Q4 2023 Galaxy Digital Holdings Ltd Earnings Call
Operator: and 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 those of Galaxy. With that, I'll turn it over to Mike Novogratz, founder and CEO of Galaxy. Good morning, everyone. Listen, it's a lot more fun to get on these earnings calls after a good quarter and in the middle of a great, you know, crypto bull market. The last time we spoke was in mid-November.
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 and good morning, everyone. Let's say, there's a lot more fun to get on these <unk>.
Michael Edward Novogratz: Earnings calls after a good quarter and in the middle of a a great you know crypto bull market.
Last time, we spoke it was mid November the Columbus 35000 today at 70, and so a lot has gone on both in the markets and here at Galaxy and so I'm gonna be quick.
Michael Edward Novogratz: Bitcoin was $35,000 today at $7,000. So a lot's gone on, both in the markets and here at Galaxy. And so I'm going to be quick with a little bit of macro. Most of you guys hear me too often, either on CNBC or on our own calls, given the macro story. It hasn't changed much.
Michael Edward Novogratz: It was a little bit of macro most of you guys. Here me too often either on C. N D C or on our own calls given the macro story it hasn't changed much there was one number.
Michael Edward Novogratz: There's one number I think that you should keep on your, on your refrigerator: $34 trillion in debt. In 100 days, it'll be $35 trillion. In 200 days, it'll be 36 trillion. And until the United States and other countries get their fiscal house in order, get their finances in order, the story for Bitcoin and other digital assets will be. And a friend of mine yesterday said, oh, he sold some Bitcoin on the sell-off, and he forgot the cardinal rule. He said, they're only $21 million. These things are becoming like Picassos. They're not making any more.
Michael Edward Novogratz: I think that you should.
Michael Edward Novogratz: Keep on your on your refrigerator is 34 trillion dollars of debt.
Michael Edward Novogratz: <unk>.
Michael Edward Novogratz: And 100 days it'll be 35 trillion.
Michael Edward Novogratz: And then 200 days it'll be 36 trillion and until.
Michael Edward Novogratz: The United States and other countries get their fiscal house in order get their finances in order the story for Bitcoin and other digital assets is going to continue to grow.
Michael Edward Novogratz: And you know some a friend of mine yesterday. He said Oh, you sold some big one on the on the selloff that he forgot the Cardinal rule. He said there are only $21 million. These things are becoming like for process.
Michael Edward Novogratz: They're not making any more and so the story is powerful right now.
Michael Edward Novogratz: And so the story is powerful right now, and it's got a whole new set of sales, right?
Michael Edward Novogratz: It's got a whole new set of sales salespeople.
Michael Edward Novogratz: <unk>.
Michael Edward Novogratz: With the ETF, we have opened up the $80 trillion Baby Boomer generation. The giant bulk of wealth here in the United States, uh right 40 trillion of that is managed by RIAs, and broadly, they have not participated in the bitcoin rally until now. So as people go from 0% allocation to 2%, 3% allocation. You're seeing more demand than supply; couple that with the halving, which is coming in the next, you know, 40 days, and it just leaves us with a good supply-demand imbalance.
Michael Edward Novogratz: With the ETF, we have opened up the 80 trillion dollar.
Michael Edward Novogratz: The baby Boomer.
Michael Edward Novogratz: Giant bulk of well here in the United States.
Right 40 trillion of that is managed by Ria's.
Michael Edward Novogratz: Broadly they have not participated in the big point rally until now and so as people go from zero percent allocation of two 3% allocations.
Michael Edward Novogratz: You're seeing more demand than supply.
Couple that with the having which is coming in the next 40 days.
Michael Edward Novogratz: And.
Speaker Change: Got it.
Speaker Change: Just leaves us a good supply demand imbalance and so I think the fundamentals for bitcoin, which drive the whole crypto market.
Michael Edward Novogratz: And so I think the fundamentals for Bitcoin, which drives the whole crypto market and digital asset market, are there. What does that mean for the Galaxy? It means we're far and also... Our asset management business recently reported over $10 trillion in AUM.
Speaker Change: And digital asset market are there.
What does that mean for galaxy. It means we're firing all cylinders, our asset management business. Our recent reported over 10 trillion.
Speaker Change:
Hum.
Michael Edward Novogratz: Our trading business is having a record run. Our infrastructure business, which was previously mostly Bitcoin mining, is all of a sudden, our validator business is up and running with over a billion dollars in assets under stake. That's become a real growth business for us. And so when I look, I couldn't be more excited, more proud of our guys, and more optimistic, you know, for the actual franchise business of Galaxy to finally really kick in to overdrive. With that, I'm going to actually leave it to Chris to go through in detail what we're doing in each of these businesses, and then the two of us will do the Q&A. Thanks, Mike.
Speaker Change: Our trading business is having a a record run.
Speaker Change: Our infrastructure business, which was.
Speaker Change: Previously, mostly bitcoin mining all of a sudden R. R. R. Validate our business is up and running with over a $1 billion. Our assets you know under stake and that's become a real growth business for us and so when I look I couldn't be more excited I'm more proud of our guys.
And more optimistic you know for the actual franchise business of Galaxy to finally really kick in to overdrive.
Speaker Change: With that I'm going to actually leave it to Chris to go through in detail what we're doing in each of these businesses and then the two of US will share the Q&A.
Chris: Awesome. Thanks, Mike.
Christopher C. Ferraro: Galaxy's fourth quarter and full year 2023 results reaffirmed our position as a leading player in the digital assets space. We've successfully executed against our key priorities in each of our three operating businesses and are now capturing the upside of our long-term strategic positioning and diversified business. Let's start with global markets. Our trading business successfully capitalized on the positive momentum in market conditions at the end of 2023, generating $44 million in counterparty trading revenue in Q4 and $115 million for the full year 2023. The 210% increase quarter over quarter was primarily driven by revenue from derivatives and spot counterparty trading.
These fourth quarter and full year 2023 results reaffirmed our position as a leading player in the digital asset space we.
Chris: We successfully executed against our key priorities in each of our three operating businesses and are now capturing the upside of our long term strategic positioning and diversified business model.
Chris: Let's start with global markets, our trading business successfully capitalize on the positive momentum in market conditions at the end of 'twenty, three generating $44 million in counterparty trading revenue in Q4, and $115 million and for the full year 'twenty three.
Chris: The 210% increase quarter over quarter was primarily driven by revenue from derivatives and spot counterparty trading.
Christopher C. Ferraro: In line with this increase in revenue, we also saw counterparty trading volumes continue to grow, which were up 3% quarter-over-quarter on the back of an already strong Q3. Our desks continued to onboard new counterparties, bringing the total count to over 1,050 at the end of the year. As anticipated, SPOT Bitcoin ETF approvals have been a major catalyst for the uptick in volumes and counterparty engagement, with more traditional asset managers and hedge funds re-entering the space. On the lending side, we ended 23 having maintained our position as one of the largest collateral-backed lending counterparties in the space, with an average loan book size of $635 million in Q4, up 9% from Q3. Loan Originations were also up in the quarter, reaching $269 million, representing a 129% increase quarter over quarter, driven by both the addition of new clients and existing clients reengaging with our debt.
Chris: In line with this increase in revenue. We also saw a counterparty trading volumes continue to grow which were up 3% quarter over quarter on the back of an already strong Q3.
Chris: Our desk continue to onboard new counterparties, bringing the total count to over 1050 at the end of the year.
Chris: As anticipated spot bitcoin ETF approvals have been a major catalyst for the uptick in volumes and counterparty engagement with more traditional asset managers and hedge funds re entering the space.
