Q2 2023 Galaxy Digital Holdings Ltd Earnings Call
Good morning, and welcome to Galaxy Digital's second quarter 'twenty 23 earnings call. Today's call is being recorded at this time I would like to turn the conference over to Jonathan Goldovsky head of Investor Relations. Please go ahead.
Good morning, and welcome to Galaxy's second quarter earnings call before we begin. Please note that our remarks today may include forward looking statements.
Actual results may differ materially from those indicated or implied by our forward looking statements as a result of various factors, including those identified in our 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 constitutes a recommendation solicitation or offer by galaxy or its affiliates to buy or sell any securities, including Galaxy securities with that I'll turn it over to Mike Novogratz founder and CEO of Galaxy.
Guys good morning.
Listen the second quarter are you know the results are out and they're kind of what I expected in a quarter, where you know the crypto prices went down and back up.
That's not really the news I want to talk about Ah I wouldn't tell you when I.
We're leaving the first quarter.
I jokingly said I went to bed every night and said prayers asking for for things right that the fed will be closer to adding their tightening cycle.
And starting a an easing cycle.
Not an ETF.
Would be approved.
Ripplewood when its case.
And that Binance would settle it with regulators and <unk>.
<unk>.
You know three of those four.
Dreams are our wish list items, we've made great progress right. The pet is closer maybe they raised one more time I don't think they do.
China's economy's slowing our economy slowing and I think we're probably in a rate cut cycle.
Early next year, which is very supportive of the claim but all of the crypto.
The news of both Blackrock filing ETF in and quite frankly at Invesco plus galaxy.
We're going to we're going to fight like cats and dogs to to win market share. Once it gets approved is a big big deal, it's a big deal because both our contacts.
From the Invesco side and from the Blackrock side.
Yes, you have to take that.
This is a question of <unk>.
When not if.
That's the outside window and this is probably six months and so your kind of your four to six months. If you had to put a pin the tail on the donkey audit.
That the FCC is going to prove a bitcoin yeah.
It's significant that Larry Fink, who runs the largest asset manager in the world right Blackrock <unk> seven trillion dollars is out you know having been orange Pilled talking are very positive about bitcoin and the crypto universe.
<unk> is the first global money.
That's a huge change of heart.
From where.
He was five six years ago, but where the institutional world was and I think once we get there.
Yeah, and it just makes it very easy for people to make large allocations into the space.
The ripple case.
Because it's a big deal.
It's a big deal, mostly because the FCC and Gary Gensler, Hasnt, saying over and over he the rules are clear just come in and register the rules are clear.
A federal judge.
Made it really clear rules arent clear, there's nothing close to clear.
And what I think happens there.
It is.
Yeah of course, it I'm already seeing it we're seeing it in D C.
It pressures.
The Democrats to finally come to the table with the Republicans and tried to put forward some legislation to give us clarity and so if I had thought there was a 10% chance of legislation getting done.
Pre election importance ripple case, I think it's got to get up to at least 35, 40%.
Lots of momentum there and so it also embolden.
The crypto community.
But one thing about <unk>.
Our broad community includes our own employees.
And the in the Galaxy World is that this is a very very resilient group of people.
There was a jumbo one bizarre.
In the late nineties, I get knocked down, but I get up again.
And that really is I think the ethos and crypto right. This was a revolution started by people, who didnt believe fully in and centralized society centralized systems and aren't going to be pushed away easily and so I think what hortons me in the last year, because it's been a tough year is just seeing.
Resilient seeing it with our employees.
With our customers and broadly seeing but the crypto community.
So what does that mean it means that we went from having a.
Headwind.
So at least not a headwind I don't say, we have a tailwind yet right listen retailers come back do you see it in the U S stock performance of Crypto stocks that are listed in the U S.
Big volume numbers nice price accrete the accretion appreciation.
You'll see it in volumes at some of the exchanges.
You see it in bitcoin price theory in price in other tokens.
And so we certainly have seen retail come back institutions have come back some.
In the immediate term they've come back and futures they've come back in some of these stocks but.
But importantly, they're coming back and structural ways right. If it's the announcement yesterday.
Paypal issuing a stable coin where Deutsche bank getting into custody, we're seeing all kinds of indications that institutions are getting ready and getting ready for the digital.
The digital age or the crypto age and so that that is promising what it means for galaxy is.
It gives us more confidence to continue to build.
