to.

Discounting any mark to market on that investment for both the fact that our access to those tokens are limited because of their restricted as well as the liquidity of those tokens in the market and so while it varies.

Based on how long the investment season, how liquid the market is you will to the extent we have tokens that are.

Our valued in the market, even though there's low liquidity you will see often times those being held on our balance sheet at discounts of 60, 70, 80, 90% of where they are in the market.

So.

So I mean.

That's our internal processes, where valuation that's validated by external valuation sources, it's validated by our auditors.

And that's how it ultimately manifests itself up on our balance sheet.

That's right and then when these tokens are fully free of restrictions.

And up in our digital assets.

And it's a fairly small portion of our net digital assets.

Got it so when we look at the level one two and three classifications on your balance sheet. Those are based on what a traditional financial services firm would use criteria or are they based on a new set of criteria for the crypto world.

It's based on the standard stuff.

And described in okay.

That's helpful and my second question, if I may.

On the U S listing process.

Maybe if you can give some color I don't know if you covered this earlier in the call I joined late.

What are the kind of hurdle rates here.

Facing right now obviously, it's hard for the mid term election.

And we did get some accounting clarity beyond digital assets.

Is that helpful.

How does this improve your your prospects for pretty good.

It is helpful.

SaaS B came out and said that they believed that digital assets should be.

Mark to market, which is wonderful however.

However, we expect the adoption of those rules to take anywhere between nine and 18 months.

On the SaaS Paas.

So for now we're still living under the current U S GAAP interpretation.

And right now.

We're looking for a little bit of clarity from the FCC on one of the accounting interpretations.

In order to progress further with our filings.

Okay. Thanks for taking my question actively working on that.

The next question comes from Rich Repetto with Piper Sandler.

Yes, good morning, Michael and sorry to ask you about all these macro questions.

At least I think <unk> been a commendable incredible representative.

Of the crypto space.

The ones that is going to explain all the snow.

But anyway I guess my question is again around regulation and the.

The industry has used the term lending.

<unk> these tokens, but doesn't that just play right into our friend at the FCC Chair Gensler disorder assertion that it's more.

This is more of a security like you say lending there is some expectation that you're going to pay back.

But these tokens.

I don't know whether there is that expectation with some expectation of besting ownership for the exchange, but I guess the question is yes.

Isn't this playing right into the hands of.

This securitization issue around tokens.

And then anything you know MTX use still out there.

Does it have any chance of getting some of the things that it was trying to do like non.

Non intermediary clearing.

Into the U S now.

Yeah listen it's a good question.

You know part of what happened with crypto is because of there was not clarity from regulators and because it was a brand new industry people designed a lot of tokens.

Yeah in essence.

Get around or or or play within the lack of.

Transparency of the existing securities rules.

And so a lot of these are like the FCT token for instance, it gave you some utility you could use it for discounted.

Fees you couldn't use it for.

Two other things and so there was a utility to it it traded in the market like a proxy equity because they would.

Earn a certain amount of the supply of the toe, but he gave you know real right to the underlying cash flows of the company.

I I personally don't think that's the future I think things that feel like security tokens will end up being security tokens once there's some.

More clarity from the regulators and that things will feel like utilities are utilities.

I think one of the things that we learned if you think about why we had deposit insurance back in the thirties as because you had a lot of people lost their money depositing money at banks and having the bank of <unk>.

And we've now had.

21234 examples of.

Consumers depositing.

Their crypto, they're stable claims or their crypto claims in places.

<unk>.

Something happening where they thought they they had but they are there.

Crypto in a safe place and it turned out not to be safe and so.

That piece of the regulation people haven't spoken about right. These nonbank banks should they have.

No.

Some form of of leverage leverage.

Limits, because they'd be ready.

You know my sense is it will head that way because I said this all the time when I would speak to crypto companies like we have to self regulate or we're going to be regulated and.

The community has done a pretty shitty job excuse the word of self regulating.

And this last example is.

Trading, but it's just another example, and so I do think that piece of the business is going to be looked at very closely.

Thanks, Michael.

I mean in some ways you know.

There's two other ways to think about it like we want to be a trusted intermediary Ah we think we've earned it.

Our clients will tell us will have earlier, you'll see our client base grow and our and our business growth.

But that's what we're striving for the other piece of this and.

You know it's suddenly it's a real irony of all of these blow ups is the companies that keep blowing up our.

Companies that focus on crypto, but are still centralized companies.

And you know.

One of the futures and it will be a shame if it gets you know.

Yeah.

Sent back too far or put in the dustbin is defy decentralized lending platforms centralized exchanges, what's stopping defy from really flourishing has been.

The.

Hey, why C. A M L. Do we know who we're trading with do we know who we're lending to.

There are lots of protocols being built we've invested it won't called C lands that are really aiming to.

To automate.

So that <unk> process in a in a safe and authenticated.