Chris: On the lending side, we ended 23, having maintained our position as one of the largest collateral backed lending counterparties in the space with an average loan book size of 635 million in Q4 up 9% from Q3.
Loan originations were also up in the quarter, reaching 269 million, representing a 129% increase quarter over quarter driven by both the addition of new clients and existing clients are engaging with our desk.
Christopher C. Ferraro: Even more exciting than the team's excellent 2023 results, the momentum is accelerating meaningfully into 2024. I'm very proud to announce that our Galaxy One institutional client platform, as of yesterday, has now grown to over 75 active institutional clients with well over a billion dollars of fair market value client assets on the platform. Most importantly, these are high-value, sticky assets that will form a strong base of recurring service fee revenues, which we intend to grow even further by offering Galaxy's full suite of market access services, including custody, spot trading, hedging, lending, and unique derivative and structured product offerings. And finally, as a result of this institutional client and asset growth, I'm also pleased to share that our digital infrastructure solutions arm will now be providing institutional-grade staking services to this large and growing asset base, which I will discuss in more detail later.
Even more exciting than the team's excellent 2023 results. The momentum is accelerating meaningfully into 2024, I'm very proud to announce that our galaxy one institutional client platform as of yesterday has now grown to over 75 active institutional clients with well over $1 billion of fair market value client assets on platform.
Chris: Most importantly, these are high value sticky assets that will form a strong base of recurring service fee revenues, which we intend to grow even further by offering galaxies full suite of market access services, including custody spot trading hedging lending and unique derivative and structured product offerings.
Chris: And finally as a result of this institutional client asset growth I'm also pleased to share that our digital infrastructure solutions arm will now be providing institutional grade staking services to this large and growing asset base, which I will discuss in more detail later on.
Christopher C. Ferraro: This showcases the strength and flywheel effect of Galaxy's diversified platform and the differentiated institutional services we're able to offer to our clients. Moving on to the other segment of our Global Markets business, Investment Banking. Despite the backdrop for deal execution remaining challenging throughout 2023, our investment banking team successfully closed five transactions in the past year. In the fourth quarter, the team completed its first restructuring mandate with Prime Trust and also realized revenue associated with advising online gaming platform GamerCraft on its seed financing round.
Chris: This showcases the strength in flywheel effect of galaxies diversified platform and the depression differentiated institutional services, we're able to offer to our clients.
Moving on to the other segment of our global markets business investment banking.
Chris: The backdrop the backdrop for deal execution remaining challenging throughout 2023, our investment banking team successfully closed five transactions in the year.
Chris: In the fourth quarter. The team completed its first restructuring mandate with Prime Trust and also realize the revenue associated with AD advising online gaming platform game of craft on its seed financing round and for servicing is serving as the exclusive financial advisor to securitize and its acquisition of unwrap invest.
Christopher C. Ferraro: And for serving as the exclusive financial advisor to Securitize in its acquisition of on-ramp. Our investment banking pipeline remains strong, with 23 mandates representing $2.2 billion in potential deal value being pursued by the team. Moving on to our asset management business, we ended 2023 with $5.2 billion of assets under management, an over 200% increase year-over-year. This tripling in AUM was primarily driven by net inflows from newly managed opportunistic assets into our active strategies throughout the 3rd and 4th quarters.
Chris: Our investment banking pipeline remains strong with 23 mandates representing $2 2 billion in potential deal value being pursued by the team currently.
Chris: Moving on to our asset management business, we ended 2023 with $5 $2 billion of assets under management and over 200% increase year over year.
Chris: This tripling in AUM was primarily driven by net inflows from newly managed opportunistic assets into our active strategies throughout the third and fourth quarter.
Chris: As mentioned on our last earnings call over the past several months Galaxy asset management has been working closely with the F. T X state and managing its digital asset holdings for creditors through hedging arrangements and liquidation services.
Chris: The teams professionalism and skill and managing F. T X as liquid portfolio has earned galaxy further mandates, including the management of F. T X as trust assets as well as more complex holding such as locked tokens.
Christopher C. Ferraro: As mentioned on our last earnings call, over the past several months, Galaxy Asset Management has been working closely with the FTX estate in managing its digital asset holdings for creditors through hedging arrangements and liquidation services. The team's professionalism and skill in managing FTX's liquid portfolio have earned it further mandates including the management of FTX's trust assets, as well as more complex holdings such as LockTokens. As a result of this expanded scope, Galaxy reported a record preliminary AUM of $10.1 billion in February of 2024, a testament to the team's competence and high caliber of execution. Mike, I can't wait till it's $10 trillion. It's coming.
Chris: As a result of the expanded scope Galaxy reported a record preliminary AUM of $10 1 billion in February of 'twenty 'twenty four a testament to the team's competence and high caliber of execution, Mike I can't wait until its 10 trillion that's coming.
Chris: [laughter], although the assets under management tied to the F. T X mandates will decrease over time as we monetize the portfolio, we anticipate that associated fees will be meaningful revenue drivers for the business in the upcoming months.
Chris: We're proud to be instrumental in rectifying the aftermath of the 2022 crypto cycle eating creditors were claiming their funds. This ongoing effort has not only rebuild trust and credibility in the digital asset space, but it's also significantly bolstered the franchise value of our firm and our asset management business.
Chris: The team has also been acutely focused on the U S E T F landscape and on January 11th announced the launch of the Invesco Galaxy Bitcoin ETF in partnership with Invesco.
The approval of spot Bitcoin Etfs is a significant win for the digital asset space with record breaking trading volumes and substantial net inflows to show for it.
Christopher C. Ferraro: Although the assets under management tied to the FTX mandates will decrease over time as we monetize the portfolio, we anticipate that associated fees will be meaningful revenue drivers for the business in the coming years. We're proud to be instrumental in rectifying the aftermath of the 2022 crypto cycle, aiding creditors, and reclaiming their funds. This ongoing effort has not only rebuilt trust and credibility in the digital assets space but has also significantly bolstered the franchise value of our firm and our asset management. The team has also been acutely focused on the US ETF landscape and on January 11th, announced the launch of the Invesco Galaxy Bitcoin ETF in partnership with Invesco. The approval of SPOT Bitcoin ETFs is a significant win for the digital assets space, with record-breaking trading volumes and substantial net inflows to show for it.
Chris: However, it's only been two months since the regulatory Green light and these products take time to attract assets will.
Chris: We will need to allow the market dynamics to play out, but we are particularly excited by the long term potential for adoption within the U S wealth channel.
Chris: <unk> 450 billion plus ETF business built off the back of deep relationships with the U S wealth market positions us well to tap into this channel as evidenced by cetera Financial group, a 190 billion dollar plus or a having approved V. T. C O on its platform in recent weeks.
Chris: Our product reach extends well beyond the U S. As we plan to bring bitcoin and east to.
Chris: The European market in partnership with the Dws group in early April.
Chris: Finally in addition to maximizing value and the reach of our partnerships and bankruptcy mandates Gam remains committed to its medium term strategy of building a sustainable top tier alternatives business.
We are in the process of going to market with an external capital raise for our inaugural crypto venture fund leveraging the success of our proprietary balance sheet investing but through a direct institutional great fun going forward.
Christopher C. Ferraro: However, it's only been two months since the regulatory green light, and these products take time to attract assets. We'll need to allow the market dynamics to play out, but we are particularly excited by the long-term potential for adoption within the U.S. wealth market. Invesco's $450 billion plus ETF business, built off the back of deep relationships with the U.S. wealth market, positions us well to tap into this channel, as evidenced by Cetera Financial Group, a $190 billion plus RIA, having approved BTCO on its platform, Our product reach extends well beyond the U.S. as we plan to bring Bitcoin and ETH ETPs to the European market in partnership with the DWS Group in early April.