We're building for 2025 and 2026 with.
With the real.
Understanding that this year and next year, we're gonna be scrappy, we're going to hustle after loose balls, we're going to try to win every site. We can we definitely are seeing.
The.
We're definitely seeing that what we had expected in the year that we would get a larger share of a smaller pie is happening right like we're getting a call on almost every interesting opportunity around that.
That's a lot because our partners failed I mean, I'm sorry competitors failed.
But we have a lot less competition now.
Not that we have no competition right. We're up against claim base had all the time and lots of others, but do you think about Genesis and blocked by an Celsius and lots of others have gone by the wayside.
And so I'm optimistic.
I'm realistic.
In the in the short term, but very optimistic in the medium term.
And with that I'm going to let Chris kind of take you through how galaxy did in the quarter and how each of our businesses is looking right now so thanks so much.
Yes.
Thanks, Mike.
As Mike noted in his remarks, we remain focused on driving growth in our three operating segments and are both proud of and encouraged by the resilience of our firm and various teams demonstrated in the quarter.
Starting with the global markets team, our trading desks experienced lower volumes and counterparty activity during the second quarter as liquidity across digital asset markets remained challenged amidst a difficult macro and regulatory backdrop.
Despite the fact that volumes were lower broadly the desk continued to onboard new trading counterparties, bringing the total count from just over $9 60 at the end of the first quarter to nearly a thousand counterparties at the end of June .
Importantly in recent weeks the desk has witnessed an uptick in active client activity with both crypto native and traditional asset managers and hedge funds re engaging our desk to express their crypto investment views via spot and derivatives.
Public filings in the U S for a spot buy quite ETF has been a major catalyst with investors reinvigorated to seek upside potential and bitcoin and the broader asset class.
One trend we have seen amongst counterparties since the meltdowns of several trading venues over the past year as an increase in demand for unchain OTC options.
To meet this demand in the second quarter Galaxy completed the world's first bilateral OTC option trades settled entirely unchanged, making the expansion of the firm's trading capabilities by leveraging the benefits of the centralized financial infrastructure. This is just one example of many of how we're continuously innovating to meet the evolving needs of our clients.
The lending side of our business was not immune to the broader slowdown in capital markets activity.
Our quarterly loan originations did decrease from $160 million to $115 million quarter over quarter. However, despite the deceleration in new originations or loan and yield portfolio increased by approximately 10% growing to $550 million notional as of June 30th.
Confirmation that we remain one of the largest collateral back lending counterparties in the digital asset space and are continuing to gain share in an otherwise fairly slow market.
We continue we also continue to bolster our sales team in the second quarter and are excited to announce that we recently hired Leon Marshall as our global head of sales.
Im joined the Galaxy from Genesis, where he spent more than four years as its global head of sales Liana.
Leon brings a unique combination of digital asset expertise and institutional mindset and international experience, which will further position galaxy to capture client flow and expand our strategic footprint.
Yeah.
On the last earnings call, we provided an update on the development of Galaxy, one and the steps we are taking to establish the product as the leading institutional grade digital asset services platform.
The second quarter, we continued to make strong progress and anticipate initial project product launch by the end of this month with a diverse group of 10 initial clients.
We have successfully on boarded three digital asset custodians as well as to Fiat custodians onto the platform to support our multi custodial model.
We plan to continue Onboarding additional custodians overtime.
We also continue to pursue additional licenses to expand our jurisdictional presence and can now operate in 38 states and eight countries globally.
Importantly, we have initiated the bit license in New York money transmitter application process, which will enable us to serve New York customers, while adhering to the state's regulatory requirements.
Our team is also working diligently to achieve stock one and stock to compliance to ensure the highest level of security and transparency for institutions transacting on the platform.
We will continue to iterate and improve galaxy one based on client feedback during this organic development phase.
Turning to investment banking.
While the backdrop for deal execution broadly remains soft our investment banking team successfully closed one transaction in the second quarter, our secondary sale of an equity interest in bitcoin custodian and lender unchain capital.
Additionally in early July post the end of the quarter Galaxy advise on a primary financing round for game of craft, a blockchain and AI enabled competitive online gaming platform.
This represents the team's first transaction in the web three gaming space and underscores our investment banking teams broad and diversified expertise and deal sourcing funnel.
Furthermore, and quite notably just last week Galaxy was selected to represent Prime Trust in Nevada, receivership and its first restructuring mandate.