Way once that happens and regulators understand that that's.

Hey, Good system, then I think youre going to see the real explosion of the defy protocols and maybe a lots of that's the real transformation, where the industry gets disrupted.

That's not coming anytime real soon.

But that's where a lot of the smartest minds are building.

It's coming sooner as youre going to see.

More solid trade five players that operating profile.

Thank you.

Our next question comes from Jamie Friedman with Susquehanna.

Hi, I wanted to ask about Galaxy asset management, you say in the press release that you have.

Adjusted to strategically focus on scaling active strategies.

The assets under management grew sequentially quite significantly so any context, you could share about the active strategy and the underlying growth would be helpful. Thank you.

Yeah.

Sure.

So.

In the quarter, we had both positive inflows outside of the active business in the and what we what we've called sort of the passive business those those would be our ETF partnerships and our single single and multi asset.

Institutional funds the the bigger part of the growth was in <unk>.

Subsequent closes to interactive fun too.

Which is an actively managed venture fund.

That we sponsor.

That is the asset management business for us on a go forward basis.

We are focused on supporting the interactive team and following them through to their to their final close on interactive fun too as we've articulated.

We are we also believe there's a separate strategy and a great team and a long successful track record here of Galaxy.

That should rather than get monetize directly on our balance sheet should get monetized through new new.

Web refocused venture product.

Interest that manager and so that's the moving our investments are.

Opportunistic venture investment team off balance sheet into the asset manager, which should itself overtime.

Add significant AUM that include higher management fee and higher incentive fee components, rather than the relatively small manager fees that come up with a passive business separately.

Separately, we launched.

Our our.

Our liquid Alpha fund in.

In the asset manager with Chris Ryan as a portfolio manager, who has a wildly talented P M.

<unk> has been taking meetings with the largest institutional investors globally.

The large part of this year is getting a lot of traction.

And she was really well and so.

You will see us take a lot of so that follows the arc of what we've said we intend to do over time, frankly, as a business a lot of the activity that galaxy. Originally did on its balance sheet and we've proven ourselves to do well over time, where we are migrating into the asset manager to Cree.

Right.

Stable predictable revenue streams at high margins Reed Reed significant management fees and significant incentive fees that should collect and stack on top of what each other over time as we launch these products so interactive.

Our first big main franchise.

Liquid alpha and other actively managed sort of mutual fund and hedge fund like products you should expect to see on the liquid side and then additional illiquid active strategies in venture and other opportunistic funds should follow after that.

The answer to the question.

Yeah, that's perfect. Thanks for the details Chris I appreciate it I'll jump back in the queue.

Yeah.

The next question comes from Hans Chung with D. A Davidson.

Good morning. Thank you for taking my question. So a couple.

Hey, guys its Michael.

Just one too.

To get your view on the potential direction Overregulation.

After the T X.

<unk> been at it.

We look at back at the past six months that we see the Mayo download the Celsius.

Let's see.

And now at T X then.

There are something in common that the human race and then.

Centralized entities.

No.

For transparency and so to me it seems like it.

Really reinforced the value proposition.

Decentralized blockchain technology or crypto so on the other hand.

There the consumer in that gap.

So we also need to.

The protection on consumer with Baxter and that also draw the attention from the regulators. So I'm just curious.

<unk>.

The regulation based on your conversation your engagement with the with all of the like later is how how do you think that regulation.

Paul.

Especially after the at Ta than that.

That would be more against the overall crypto.

Crypto or do you think the regulator publicly understand or realized.

What's the.

The factor that's driving this.

That's better ethane.

They could be come out I don't think that is more favorable to promote the blockchain.

Yeah listen you know, it's it's hard to say the.

The process in D. C has a license to zone and the good news is that lots of both senators and congressmen have I'm very educated in.

Issues of nuance around.

Regulation and how to start.

And there's a couple of schools of thought.

But I think it's going to be a slow process.

And until then you're going to see continued regulation through enforcement right.

Guessing.

The SEC lots of regulators have sharpened their pencils in the last 24 hours to say Oh God, We got another thing going.

As.

If people are gonna have lost money.

And.

So again this is most of the trading.

It was supposed to be.

With MTX.

From overseas accounts.

Yes.

The U S is a different thing but there's.

Plenty of slippage in times and those that process and so we'll we'll see what's painful about this is that same spend so much time in.

And.

And it wasn't that what he was saying was crazy. It's just if the messenger now looks like.

He ran his.

Ship into an iceberg.

We'll see why.

Uh huh.

You know why that happened.

It's just going to anger, the people, who spend time with them and I think yes.

Slow them down some.

Got it okay.

Next.

Let me understand the tech.

Okay.

From the near term and also long term perspective.

Some consideration to determining the allocation amount of treasury or working capital for trading or phone for lending or.

The principal investments et cetera.

And also how.