Chris: We have witnessed the first signs of a rekindling of capital formation in high quality early stage crypto venture projects and so we believe we're on the front end of a strong new up cycle for Crypto adventure. This is exactly the right time to now offer our expertise experience and strong track record for prospective new institutional clients of the firm to access this next.
Chris: We have a growth.
Chris: Yeah, obviously asset mandates management's proactive approach toward seizing opportunities in digital asset space has laid the groundwork for us to continue to attract institutional capital throughout 2024 and beyond.
Chris: With nearly $2 5 billion and passive AUM $6 2 billion and activate U M and $1 5 billion adventure AUM Galaxy is among the very few scaled institutional grade asset managers in the industry.
Christopher C. Ferraro: Finally, in addition to maximizing value and the reach of our partnerships and bankruptcy mandates, GAM remains committed to its medium-term strategy of building a sustainable, top-tier alternative. We are in the process of going to market with an external capital raise for our inaugural crypto venture fund, leveraging the success of our proprietary balance sheet investing but through a direct institutional grade fund going forward. We have witnessed the first signs of a rekindling of capital formation in high-quality, early-stage crypto venture projects, and so we believe we are on the front end of a strong new upcycle for crypto ventures. This is exactly the right time for us to now offer our expertise, experience, and strong track record for prospective new institutional clients of the firm to access this next wave of growth.
Chris: Okay.
Chris: Turning finally to our digital infrastructure solutions business. It was another strong quarter for our mining team.
Chris: Total mining revenue, which includes proprietary and hosting operations was $19 million in the fourth quarter and $59 million for the year, representing a 63% increase year over year.
Chris: Our full year power purchase costs and external hosting expenses net of curtailment credits were approximately $21 million, resulting in a 65% direct mining profit margin in 2023.
Chris: December marked the one year anniversary since our acquisition of the Helios mining site and I'm very encourage by what the team has been able to accomplish over the course of the year.
Chris: We stabilize the asset and expanded operations to bring on new hash rate throughout the second half of 2023, which saw US successfully surpassed our year end halfway under management target, finishing the year with approximately $4 one ex ash.
Chris: Terry mining operations represented 1.9 extra hash and resulted in the production of 333 bitcoin in the quarter, while our hosted mining business accounting for the remaining two 2.2 ex ash.
Christopher C. Ferraro: Galaxy Asset Management's proactive approach towards seizing opportunities in the digital asset space has laid the groundwork for us to continue to attract institutional capital throughout 2024 and beyond. With nearly $2.5 billion in passive AUM, $6.2 billion in active AUM, and $1.5 billion in venture AUM, Galaxy is among the very few scaled, institutional-grade asset managers in the industry. Turning finally to our Digital Infrastructure Solutions business, it was another strong quarter for our mining business. Total mining revenue, which includes proprietary and hosting operations, was $19 million in the fourth quarter and $59 million for the year, representing a 63% increase year-over-year.
Chris: Subsequent to year end, we've now exceeded our Q1 target hash rate of five X a hash and have line of sight to six extra hashed by the end of Q3.
Chris: The vast majority of this increased tax rate is coming from previously purchase machines that had been energized as part of our infrastructure expansion at Helios. However, we are also continuing to be opportunistic in growing and optimizing our fleet for efficiency and made a strategic purchase of new <unk> 'twenty one machines in January.
While anticipated weather seasonality and hash rate growth led to a quarterly increase in our marginal average cost to mine to just under 15500 per coin. Our full year 2023 average marginal cost of mine ended just below 8000 per bitcoin, making galaxy one of the lowest cost institutional bitcoin mining operators in the world.
Christopher C. Ferraro: Our full-year power purchase costs and external hosting expenses, net of curtailment credits, were approximately $21 million, resulting in a 65% direct mining profit margin in 2020. December marked the one year anniversary since our acquisition of the Helios mining site, and I'm very encouraged by what the team has been able to accomplish over the course of the year. We stabilized the asset and expanded operations to bring on new hashrate throughout the second half of 2023, which saw us successfully surpass our year-end hashrate under-management target, finishing the year with approximately 4.1 exahash. Our proprietary mining operations represented 1.9 Exahash and resulted in the production of 333 Bitcoin in the quarter, while our hosted mining business accounted for the remaining 2.2 Exahash. Subsequent to year-end, we've now exceeded our Q1 target hash rate of 5 exahash and have a line-of-sight to 6 exahash by the end of Q3.
Chris: This remains well below the market value for bitcoin. It gives me great confidence in our team and infrastructure strategic positioning as we approach the bitcoin, having this coming month.
Yeah.
Chris: Additionally, we continue to build out our blockchain infrastructure beyond bitcoin mining to enable both galaxy and our clients to participate in an increasingly on chain and decentralized future.
Chris: This includes operating proof of steak validate or nodes that can be utilized by galaxies proprietary owned assets as well as institutional clients of the firm, including those on boarded recently to Galaxy one.
Chris: This creates yet another low capital intensity high value and scalable recurring revenue stream for galaxy in.
Chris: In the case of our proprietary assets. This allows us to save on external staking vendor Commission costs well in the case of firm clients Galaxy was able to generate sticking as a service commissions on user staking yield generation.
Chris: We formally launched this business in 2023 and finished our first year of operations with more than 243 million total assets under stake, but importantly, as Mike noted, we expect these assets under stake number to grow to more than $1 5 billion in the coming weeks. The vast majority of which will now be external fee generating client staked assets.
Christopher C. Ferraro: The vast majority of this increased hash rate is coming from previously purchased machines that have been energized as part of our infrastructure expansion at Helios. However, we have also continued to be opportunistic in growing and optimizing our fleet for efficiency and made a strategic purchase of new Bitmaine S21 machines in January. While anticipated weather seasonality and hash rate growth led to a quarterly increase in our marginal average cost to mine to just under $15,500 per coin, our full-year 2023 average marginal cost to mine ended just below $8,000 per bitcoin, making Galaxy one of the lowest cost institutional bitcoin mining operators in the world.
Chris: Finally, turning to G. Kate I continue to be encouraged by the growth of G. Kate with the team expanding to a total of 21 clients in the quarter demonstrating their ability to execute against its pipeline and bring in large enterprise clients as previously announced.
Galaxy is also playing a strategic role in the formation of all unity, a partnership with dws and flow traders to develop a fully collateralized euro denominated stable quint.
G. Kate will license to the partnership its tokens nation technology platform as well as provide the custodial technology support for all unity, demonstrating the cross selling opportunities of our strategic acquisition of G. Kate.
Chris: All in all 2023 was another year of incredible growth for Galaxy with our teams executing across all strategic initiatives going from strength to more strength.
Chris: We've continued this positive momentum into the start of 'twenty 'twenty four across each of our operating businesses and anticipate generating further operating leverage is more institutional capital flows into the ecosystem.
Christopher C. Ferraro: This remains well below the market value for Bitcoin and gives me great confidence in our team and strategic positioning as we approach the Bitcoin halving this coming. Additionally, we continue to build out our blockchain infrastructure beyond Bitcoin mining to enable both Galaxy and our clients to participate in an increasingly on-chain and decentralized world. This includes operating proof-of-stake validator nodes that can be utilized by Galaxy's proprietarily-owned assets as well as institutional clients of the firm, This creates yet another low capital intensity, high value, and scalable recurring revenue stream for Galaxy. In the case of our proprietary assets, this allows us to save on external staking vendor commission costs, while in the case of firm clients, Galaxy is able to generate staking as-a-service commissions on user staking yield generation.