One for which the team has worked very hard over the past year to build the necessary credentials.
Our investment banking pipeline remains strong with 15, plus active mandates being pursued by the team right now.
And we remain committed to seizing emerging opportunities in this space and strategically positioning ourselves for future growth.
Now moving on to our asset management business. We ended the second quarter with $2 5 billion of AUM up 2% quarter over quarter.
The increase in AUM was driven by market appreciation, but also $67 million of net new inflows driven primarily by institutional demand for passive strategies.
As we noted in the last earnings call in April we announced a partnership with Dws group to develop digital asset management and exchange traded products in Europe .
Our teams have been working diligently together on product development since the announcement and we expect to launch our first products in the region by year end.
Our asset management team has also been very focused on the U S ETF landscape.
As a reminder, we have a partnership with invesco to develop a comprehensive suite of U S listed digital asset Etfs, including spot Bitcoin Etfs.
Invesco manages $1 five trillion dollars of assets, including nearly $500 billion in index based Etfs and other passive mandates, making it the fourth largest ETF issuer in the United States.
Galaxy asset management has years of experience building and launching spot crypto Etfs in jurisdictions across the world, which gives us confidence that we are very well positioned to capture the market opportunity in the U S. When the SEC approves such an investment vehicle.
On the active adventure sides of our business, we've been spending a significant amount of time, analyzing and underwriting opportunistic investments, including secondaries bankruptcies and other idiosyncratic events.
While these opportunities generally take more time and effort on average to come to fruition. We believe strongly that this is an area where galaxy specifically can provide the most alpha relative to all other market participants and they are having a clear focus on this is critical for the future franchise build.
Galaxy central positioning in the ecosystem, coupled with our expertise in underwriting digital asset tokens and companies provides us with a robust sourcing funnel and a unique ability to correctly price digital assets and portfolios.
Our third operating segment digital infrastructure solutions made strides in the quarter and supporting the build out of the industry at the base block chain level.
Let's start with mining.
Our total mining revenue, which includes both our proprietary mining as well as our hosting operations was $15 4 million in the second quarter relative to hosting fees and purchase power costs.
Net of curtailment credits of $5 $5 million, resulting in approximately $10 million of quarterly mining direct margin of 64% direct margin.
We continue to execute an effective power management strategy and kept our cost of power extremely competitive with our average marginal cost to mine between nine and $10000 U S per mined coin in the quarter.
We reached approximately three seven X a hash of history under management across our proprietary in mining and hosting footprint keeping us on track to achieve our goal of four <unk> by year end.
Our proprietary mining operations represents roughly 45% of our hash rate under management, while our hosted mining business represents the other 55%.
We continue to make strong progress on the next phase of our of the build of Helios, our flagship mining site in West, Texas, which we anticipate will bring an additional one three <unk> online beyond our <unk> end of your target by early next year.
I'm continually impressed by our team's wealth of knowledge and managing power and mining infrastructure, which coupled with our proficiency in navigating capital markets bolsters, our competitive edge among the industry peers.
Quickly turning to <unk>.
Since the close of the acquisition earlier this year <unk> has added seven net new clients to reach 14 total clients as of Q2 quarter ends and has played a growing role in support of our own internal infrastructure and ambitions to be a technology provider to key industry partners. We're excited about the pipeline of potential enterprise clients. The team is engaged with and are.
<unk> by the growth we've seen to date.
Moving to validate our solutions in the second quarter, our team achieved a significant milestone by successfully deploying the first its first set of east Validators, which reflects our continuous commitment to support blockchain networks and fostering the growth of the ecosystem and galaxies aim of becoming one of the most trusted nodes of the decentralized future.
We're also pleased to announce the team earned a sizeable delegation through operating and the Genesis of set of Validators supporting the Sui network, our new decentralized layer one blockchain.
This is a huge win for galaxy demonstrates the strengths of our business development efforts and engineering support.
We have an exciting path ahead with the go live of our <unk> capabilities and infrastructure and have a number of additional select layer one layer two deployments in the pipeline.
We will continue to update you on progress here as we execute against our commitment in building the future of the centralized networks.
I'll now turn the call over to Alex to cover financial results and then we'll jump into questions Alex.
Thank you Chris Good morning in the second quarter Galaxy performed well against the backdrop of muted trading volumes and regulatory uncertainty.