What is the factor to kind of determining how much do you want to hold versus cash or stable coin.

It's Lisa.

We kind of see cash in at least U S. D. C is interchangeable.

Oh, the stable claims we invested our our our one to one back stable coin.

Okay.

It cost us a certain amount right to have money on exchanges to run our trading business.

That varies on how comfortable we are with the environment.

Pull it for $400 million to $600 million.

Many that you use.

You get all the different venues.

To run all our liquidity business.

Our credit business.

Pros with opportunity.

Some of that was funded with capital and some of that was funded by picking.

Other loans that we continue to have a.

One of the highest nims in the whole market.

So our credit team has done a great job of.

Finding.

Good borrowers.

And I'm thrilled about it.

Lateral is lending and being able to borrow cheaper so not using all of our balance sheet.

<unk>.

And so.

There are opportunistic add ons that we're looking at.

Hopefully by the next all or two.

Let's spend some cash on.

Uh huh.

Buying things that we think are synergistic.

But I can't speak to that yet.

Got it great. Thank you.

Our next question comes from Kevin Dede with H C. W.

Hi, Mike Chris Thanks for taking the call.

I was hoping you could circle back a little bit on investment priorities, Mike I did listen to your.

Preface it.

And discussion in the industry are really appreciate that but I was hoping that we could take a step back and look at it.

Strategic priorities in light of the recent market shakeup.

Yeah.

I would put them in a couple of buckets.

While we're building our prime.

Business.

Be able to use multiple custodians.

<unk>.

I don't think there could be a role and having our own.

Yeah.

In house.

Joey in both hot wallet and cold wallet itself.

Uh huh.

In asset management looking at scalable.

I'm in and help build product out right. We've got you know a lot of people, we have distribution and so it's and we're moving some of our best investors into the space, but in other places to find product and then as Chris alluded to.

In the mining space, if there are places to potentially.

Build out our own.

Data center.

Slash mining.

And a vertically integrated way.

That's kind of the.

Beyond that beyond the board right.

Okay.

Clearly there's been a change up in valuations and this gets to my legs question I.

I was wondering if you wouldn't mind, taking a step further and sort of charting how that disconnect between private and public valuations has migrated.

And whether you think you can take advantage of that near term versus say medium term.

Yeah, it's certainly gotten worse.

And now there are some companies that.

I flirted with that would've been great add ons and.

And both.

Guys there.

Our team kind of said Hey, maybe there are fourth of US a third of us there's something of us.

They are raising capital in two or three times in the private market and so.

It puts in the short run until that until we get our stock price up.

And we will do a lot of.

No.

We will try as hard as we can do that.

<unk> until the private valuations come down.

It puts us trying to take anything.

Bigger than a bite size.

So private companies in the Galaxy <unk>.

Off the table.

Yes.

Conversation.

We want to partner with and Theres other ways.

And so.

We don't have that many levers to drive ours are stocked with Canadian market.

I have a ton of them.

Volume right now and excitement around crypto.

But as much as we put in that period, we were allowed to but there are a few other.

In the bag that we're gonna be.

Deploying and most of it is just operating our business as well as we can.

Felipe.

In a position where we need to raise capital for the company at this point Luckily.

Because it's going to raise capital.

Okay.

And so we're being.

As prudent and thoughtful as we can.

We have been keeping as much liquidity already.

Great.

Oh no no no.

No.

The insight the insight is greatly appreciated.

Even more so I appreciate you fitting me in at the end of the call here Sir Thank you.

Last question.

The next question comes from Kyle Voigt with K B W.

Hey, Thank you for taking my question just a quick clarification.

Point I appreciate the disclosure regarding.

Direct exposure to Ft X specifically just wondering if you could provide any disclosure regarding if you have lending or borrowing balances to elevate that specifically thank you.

Sure.

We are.

Going into this and currently we had.

Zero exposure to Alameda.

We had zero exposure to F T T as collateral in anyway as part of our lending business.

And.

And in general.

Our entire book.

Our entire book.

Well generally it was over secured on an individual borrower basis.

And any unsecured exposure, we have is with the highest quality counterparty and is relatively de minimis.

Absolutely.

The lending book, let alone the whole firm.

So zero exposure to air across the board the SPX.

<unk> balances as we articulated is really the only direct exposure.

And it's down dramatically from where it could've been.

Given our place in the market that's there.

In itself for the team whether it was a heroic effort.

Great I appreciate you clarifying thank you.

This concludes the question and answer session I would now like to turn the conference back over to Mike Novogratz for any closing remarks.

Guys. Thanks for your interest.

Like I said you know.

Sometimes in crypto land, we see this as an opportunity in the medium term.

We are you know focused to come to work every day and do our best trying to keep those enthusiasm and spirit of the company.

And you know we're pretty optimistic that.

Nine months from now we'll have a whole different tone on these calls.

Well thank you.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

[music].

Okay.