Chris: Before I leave you I just want to say that building a winning company in this space has not been easy and could never have happened without the tireless dedication effort of all of our stakeholders not just our over 450 employees around the globe, but also our clients our partners and our shareholders. Thank you everyone for your effort in your energy next up the Moon.
Chris: Now I'll turn it over to Alex.
Alex: Yeah. Thank you Chris good morning.
We earned 296 million in 2023.
Alex: Driven by improved market conditions, and our positioning in the market.
Alex: This positive momentum continued in the first quarter.
Alex: We earned approximately 300 million before tax for the first two months of this year.
Alex: Our equity capital was $1 8 billion at the end of last year.
Alex: And $2 1 billion at the end of February.
Alex: Total liquid assets were $910 million.
Alex: At the end of 2023.
Alex: From 749 million.
Alex: At the end of the prior quarter.
Alex: The $910 million consisted of $201 million in cash and cash equivalents, including net stable coins and 700 to 9 million of net digital assets excluding stable coins.
Christopher C. Ferraro: We formally launched this business in 2023 and finished our first year of operations with more than $243 million in total assets under stake. But importantly, as Mike noted, we expect these assets under stake to grow to more than $1.5 billion in the coming weeks, the vast majority of which will now be external fee-generating client-staked assets. Finally, turning to GK8, I continue to be encouraged by the growth of GK8, with the team expanding to a total of 21 clients in the quarter, demonstrating their ability to execute against its pipeline and bring in large enterprise clients. As previously announced, Galaxy is also playing a strategic role in the formation of AllUnity, a partnership with DWS and Floatraders to develop a fully collateralized, euro-denominated stablecoin GK8 will license its tokenization technology platform to the partnership, as well as provide the custodial technology support for all Unity, demonstrating the cross-selling opportunities of our strategic acquisition of GK8.
Alex: We continue to make progress to re domicile to the U S and to list on the NASDAQ exchange.
Alex: On December 22nd of last year, we filed a response to our fifth round of SEC comments.
Alex: Our team has been working diligently throughout this two plus year process.
Alex: Responding thoughtfully and timely to each round of questions provided by the FCC.
Alex: And clarifying U S accounting rules as they evolve for digital assets in the U S.
Alex: Well the process has been frustratingly slow we have and will continue to make every effort we can to become a U S public company <unk>.
Alex: Now back to the operator for questions. Thank you.
Speaker Change: Thank you.
Speaker Change: We'll now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on you touched on phone if you're using a speakerphone. Please pick up your handset before pressing your keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: And at this time, well pause momentarily to assemble our roster.
Speaker Change: Okay.
And the first question will come from Bill Popper Nasty O with Stifel. Please go ahead.
Christopher C. Ferraro: All in all, 2023 was another year of incredible growth for Galaxy, with our teams executing across all strategic initiatives going from strength to strength. We've continued this positive momentum into the start of 2024 across each of our operating businesses, and anticipate generating further operating leverage as more institutional capital flows in. Before I leave you, I just want to say that building a winning company in this space would never have happened without the tireless dedication and effort of all of our stakeholders. Not just our over 450 employees around the globe but also our clients, our partners, and our shareholders. Thank you, everyone, for your effort and your energy. Next stop, the moon.
Speaker Change: Hi, good morning, everyone and thanks for taking my questions and congratulations on a strong quarter.
Speaker Change: Hmm.
Speaker Change: First question comes with respect to the mining operation.
Speaker Change: I was just hoping to get some more color in terms of how you guys see expansion maybe.
Speaker Change: Maybe.
Speaker Change: Towards the end of the year on a number of large scale peers have recently announced large equipment purchase orders.
Speaker Change: That secured the necessary infrastructure.
Speaker Change: He of course has ample room for expansion and I'm wondering if there's any appetite here to partner with the peer.
Speaker Change: All of the data center and perhaps engage in hosting service agreements that can help subsidize that calls for expansion.
Speaker Change: Sure. Good morning, Bill Thanks, very much for the question I appreciate it.
Alex: I'll now turn it over to Alex. Yeah. Thank you, Chris. Good morning.
Speaker Change: Yeah.
Alex: We earned $296 million in 2023, driven by improved market conditions and our positioning in the market. This positive momentum continued in the first quarter, and we earned approximately $300 million before tax for the first two months of this year.
I think you you are it was a perfectly leading question you nailed it.
Speaker Change: Our mining operations biggest asset is the fact that we have a large geographic footprint a N.
Speaker Change: And a large approved a pipeline of energy access in a highly attractive.
Speaker Change: Region in Texas, where we can consistently.
Alex: Our equity capital was $1.8 billion at the end of last year and $2.1 billion at the end of February. Total liquid assets were $910 million at the end of 2023, up from $749 million at the end of the prior quarter. The $910 million consisted of $201 million in cash and cash equivalents, including net stablecoins, and $700 to $9 million of net digital assets, excluding stablecoins. We continue to make progress to redomicile to the U.S. and to list on the Nasdaq exchange. On December 22nd of last year, we filed a response to our fifth round of SEC comments. Our team has been working diligently throughout this two-plus year process, responding thoughtfully and timely to each round of questions provided by the SEC, and clarifying US accounting rules as they evolve for digital assets in the US. While the process has been frustratingly slow, we have and will continue to make every effort we can to become a U.S. public company. Now, back to the operator for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.
Speaker Change: Just to really generate bitcoin bitcoin at low energy costs and so that.
Speaker Change: That asset today is running at about capacity, where we're making moves as we said in the remarks to optimize but built capacity and how much hatchery can come from it.
Speaker Change: But it has it has multiples of potential growth built into it in terms of its footprint and how it can scale our strategic focus for that asset is is to build out the rest of the infrastructure.
Speaker Change: So that we kind of locked up potential and so yeah. The the.
Speaker Change: The.
Speaker Change: Yeah. So so how we're going to fund that like we we've committed to building out the infrastructure. We have capacity on balance sheet. We're also looking to the market and so where we're looking at public peers and their cost of capital and recognizing that that at least to date some of those public peer.
Speaker Change: I've had better cost of capital than we had and so we're being opportunistic about when we're going to spend that capital, but unlocking that value, whether that's ourselves solo or with partners is what we're really focused on.
Speaker Change: Great Great. Thank you, Chris and I appreciate the color on the on boarding of the Galaxy one prime brokerage platform seems like you know theres, a big effort to two to scale that.
Operator: If you're using a speakerphone, please pick up your handset before pressing your keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Bill Papanastasiou, with a C4. Please go ahead. Hi, good morning, everyone.
Speaker Change: How should we be thinking about growth to this business in the near term.
Speaker Change: And how many that translate to galaxy trading and the asset management business, Obviously, you know the.
Crypto market is.
Speaker Change: Still with a leg up leading into 2020 for.
Speaker Change: Any color there is appreciated.
Speaker Change: Yeah sure.
Speaker Change: So yeah. We're we're very excited about about the realized growth of clients onto that platform. The we launched that platform in late last year with basic functionality of custody trading and reporting.
Bill Papanastasiou: Thanks for taking my questions and congratulations on a strong quarter. Um, you know, my first question comes with respect to the mining operation. I was just hoping to get some more color in terms of how you guys see expansion, maybe towards the end of the year. A number of large-scale peers have recently announced large equipment purchase orders but haven't secured the necessary infrastructure. Galaxy, of course, has ample room for expansion, and I'm wondering if there's any appetite here to partner with the peers to scale the data center and perhaps engage in hosting service agreements that can help subsidize that cost of expansion Sure. Good morning, Bill.