We reported a loss of $46 million compared to income of $134 million for the first quarter.
The decrease was primarily attributable to lower gains on digital assets and net unrealized losses on investments.
Total operating expenses were down 6% quarter over quarter and 34% from the same quarter last year.
For the first half of this year total operating expenses were $176 million or.
We're 27% lower than the first half of last year.
Our equity capital remains strong with $1 5 billion at the end of this quarter.
A 3% decrease from the prior quarter.
We were pleased to see operating leverage continuing to build from mining in this quarter was 51% increase in revenue quarter over quarter and a larger increase in profit.
In the second quarter, we Opportunistically Diversed divested two private investments at what we consider to be attractive valuations.
Maintaining discipline to up only keeping investments with the highest upside potential.
You can see you can see this in our financials in realized gains on investments offset by unrealized losses on investments.
We ended the quarter with more than $600 million in investments on our balance sheet.
Total liquid assets were $696 million at the end of this quarter, consisting of $300 million in cash and cash equivalents of 167 million of non algorithmic stable coins predominantly U S DC or circle point and 228 million.
Of net digital assets X.
Excluding staple coins.
Our liquid our liquidity position was $118 million lower from this from the period from the prior quarter, primarily due to a larger balance of fully secured loans to our customers.
We did not repurchase shares in this quarter.
Now back to the operator, thank you.
We will now begin the question and answer session to ask a question you May Press Star then one.
On your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Again it is star then one to ask a question.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question comes from Michael Legg with benchmark.
Please go ahead.
Good morning. Thanks.
Wanted to kind of understand a little bit about galaxy, one UWS ETF what type of.
Timeframe you have for revenues on that I know you mentioned the galaxy ones that had the initial launch next month Dws, obviously is on its way and we're obviously way too early approval, but can you just comment a little bit about what type of revenue expectations timeline you expect.
Sure.
I'll take this one.
And thanks for thanks.
Thanks for joining us Mike really appreciate it.
So a couple of different products Galaxy one.
Is the client facing platform largely focused on prime brokerage services to begin with in the markets business.
That product we've been in development for the <unk>.
Better half of the prior past year that'll.
That will be launching officially with external clients. This month by the end of this month in August and is currently finishing up our final pen testing.
It's.
That's a long build products. So when we think about prime brokerage services its a pretty wide array of services meant to to work with the biggest sort of most most needy institutions from a from a regulatory compliance risk.
10 point before we even get to the actual execution services the product over the long term is meant to be a product where institutions can.
Bringing their assets, both Fiat and digital asset custody through the platform trade get best in class trade execution ripped.
Reporting and get other services, including margin based financing and other capital efficient ways to express positions all held within within the parameters of the Galaxy product.
Going to launch the product this month.
With with simple functionality is going to be trade execution custody and report that sort of always been the initial the initial phase and so and we're going to start with with with an initial small client list because we want to do is we wanted to we wanted to make.
To make sure what we've built works well for clients, we want to take feedback and get the right product development feedback loop with those clients. So that we can fast follow and continue to roll out and build the product. So it will start off relatively slow this year, but as we get towards towards the end of this year and we add on additional functionality ultimately.
Ending with margin based financing that's when we really expect the opportunity set from a revenue perspective on the galaxy side to take off.
That's galaxy one.
<unk>.
Exchange traded product side, and the asset management business.
We've got two lanes there one the partnership with Dws, which covers Europe that is as we said is that partnerships already inked the products are in development and the jurisdictions in Europe have been targeted debt either already have exchange traded products that are in existence today and therefore approval is not a.
Concern or we're breaking into new markets, where theres, a clear lane to be able to launch new products in Europe .
Products, we expect to be in market before the end of the year.
Again, those are co branded exchange traded products with Galaxy and dws and those are going to look like a lot of the passive products you see in the marketplace across all asset classes from a fee perspective, and and those are shared fees between the two institutions. So you should think about whatever we think adoption of that.
Exchange traded products are going to be by the by European institutions times, a market probably better than market rate given the asset class and a fee share on the golf side and then in the U S. We have the partnership with Invesco. That's meant to also cover a wide range of exchange traded products, one of which we.
To be the bitcoin spot bitcoin Etfs timing on that.
I, probably don't have to comment on is unknown at the moment and sits with the SEC.
Great well congrats on all that progress.
Wanted to also.
Here, a little bit about if you've heard anything from NASDAQ if theres any new news, there who would still just waiting and then relatedly.
Any key points on the regulatory environment, you are seeing anything changed there.
Thanks.
Okay.
Maybe I'll answer that.
Listen I do think.
Like I said this FCC loss to report.
Since some shock waves through the SEC that may need to.
<unk> two right there is a story of being.
Of being everything is clear was undermined pretty dramatically and even though they.
A small win in Terrell lunar case that just.
Even more I think highlights how unclear the rules are and so.
It wouldn't surprise me, if we see moves their weight.
They're kind of shore up their credit credentials, saying were not and Obstructionists I think that's where the.
The potential.
<unk> approval comes in and say Hey, you can call us anti crypto, we just approved an ETF and so we're hoping.
That that's the same.
Four.
Our filing.
But thats just the hope.
What I would point out is.
No.
It is costing us and it's costing our shareholders right if I looked at the volume and the.
Turnover and the valuations of crypto stocks that trade on the NASDAQ versus any other market, including Canada.
It's night and day, and so I'd be lying if I didn't tell you I was wildly frustrated and very focused on trying to get.
But here because.
As to the U S capital markets is while we started this whole process.
It remains a goal of ours and has been an unbelievably frustrating 24 months.
You know I kind of think that the process has been on American at its core, but I'm, hoping we're coming to the end of that.
Great. Thanks, guys and congratulations on continuing to build out the platform during tough times doing a great job congrats.
Okay.
The next question comes from Andrew Bond with Rosenblatt Securities. Please go ahead.
Hey, Thanks, Good morning, Chris Mike wanted to get some additional thoughts on the long overdue potential approval in the first book between ETF. So as you can.
As noted the prepared remarks, it seems we're getting closer but just in terms of.
Adoption and thoughtful rule, making from congressional leaders do you think it serves more of a catalyst in terms of Galaxy, specifically you have the partnership with Invesco, but how would an ETF approval benefit some of the other businesses like trading and maybe the opportunity to create more novel exchange traded products.
Yeah listen I think what the ETF does in lots of ways as it gives us a strong signal that at least for bitcoin and thats what they they would start that the government is behind it right and that's a real shift.
Shift of attitude.
And it allows every institution if you're a pension fund.
Remember pre pre sandbank and free blow up.
Lots and lots of institutions got to the starting line a few a few credo brand. If you got to the starting line and then they all backed away and when I'm, saying those institutions I'm talking College endowment pension funds big asset managers, and just got scaring for them and I think this pushes them back.
And this is an easy first product it drives price.
That allows us to a create other products that that the broad community can buy in the ETF space and we would do that with our partners.
But it also allows people then to start looking into crypto deeper and so I just think.
I constantly talking about crypto adoption.
And it got stunted by the bad actors.
2021.
Not just sandbagging pretty there are plenty of them, but it's certainly stunted the overall growth of the space and this gives us kind of a joke in the journal and the rear and.
Pushing us in the right direction.
Got it and just to follow up on volumes broadly.
The volumes remain soft and options volumes Havent really seen the same declines given your strength here in options can you talk about why this market has held up a bit better in the Gallup.
Alex He's overall share is trending.
Okay.
Yes sure.
So the.
Agree with you on those points derivatives.
Derivatives.
Broadly and options specifically is is what we have.
Where we're one of the strong Lucas of our talent fits in the company, it's where the trading business has focused in terms of building out capabilities in terms of risk pricing in terms of client development in terms of automation.
Automation on the back end to be able to quote.
And we think it's the future.
And so.
It has held up broadly I think for a few reasons one.
Dealing in derivatives tends to be a little more capital efficient, particularly in this market than dealing in a fully funded spot. So your buy any institutions buying power tends to be higher on the derivative side than it is on the spot side generally.
And thats sort of seeing in the broader asset class markets as well, where the derivative market sort of dwarf the size of the spot market in other asset and while that's not that's not actually the case today in crypto, we do have a thesis that over time, it's going to develop that way, which is why as having the expertise in house and sort of having that as one of our core legs of the franchise is <unk>.
Super critical for us to stay on top of it so.
Great. Thanks.
The next question comes from Joe Flynn with Compass point. Please go ahead.
I was just wondering if you could provide some more color on the kind of.
A deterioration of the liquidity environment and.
Declining volatility levels seen through the third quarter.