Speaker Change: But what is what galaxy one was really meant to be is the on the the landing place for institutional clients that come into Galaxy, and then access services across the entire galaxy platform and so.
Speaker Change: Once you're into Galaxy one now.
Speaker Change: Now you have cut your positions and now you can access <unk>.
Speaker Change: Products and services from our markets business products and services from our asset management business and now also products and services from our infrastructure business, including staking and so.
Christopher C. Ferraro: Thanks very much for the question. I appreciate it. Yeah, I think you it was a perfectly leading question, and you nailed it.
Speaker Change: The the growth has started and our markets business, but from there now we have a we have a large and growing base of clients and assets through which we can sell through the rest of the services I mean, that's what we're really excited about because that's all operating leverage we're looking to the back half of the year to add functionality and our prime services offerings in particular to offer.
Christopher C. Ferraro: Our mining operations' biggest asset is the fact that we have a large geographic footprint and a large approved pipeline of energy access in a highly attractive region in Texas where we can consistently generate Bitcoin at low energy costs. And so that asset today is running at about capacity. We're making moves, as we said in the remarks, to optimize the built capacity and how much hashrate can come from it.
Speaker Change: Our margin based financing and and credit to traders who want to access the markets and so we think that that's going to be one of the big unlocks for us.
Christopher C. Ferraro: But it has multiples of potential growth built into it in terms of its footprint and how it can scale. Our strategic focus for that asset is to build out the rest of the infrastructure so that we can unlock that potential. And so, yeah, the how we're going to fund that, like we've committed to building up the infrastructure, we have capacity on the balance sheet, but we're also looking to the market. And so we're looking at public peers and their cost of capital, and recognizing that, at least to date, some of those public peers have had better cost of capital than we have. And so we're being opportunistic about when we're going to spend that capital. But unlocking that value, whether that's ourselves alone or with partners, is what we're really focused on. Great. Great Thank you, Chris.
Speaker Change: Client additions and asset growth.
Speaker Change: Well like I pointed out in the remarks, there there there's a number of other high value sticky services that you know I think the market and everyone doesn't quite appreciate that we have built and we are building that are going to bolt on and that clients are going to have access to.
Speaker Change: Great. If I can sneak one more in I'm, just hoping to get a little bit more of management's perspective on this U S listing I understand it's a painful process, but I'm curious to hear whether youre seeing a bigger push by regulators to finalize the review any sooner than later.
Speaker Change: Following the approval of the Bitcoin Etfs I'm wondering if this launch it's a launch impacted has impacted their decision.
Speaker Change: Or their progress in any way.
Speaker Change: But let me let me take this and B you know absolutely clear we have been doing what we can do for over two years to try to get public in the U S.
Christopher C. Ferraro: And, you know, I appreciate the color on the onboarding of the Galaxy One Prime brokerage platform. Seems like, you know, there's a big effort to scale that. How should we be thinking about growth for this business in the near term? And how may that translate to Galaxy trading and the asset management business? Obviously, you know, the crypto market is still with a leg up leading into 2024. Any color there is appreciated.
Speaker Change: We have had in S E C that has <unk>.
Speaker Change: Loud companies that are big point only companies right miners are.
Speaker Change: Now this ETF.
Speaker Change: Through but have not allowed companies that.
Speaker Change: Deal with anything other than bitcoin at least Thats my interpretation and so.
Speaker Change: We are hopeful but not optimistic that in the current S. E C. They're gonna change their mind.
Speaker Change: I do think the climate is shifting in Washington dramatically.
Speaker Change: You want to think about this ETF it was a vote and the American people just voted that they like bitcoin. They liked crypto they like digital assets when I go to D C and I talk to members of the House Democrat and Republican and the Senate.
Christopher C. Ferraro: Yeah, sure. So, you know, we're very excited about the realized growth of clients onto that platform. We launched that platform late last year with basic functionality of custody training and reporting.
Speaker Change: Yes, there should be a bipartisan issue, there's a small group of Democrats and blocking this and there's an FCC that has been very very slow.
Christopher C. Ferraro: But what Galaxy One is really meant to be is the landing place for institutional clients to come into Galaxy and then access services across the entire Galaxy. And so, once you're into Galaxy One... Now you have your positions, and now you can access products and services from our markets business, products and services from our asset management business, and now also products and services from our infrastructure business, including staking. And so the growth has started in our markets business, but from there, we now have a large and growing base of clients and assets through which we can sell the rest of the services. And that's what we're really excited about because that's all operating leverage. We're looking to the back half of the year to add functionality to our prime services offerings, in particular to offer margin-based financing and credit to traders who want to access the markets. And so we think that's going to be one of the big unlocks for
Speaker Change: And I think until we get a change in leadership.
Speaker Change: We can be hopeful but not optimistic.
Speaker Change: There's you know there's there's not much else. We can do we answer their questions. We are diligently we are helpful.
Speaker Change: And hopeful but that that's about the best I can give you.
Speaker Change: I would say that there's an election coming at eight months.
Speaker Change: And there will be turnover.
Speaker Change: If the Republicans win we think that'll be faster, but even if the Democrats win I think you'll have new leadership at most of the agencies.
Speaker Change: So.
Speaker Change: Hopeful there.
Speaker Change: I appreciate the color guys I'll pass it onto the next question.
Speaker Change: The next question will come from Joseph <unk> with Canaccord. Please go ahead.
Joseph: Hey, guys. Good morning, a great result.
Joseph: Good work pays off just maybe we'll just start again on galaxy one.
Joseph: Clearly a nice tip of the spear.
Joseph: For new clients and existing.
Joseph: Just trying to frame you know looking across how many counterparties do you have now.
Joseph: How many of those counterparts, you think are ultimately like target clients for Galaxy one.
Joseph: And then.
Speaker Change: Maybe I'll have a couple of follow ups.
Yeah sure I'll take this one I mean I think the short answer is is the majority of them and so you know like historically, we have we have faced.
Christopher C. Ferraro: Client Additions and Asset Growth. But, like I pointed out in the remarks, there's a number of other high-value, sticky services that, you know, I think the market and everyone doesn't quite appreciate that we have built and we are building that are going to bolt on and that clients are going to back out. Great. If I can sneak one more in there.
Speaker Change: Face Counterparties in our markets business as as principal trade Counterparties.
Speaker Change: But that that was a function of historically the way the OTC markets and crypto have developed.
Speaker Change: And and most of those clients are true end clients as opposed to sort of like interdealer enter into broker transactions and so all of those counterparties really for years had been looking for an institutional.
Michael Edward Novogratz: Just hoping to get a little bit more of management's perspective on this US listing. I understand it's a painful process, but I'm curious to hear whether you're seeing a bigger push by regulators to finalize the review any sooner than later, following the approval of the Bitcoin ETFs. I'm wondering if the launch has impacted their decision or their progress in any way. Let me make this absolutely clear, for over... We have had an FCC that allowed, and Alvis, but have not allowed, or anything else.
Speaker Change: Platform, where they can become a client where they can hold their positions where they can trade them in the way they can deal with us and so.
Speaker Change: The short answer is the vast majority of those counterparties.
Speaker Change: Hunter parties could and should be converted into sort of galaxy, one and a client format.
Speaker Change: They'll likely deal with us, both principally and and as an agent and as borrowing and lending counterparties, but but are there they're all almost accessible.
Speaker Change: Got it thanks and then.
Speaker Change: I know you mentioned the assets on the stake.
Speaker Change: That is essentially.
Speaker Change: Growth here pretty materially I think.
Speaker Change: That's really what the catalyst was for the comments on great.