And as it relates to that maybe talk about the.
Maybe on ramps that centralized exchanges and most recently, it's kind of the imbalances the unstable Glenn pools across the device space. Thanks.
Yes, I'll take a crack at that listen we're still in some transition growing pains I'd say.
You know theres a lot of Heather fought out there.
I would argue that.
Heather most likely and of course, we never have a 100% certainty on these things, but with high with high confidence certainly has enough assets to pay for any liabilities. They have and then some.
It's run by very savvy eyes.
Of course.
It's been offshore the whole time.
Their approach to <unk> offshore is very different than ours onshore and so I'm sure there will be some skirmishes around the sidelines, but I don't think there is any significant risk or any real risk of a big run on tethered.
<unk>, which sometimes just scares the market.
The curve.
There is a big deal right, we are not used to.
<unk>.
These five projects that have been around the market for 234 years.
Can be exploited right usually.
<unk>.
Once they are battle tested are really are really robust and so.
Even though it was like an upgrade to the to the to the.
Sure.
The protocol.
That's certainly rattled people.
And so it's a good reminder of that.
I always say big claims a finished product.
The network is really strong and stuffs going to get built on it but we're still in the building phase in the web Green Revolution, and theres going to be fits and starts.
Liquidity in the broader markets, it's interesting if I look at.
Like I said, the stocks that trade from the mining stocks the claim based monster liquidity in some of these stocks like retail liquidity right. Now. So there is certainly showing lots of interest in crypto.
Okay.
In the trading all claims.
Trading.
On centralizing, saying less so and that is the regulatory onslaught still them getting there their house in order, it's not having the big profits to then.
Plow and the marketing to bring more people in and so.
The process of kind of rebuilding momentum for a bull market happens slowly.
First kind of wash out the bad maybe stabilize and then you build momentum but.
We're not at that point, where momentum is building on itself yet right you can't just look around.
Hop on the Sublease, you don't see as many crypto ads, but you don't see as many stadiums being.
Named Crypto Dot com.
So I do think that's going to come again, it's not coming in the next few months.
But we're just in that in between process.
Our in between things I should say.
All right. Thanks, that's helpful.
And last thing I'd say I was more.
Cautious.
Four months ago.
Even at the same price.
These things I talked about right the ripple.
The ripple win.
<unk>.
The Etfs coming the Feds, finishing just give me more confidence that we're going to get a tailwind at one point.
At that point, you start seeing that.
The kind of robustness of those markets you're talking about.
Yeah.
The next question comes from Bill.
On <unk> with Stifel. Please go ahead.
Good morning. Thanks.
Thanks, guys for taking my questions. The first one is related to that digital asset regulation.
We saw the fit for 20 <unk> century Act passed in the House Committee for financial services, which was obviously a positive.
Legislators are finally, Tac tackling contentious issues and are doing so in a bipartisan banner.
However, you know, taking a step back in and being a little bit realistic financial.
Services regulation typically takes years from being introduced actually cementing itself into law, no galaxy's, obviously well positioned.
Just wondering what your thoughts are on a potential shift by the rest of the industry.
Allocating more resources and capital towards the bitcoin ecosystem.
We recently heard Coinbase also announced the integration of the Lightning network I'm just wondering what your thoughts are on that.
We've always loved bitcoin.
We're a big claim miner, we always hold a bunch of big claim real mountain gods claims.
Youre never going to hear me say, a bad word about bitcoin I do think.
That's the easiest first step right now with this uncertainty and there is more and more clarity around bitcoin and so it is going to continue to I think be a stalwart performer.
But the rest of the crypto Revolution is is equally important.
And stable coins.
You saw what.
Paypal did yesterday stable claims are going to grow globally, there's complexity around regulation.
To think about.
What Paypal, Dan, which was just a stable claim licensed stable claims we city.
They could end up creating a stable coin.
That gives interest which right now would be a security.
That really stabilizes in the banks right why would you leave your money in the bank. If you could put it in the stable coin and get 5% interest on it and.
Haven't linked in to all the payment.
Payment networks, and so it's a radically transformative technology.
And there's lots of people.
<unk> ourselves working on.
How that's going to be implemented and so I.
This is not going to be a bitcoin only world.
Three.
And with a centralized system, it's got a steeper hill to climb in bitcoin.
That's both regulatory.
Tori wise, but also in product lives right, we haven't had great product market fit and a lot of.