Michael Edward Novogratz: So we are hopeful, but not optimistic, that... I do think the climate is shifting in Washington dramatically. Right? If you want to think about this ETF, it was a vote, and the American people just voted that they like Bitcoin, they like crypto, and they like digital assets. When I go to D.C., and I talk to members of the House, both Democratic and Republican, and the Senate, they understand that this should be a bipartisan issue.
Speaker Change: Big growth expected in that type of stuff.
Speaker Change: Yeah sure so.
Speaker Change: In our sticking as a service business, which we launched in 2023.
Speaker Change: The the the two primary.
Speaker Change: Lanes through which we acquire assets two are staking nodes are either one through our own proprietary owned assets right and so we we as we've done in everything we like to build an infrastructure for our own use first to make sure. It's.
Michael Edward Novogratz: There is a small group of Democrats that have been blocking it at the CCC, and it has been very, very slow. And I think until we get a change in leadership... Be hopeful but not optimistic. You know, there's not much else we can do. We answer their questions, we are diligent, we are helpful, and that's about the best I can give you. I would say that there's an election coming in eight months, and there will be turnover. If Republicans win, we think it'll be faster, but even if the Democrats win, I think you'll have new leadership at most.
Speaker Change: Its great and it works well.
Speaker Change: But then also as clients enter the firm into the four walls of our platform and their assets come on platform. Those assets are now are to the extent that they are in this case stable assets are available to 2.2 and stick to our own notes that we run and so the catalyst for this has been now that we.
Speaker Change: Have.
Speaker Change: A number of clients and a growing asset base over $1 billion plus.
Michael Edward Novogratz: So, hopefully, Appreciate the color, guys.
Speaker Change: On our platform in Galaxy, one those assets.
Bill Papanastasiou: I'll pass it on for the next question. The next question will come from Joseph Vafi with Canaccord. Please go ahead. Hey, guys. Good morning.
Speaker Change: That are stable now are accessible easily accessible to cross cross selling point to our validate our notes so the growth or the growth in the client asset base in Galaxy, one is pretty directly tied to the expected growth and to validate or assets.
Joseph Anthony Vafi: Great results. Nice to see all the good work paying off. Maybe we should just start again on Galaxy One.
Christopher C. Ferraro: Clearly, a nice tip of the spear here for new clients and existing ones. Just trying to frame, looking across how many counterparties you have now. How many of those counterparties do you think are ultimately target clients for Galaxy One? And then maybe I'll have a couple of follow-ups. Yeah, sure. I'll take this one.
Speaker Change: That makes sense.
Speaker Change: And then just on the loan book you know growing nicely here, how should we think about the loan book you know relative to growth in the loan book relative to your balance sheet capacity to be able to continue to fund that loan that loan book growth over time. Thanks.
Speaker Change: Good luck guys.
Speaker Change: What one thing that I would mention here, that's really shifted all of it at the last eight weeks is our ability.
Christopher C. Ferraro: I mean, I think the short answer is the majority of them. And so, you know, like, historically, we have faced counterparties in our markets business as principal trade counterparties. But that was a function of the historically way the OTC markets and crypto had developed. And most of those clients are true end clients as opposed to sort of like inter-dealer, inter-broker transactions. And so all of those counterparties have really been looking for an institutional, [inaudible] They'll likely deal with us both principally and as an agent and as borrowing and lending counterparties, but they're all... Got it. Thanks, Chris.
Speaker Change: Borrow unsecured.
Speaker Change: Bitcoin and other other crypto currencies from the market.
From limit it to a very highly available.
Speaker Change: So both borrowing.
Speaker Change: For term.
Speaker Change: And.
Speaker Change: That improves our liquidity position, which then allows us to look at the loan loan business more aggressively.
So.
Speaker Change: The whole industry does better.
Speaker Change: Cost of capital it comes down and that business should grow.
Even just looking at our converts this morning.
Speaker Change: Trading at something under 10%.
Speaker Change: 10% yield to maturity.
Speaker Change: That is significantly below where it was.
Speaker Change: You know three or four months ago.
Speaker Change: Okay.
Speaker Change: Sure Great. Thanks, Mike.
Speaker Change: The next question will come from Martin Toner with ATB capital markets. Please go ahead.
Martin Toner: Thanks, very much for taking my question.
Martin Toner: Quarter, the revenue from counterparty trading was up significantly but volumes were I think flat and in Q3 that dynamic was in the reverse can you guys kind of explain that for me.
Christopher C. Ferraro: And then I know you mentioned the assets under stake and that that is potentially going to grow here pretty materially. I think I missed maybe what the catalyst was for, you know, the comments on the big growth expected in assets under stake. Yeah, sure. So in our staking as a service business, which we launched in 2023, the two primary lanes through which we acquire assets for our staking nodes are either one through our own proprietary owned assets, right? And so we, as we've done with everything, like to build an infrastructure for our own use first to make sure it's great and it works well.
Martin Toner: Right.
Martin Toner: Yeah.
Martin Toner: Yeah.
Speaker Change: Yes sure.
Chris: This is Chris.
Chris: So volumes were up there they were up a little bit they weren't they were quite just flat.
Chris: But the the.
Chris: The amount of.
Chris: The amount of revenue, we were able to generate from clients and from client activity was up pretty dramatically.
Chris: Medically because of the volatility in the market was obviously elevated pretty meaningfully and so are our exposure on the derivative side. In particular was was the mix shift there was with significantly higher. So that's why you see a pretty dramatic increase in revenue.
Christopher C. Ferraro: But also, as clients enter the firm and into the four walls of our platform, and their assets come on platform, those assets are now, to the extent that they are, in this case, stokable assets, are available to point to and stake on our own nodes that we run. And so the catalyst for this has been now that we have a number of clients and a growing asset base of over a billion dollars plus on our platform in Galaxy One, those assets that are scalable now are accessible, easily accessible to cross-sell, and point to our validator nodes. And so the growth in the client asset base in Galaxy One is pretty directly tied to the expected growth in the validator. That makes sense. I got it. Yeah, it does.
Chris: That's the difference.
Speaker Change: Great. Thank you.
Speaker Change: Can you talk to the.
Speaker Change: Venture assets.
Speaker Change: In the firm.
Speaker Change: Didn't get a chance to look.
Speaker Change: Were you guys able to.
Mark those up at all.
Speaker Change: And just like is it a little early to think of the value of those investments going up in line with digital Watson.
Speaker Change: Yeah.
Speaker Change: Allison I should should tag team. This one I mean, the what what is what is tried and true has been tried and true for cycles in cycles is that privates lag publix quite dramatically generally and so.
Michael Edward Novogratz: Thanks, Chris. And then, just, you know, the loan book, you know, growing nicely here, how should we think about the loan book relative to, you know, growth in the loan book relative to your balance sheet capacity to be able to continue to fund that loan, that loan book growth over time? Thanks a lot, guys. One thing that I would mention here that's really shifted, all of it at last... borrow unsecured Bitcoin and other cryptocurrencies from the market went from limited to very highly available. So both borrowing, that improves our..., to look at the loan business, as the whole industry does better. Our Cost of Capital comes down, and... I mean, I was even just looking at our convertor, you know, trading in something under a 10.
Speaker Change: The the debenture book a couple a couple of important points one we.
Speaker Change: We've conservatively marked our venture book historically consistently quarter over quarter over quarter and so while.
Speaker Change: While you see fair market value there are a number of positions in there that that as a baseline we hold it at a at a pretty material discount to the spot value on the screens, particularly for assets that have a liquid trading a token component and so.
Speaker Change: We started to see movement upwards, obviously because of the public markets.