Apps.
Sort of applications.
Is that the broad consumer would get engaged with us.
And that's.
Its comparative for the crypto community in some period of time to have stuff on your iPhone. When you look up and you're like Oh, that's a decentralized that.
Oh, that's a web three app and so that's we continue to invest we think a lot about this stuff.
But I'm just trying to be realistic crypto isn't one thing, it's a bunch of different things.
And like I said Bitcoin you one right now because it kind of it.
It's in my mind of finished product and in kind of now it's just about adoption and you know when you have the largest asset managers, saying it would be like.
This and they've got $700 million of assets under management, you can just better which way adoption is going.
Great I appreciate that color, Mike and if I can just fit in one more question I wanted to shift gears towards the infrastructure solutions segment of the business.
For the majority of the year harsh price has remained somewhat flat or range bound and it's been a headwind for operators that don't have access to the same cheap power that galaxy has and we've seen them diversify into other data center offerings, such as high performance in cloud computing.
While again the company saw a very impressive direct cost to mine in Q2 has has a team consider diversifying data center operations at all.
Yes.
Thanks, Phil Yeah. So.
Our first first our primary focus.
After having acquired Helios was to make sure that we stabilize the asset and then reinvested in it purely from a bitcoin mining perspective, it's a highly strategic asset within that segment.
We think it fits in a super attractive energy zone.
The team on the ground in the up and the bones that Argo previously built there are excellent.
And are going to be long lived and really strategic for us. So.
That's been the primary focus in terms of expanding beyond that.
We are looking at it.
It is it was not part of the the primary underwriting.
But it is something that that is impossible for us to ignore so we're we're looking at it we're seeing how it could fit in and we're doing our work, but but that will be if that becomes an opportunity.
For that particular site, it's going to be something that we're gonna do pragmatically and we're going to underwrite it and we're gonna investing properly over a long period of time. So it's not it's not an actionable thing for us in the near term for sure.
Great, Thanks, Mike and Chris really appreciate it.
Yeah.
The next question comes from Kevin Dede with H C. Wainwright. Please go ahead.
Thank you good morning gents.
I'm curious.
How do you guys see crypto development within this world of regulation.
Regulation by enforcement anecdotes suggest that lots of development is leaving U S shores and I'm wondering if you recognize that and how.
Galaxy position itself to take advantage of it.
Okay.
Chris you want to take that.
Okay.
Yes, sure yes so.
Yeah look I think the.
The good thing is that Galaxy historically has built a platform with a global presence not just here in the U S and so so we have had operations in Hong Kong, a pretty sizable office there we've had a pretty sizable office in London.
Historically and today, we have we have over 20% of galaxies employees, who operate in fitfully outside of the U S already.
As a starting place the.
The company was founded here in the U S. A.
Some of the senior management team are born and bred.
Americans and living reside in New York.
And we want to see the United States push forward and regain competitiveness globally generally as a as a as a matter of national security, but also in our industry and so so we don't want that to be the outcome, but we are positioned to two.
Watch, where the ball is going and watch where which jurisdictions are.
Proactively moving forward.
Sandbox opportunities and full full bore regulation to allow the asset class III persist and where that is happening is is where we will at first on the margin and then and then with some regression move head count either existing head count or grow into that opportunity because.
It is truly a global asset class, we are building a global business and we're going to go we're going to move our resources, where opportunity presents itself and so I think the the.
It is a keen focus for us.
You will see you will see additional jobs at Rex and head count coming out.
Not already out in some of the jurisdictions non U S that I've mentioned.
And we will be expanding there because the opportunity is truly on the ground for capital formation and for client activity are growing there outside of the U S.
So Chris just sort of reading between the lines it.
It seems as though.
You sort of agree with the anecdotes that I suggest and that you're positioning you feel the company is well positioned to address the shift.
And exploit it.
I guess I'm wondering if you've really sort of seen it manifest itself in the way that galaxies had to make development investments.
Well, yes, let me jump in yes is the answer yeah, right, we've increased our Hong Kong office.
Pretty intensely.
Intensely in the last four months.
We are moving people.
For London, and we have people in the Bahamas, and so we're going to do.
What we can offshore and take advantage of opportunities there.
But also take advantage of opportunities we can there that we can't in the U S until the regulatory environment is more clear.
Maybe this one's best for Alex, but how how would you expect we'd be able to recognize your international business.