Speaker Change: It had been reflected but the private market valuation turns are are lagging pretty dramatically and so my you know my comments around the opportunity on the venture side. So to speak to that we've just started in the last six months or so to see capital formation really pick up again in early stage venture.
Michael Edward Novogratz: That is significantly below where it was. Future. Great. The next question will come from Martin Toner with ATB Capital Markets. Please go ahead.
Martin Toner: Thanks very much for taking my question. In the quarter, revenue from counterparty trading was up significantly, but volumes were, I think, flat. And in Q3, that dynamic was in the reverse.
Speaker Change: And that takes that takes real time to actually get deals funded.
Speaker Change: Print headline valuations compare those valuations to prior valuations, which then feeds on itself and it starts it starts to see the private market get Mark there and so we.
Martin Toner: Can you guys kind of explain that for me? Yeah, sure. So, this is Chris.
Christopher C. Ferraro: So, volumes were up. They were up a little bit. They weren't quite just flat, but the...
Speaker Change: We don't feel like.
Christopher C. Ferraro: The amount of revenue we were able to generate from clients and from client activity was up pretty dramatically because the volatility in the market was obviously elevated pretty meaningfully. And so our exposure on the derivative side, in particular, was significantly higher. So that's why you see a pretty dramatic drop. Great, thank you.
Speaker Change: We have seen anywhere near the the the private market correction, yet that we have seen in public markets, which is why we think from a product standpoint, the opportunity to put money to work in that space is better than it's ever been in the last in the last half a decade and you can see it in our balance sheet investments were up from 600 million.
Speaker Change: In 'twenty two to about 735 million at the end of 'twenty three.
Christopher C. Ferraro: In talking to the venture assets in the firm, I didn't get a chance to look, you know, were you guys able to mark those up at all? And just like, is it a little early to think of the value of those investments going up in line with digital assets? Yeah, Alex and I should tag team this one.
Speaker Change: And we think.
Speaker Change: On our way to be significantly higher than that this.
Speaker Change: This year.
Speaker Change: So that is just the beginning of the cycle.
Speaker Change: That's great. Thank you very much that's all for me.
Andrew: The next question will come from Andrew born with Rosenblatt Securities. Please go ahead.
Andrew Bond: Hey, good morning.
Andrew: You talk about how the bitcoin Etfs have impacted your trading business in terms of how your clients are interacting with liquidity.
Christopher C. Ferraro: I mean, what is tried and true has been tried and true for cycles and cycles is that privates lag publics quite dramatically, generally. And so the venture book has a couple important points. One, we've conservatively marked our venture book historically consistently quarter over quarter over quarter. And so while you see fair market value, there are a number of positions in there that, as a baseline, we hold at a pretty material discount to the spot value on the screens, particularly for assets that have a liquid trading token component. And so we started to see movement upwards, obviously because the public markets have been reflected. But the private market valuation turns are lagging pretty dramatically.
And if there've been any changes to the competitive landscape for some of the OTC foil.
Speaker Change: Yes, it's a good question.
Andrew: It's not something we've seen a dramatic shift in yet right, but I'm.
Andrew: I'm noticing you know with some of the Etfs are getting better and better liquidity in them on a daily basis, and so I think some of the spot activity.
Andrew: Certainly from some some some players is going to move to the ETF from the Bitcoin OTC market now remember the Etfs is open.
You know eight hours a day five days a week.
Andrew: But the big play market drove a 24 hours a day seven days a week and so it's a piece of it.
Andrew: I think you haven't seen yet and wont be part of the next surge of bitcoin price.
Andrew: And and.
Andrew: You know opportunity lots of ways is when the options on the ETF become available right. Because if you think about how retail U S trade, it's a very option driven market and they and the Sec's still hasn't.
Christopher C. Ferraro: And so my comments around the opportunity on the venture side sort of speak to that. We've just started in the last six months or so to see capital formation really pick up again in early stage venture. Print headline valuations, compare those valuations to prior valuations, which then feeds on itself and starts to see the private market get marked there.
Andrew: Food options on Etfs that will come.
Andrew: They are dragging their feet, but but.
Andrew: With great certainty.
Andrew: Our with high certainty.
Andrew: High probability I think what we will get an options market on these etfs.
Andrew: And.
Andrew: That's also going to change now, we we see that as opportunity right.
Andrew: The ability to trade both in trade Fiat and adding crypto.
Christopher C. Ferraro: And so we don't feel like we have seen anywhere near the private market correction yet that we have seen in public markets, which is why we think, from a product standpoint, the opportunity to put money to work in that space is better than it's ever been in the last half a decade. And you can see it in our balance sheet. The investments were up from $600 million in 22 to about $735 million at the end of 23.
Andrew: Is is I think an advantage of galaxy has where a lot of the other crypto firms haven't haven't sorted that out yet and a lot of the trade five firms habits. So.
Andrew: We literally see liquidity coming to this space as a good thing for us.
Speaker Change: Yeah, and the only other thing I'll add is is.
Speaker Change: The Etfs in the U S. At least are just they're quaint and and bitcoin historically you know while it's been the most liquid market. Its also from a from a cash trading perspective, the least interesting.
Christopher C. Ferraro: And we think it will be significantly higher than that. So that is just the beginning. That's great. Thank you very much.
Speaker Change: Business for us to be in and so not only yeah. So any impact there like the ETF watching has has resulted in me.
Martin Toner: That's all for me. The next question will come from Andrew Bond with Rosenblatt Securities. Please go ahead.
Andrew Bond: Hey, good morning. Can you talk about how the Bitcoin ETFs have impacted your trading business in terms of how your clients are interacting with liquidity? And if there have been any changes to the competitive landscape for some of the OTC flow? Yeah, it's a good question.
Speaker Change: Many more participants looking at this space entering the space and then playing not just in bitcoin, but in other assets and so so that the net net impact.
Speaker Change: It has been pretty dramatically positive for market participants, even if for OTC players, even if there you're starting to see some movement of trading volumes to the ETF versus topically.
Michael Edward Novogratz: This is not something we've seen a dramatic shift in, but I'm noticing that some of the ETFs are getting better and better liquidity. I think some of the spot activity, certainly. Some players are going to move to the ETF from the... Now remember, the ETF is open. You know, eight hours a day, five days a week, and the Bitcoin market's open 24 hours a day, seven days a week. So it's a... I think what you haven't seen yet... part of the next surge in Bitcoin price. [inaudible] Opportunity Love, Right? about how retail U.S. trades, it's a very option-driven market. The SEC still has...
Speaker Change: Got it and then just to follow up maybe on the hedging side of that a little bit where see order flow.
Speaker Change: Moving to you know regulated futures exchanges like me and I'm. Obviously, you guys are big in derivatives, a turtle and options volumes there, but so I mean has there been more activity on the hedging side that you guys are winning in and kind of seen coming to the market as a result of these etfs.
Speaker Change: Yes.
Speaker Change: We participate with.
Speaker Change: Most of the.
Michael Edward Novogratz: They are dragging their feet, but... High probability. We will get it. [inaudible] That's all.
Speaker Change: The other players that do the ETF buying right.
Speaker Change: And so the the virtues of the world.
Michael Edward Novogratz: Now, we see that as an opportunity, right? Crypto, Galaxy has where a lot of the other crypto firms haven't sorted that out yet and a lot of the trade, The only other thing I'll add is... The ETFs in the U.S., at least are just Bitcoin, and Bitcoin historically, you know, while it's been the most liquid market, it's also, from a cash trading perspective, the least interesting business for us to be in.
Speaker Change: Who are the buying and selling for the ETF.
Speaker Change: That forms.