<unk> versus say, North American business and financial reporting.
Yeah.
Well.
It's not we don't really separate our businesses by region.
Some supplementary reporting it's really done by product line.
And thats going to be driven by regulation, so that's going to be fairly clear from what's allowed.
In the U S versus not.
Fair enough question on on.
On crypto infrastructure congrats on the nice mining results.
I guess I'm wondering how.
How you're positioning yourself given power costs.
Changes in the efficiency of mining machines, and where you think cash price might go.
Yes.
So.
Couple of things on that front.
From a from a mining machine efficiency standpoint.
It's one of the reasons why the model, we run and we intend to run is a mixed strategy with regards to our own owned.
Our own owned 86, as well as our hosting business right and so.
For our own Asics that are on our balance sheet. Those are those are more directly exposed to.
Useful life depreciation because of.
Because of efficiency gains and new equipment anecdotally, while new equipment is coming out and does have some efficiency gains. We really do believe that the curve has dampened quite dramatically in terms of in terms of new efficiency of new Gen machines coming out and so the impact on legacy.
Six.
Has been and we think is going to be much more muted than it has been in the past, but that being said the habit. What we did with the Helios acquisition was we purchased.
A data center and the full infrastructure to be able to host <unk>, whether ours or clients and so as new ASIC efficiency, new efficient Asics come out like that's an opportunity for us as as other folks.
Re up or build or grow their fleet to offer rack space for those newly efficient machines in a profitable manner and sort of takes the exposure away from us and makes it an opportunity.
So what's really important there is that we have and we have an asset that we run we run efficiently that we were able to acquire power cheaply and consistently and so we think we have that in the location. We have we've also employed a pretty.
Pretty aggressive hedging strategy in terms of hedging out our forward power price, which is different from the way. This particular site was operated historically.
And we've done that throughout.
Throughout the forward curve.
Past the end of this year and so from a from a power perspective, we've got visibility on efficient power that allows our site to operate profitably either with our with our chips or external clients chips, which is really the core of the business strategy. So that's how we think about it going into the having the last thing I will.
There is there's obviously some.
Some profitability risk to anybody in bitcoin mining leading into the having an and so post having all else being equal.
Half price will decline by 50%.
What happens next is actually the more interesting piece, because you'll have both bitcoin price going one direction or another and you'll have hash rate either coming in or going offline as a result of whose operating efficiently and who's not and so the best thing. We can do is make sure that our thesis is correct in our asset and our team is operating.
Efficiently so that debt.
We are on the cheap side of the cost curve and can be the beneficiary of the trend going the other way post havoc.
Thanks, Chris just a quick follow up you mentioned, a one 1.3.
Extra hash. Additionally, early next year I'm wondering if that's just an expansion within the current facility that youre running at Helios or if you think youll need to make more facility.
Investment.
To exploit I think you have access to what 800 megawatts there.
Yeah.
Yeah. So.
The additional the additional one for our capacity is a is a a small.
Expansion of the existing <unk>.
Print.
Which.
Which has the capital costs associated with associated with it which we are already approved and we have already are already is being recognized and being invested in and so that's a that's a roughly $20 million or less capital item.
To expand the existing actual building in footprint.
And that's already in motion and we're already receiving equipment on the ground and have pretty clear visibility on that up and running towards the back half of the year. The the that will take us two to just over 200 megawatts of nameplate capacity in operation there in Helios the other 600 plus.
Megawatts of availability is is the growth opportunity, we have above and beyond the $1 four additional I referenced and that that $600 million 600 million megawatts plus of capacity is is the thing that we're looking towards the longer term future odd in terms of how we.
How we grow the site and what the opportunity is so that that would be a.
Separate and distinct and larger capital investments for which we are spending a lot of our time thinking about what's the most efficient way to finance that for the opportunity set.
Wonderful. Thank you so much gentlemen, I appreciate the attention and color.
This concludes our question and answer session I would like to turn the conference back over to Michael Novogratz founder and CEO for any closing remarks.
Hey, guys I just appreciate all of you guys, taking the time to be on the call.
We're working our tails off.
Do feel a little bit lighter than we did in the last couple of quarters, but certainly.
It's not it's not full sunshine.
And so you know I I I like I said it before that this is a year of picking up loose balls. Hopefully next next call. We'll talk about a few of those and until then we're just going to keep building so take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
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