Speaker Change: We have become better and better counterparties.
Speaker Change: Got it great. Thanks.
Speaker Change: The next question will come from Joe Flynn with Compass point. Please go ahead.
Joseph Flynn: I guess on the mining front your cost per client was quite strong throughout calendar 'twenty three I guess in regards like loads on west and the power cost outlook. There how should we be thinking about your strategy going forward, whether that be through shorter dated ppas hygiene Parker.
Speaker Change: Our curtailment thanks.
Speaker Change: Yep.
Speaker Change: So you know, we're we're sort of status quo on our strategy.
Christopher C. Ferraro: And so, not only any impact there, like the ETF launch has resulted in many more participants looking at the space, entering the space, and then playing not just in Bitcoin, but in other assets. And so the net impact has been pretty dramatically positive for market participants, even if – for OTC players, even if there – you start to see some movement of trading volumes to the ETF versus spot.
Speaker Change: The the.
This first.
Speaker Change: And a half or so of the year, we laid out a plan to.
Speaker Change: Be pretty dynamic in terms of what we were and we're going to hedge that that turned out to be.
Speaker Change: A pretty smart decision because because base prices in lodz in west throughout the first quarter have been have been pretty low which is what we expected and so and so I think we've we've seen we've seen the benefit of of that strategy.
Speaker Change: And then we've got the having coming in so that you know some of the things we don't know necessarily on the on the Bitcoin network side is what.
Christopher C. Ferraro: Yeah, and just to follow up, maybe on the hedging side of that a little bit, we're seeing a lot of flow move into, you know, regulated futures exchanges like CME. And obviously, you guys are big in derivatives and turn on options volumes out there. But so, I mean, has there been more activity on the hedging side that you guys are winning and kind of seeing coming to the market as a result of these ETFs? Yeah.
What post having is going to do to hatch rate, we have expectations I think our baseline expectation is that.
Speaker Change: We're going to see you know as as a starting point and 10% to 15% of global hash rate come off at some point post have it pretty close to having.
Speaker Change: And then from there from there once we see how that starts to settle and then and then take off.
Christopher C. Ferraro: You know, we participate with most of the players that do the ETF bot. The Virtues of the World, who are the buying and selling for the... [inaudible] They have become better. All right, great. Thanks. The next question will come from Joe Flynn with Compass Point. Please go ahead.
Speaker Change: And then we're looking at the go forward for the rest of the year from a hedging perspective, where it becomes much more important as you go into the to the late spring and early summer months to think about.
Speaker Change: What volatility of power prices, there could do and therefore, what our position is going to be from a curtailment perspective, and so you know 'twenty 'twenty four is going to be much more dynamic dynamic hedging here.
Joseph Flynn: Hi guys. On the mining front, your cost per coin was quite strong throughout calendar 23. I guess, in regard to load zone west and the power cost outlook there, how should we be thinking about your strategy going forward, whether that be, you know, through shorter-dated PPAs, or hedging? Parker Taubman, Yeah.
Speaker Change: Things that that's.
Speaker Change: That's helpful and on the <unk> divestment bag in front you guys mentioned, you've had this $2 billion pipeline for quite a while but it doesn't really have resulted in meaningful deal closing yet, but hoping you can just maybe have a comment on how can we should be thinking about the outlook or any cadence on potential deals going forward.
Christopher C. Ferraro: So, you know, we're sort of in the status quo on our strategy. In this first quarter and a half or so of the year, we laid out a plan to be pretty dynamic in terms of what we were and weren't going to hedge. That turned out to be a pretty smart decision because base prices and loads on West throughout the first quarter have been pretty low, which is what we expected.
Speaker Change: Yeah, I mean, the the the two big themes I think four for that business at least on the on the.
Speaker Change: On the capital market side has been one the private market lagging the public market and so you know just like on the investing side of the business that that that dynamic and theyre being very little cat capital markets activity.
Christopher C. Ferraro: And so I think we've seen the benefit of that strategy. And then we've got the halving coming. And so some of the things we don't necessarily know on the Bitcoin network side is what post-halving is going to do to the hash rate. We have expectations. I think our baseline expectation is that we're going to see, as a starting point, 10 to 15 percent of the global hash rate come off at some point post-halving, pretty close post-halving.
Speaker Change: Privately or publicly frankly in 2023 is what led that sort of that team to be to have a pipeline to be working with clients, but ultimately not have capital really come into the space. I mean, that's that's that's what the whole industry saw.
Speaker Change: That started to unlock unlock and like I said, we see it as investors on the front end that that starts to trickle down into from series C series eight a series B I mean, we think that that is happening now in real time, and it's gonna be there's going to be a building momentum in 'twenty 'twenty four and that's where the advisory business really really comes in.
Christopher C. Ferraro: Then we're looking at the go forward for the rest of the year from a hedging perspective, where it becomes much more important as you go into the late spring and early summer months to think about what volatility of power prices there could do and, therefore, what our. Thank you for watching. This has been a presentation by the U.S. Department of State. So 2024 is going to be a much more dynamic year. Thanks, that's very helpful.
Speaker Change: To play as you start to get to.
Speaker Change: Capital markets activity outside of like early company formation, that's one to the other one is you know the public markets for crypto.
Christopher C. Ferraro: And on the investment banking front, you guys mentioned you've had this $2 billion pipeline for quite some time, but it hasn't really resulted in meaningful deal-closing yet, but I was hoping you'd just maybe have a comment on how we should be thinking about the outlook or any cadence. You know, potential deals going forward. Yeah, I mean, the two big themes, I think, for that business, at least on the Capital Markets side, have been one, the private market lagging the public market. And so, you know, just like on the investing side of the business, that dynamic and there being very little capital markets activity, you know, is a problem, privately or publicly, in 2023. It led that team to have a pipeline, be working with clients, but ultimately I mean, that's what the whole industry saw. That started to unlock.
We're also or equally stagnant and Ah and while we've we've just now started to see some deals get printed for public companies. As you guys have probably already seen with the with the converts.
Speaker Change: That that activity is also I think a leading indicator for what.
Speaker Change: What we are likely to see maybe not in 2024, but definitely 'twenty 'twenty five in terms of public market activity and in all of that is really what you need to have a healthy functioning.
Speaker Change: Really active capital markets business.
Speaker Change: For for investment back and so the the M&A side has always been pretty consistent and we built a really strong brand there and we think we've got a lot of value to companies in the space.
Speaker Change: And in that vein and the capital markets activity is sort of just on the front end of really a really feel like it's going to unlock.
Speaker Change: Great. Thanks, that's all for me.
Speaker Change: Yep.
Speaker Change: Next question will come from Owen Lau with Oppenheimer. Please go ahead.
Christopher C. Ferraro: And like I said, we see it as investors on the front end. That starts to trickle down from Series C to Series A to Series B. And we think that that's happening now in real time and is going to be building momentum in 2024. And that's where the advisory business really, really comes into play as you start to get to capital markets activity outside of like early stage companies. That's one.
Owen Lau: Hi, Good morning. Thank you for taking my questions. So I have a broader question for Guy does she could you. Please talk about your top power Itt's theater, and how do you plan to capitalize the strength in the market and do you think international expansion has a high powered team I haven't heard too much conversation about international on this call but.
Christopher C. Ferraro: Two, the other one is, you know, the public markets for crypto were also or equally stagnant. And while we've just now started to see some deals get printed for public companies, as you guys have probably already seen with the converts, that activity is also, I think, a leading indicator for what we are likely to see, maybe not in 2024, but definitely in 2025, in terms of public market activity. And all of that is really what you need to have a healthy, really active capital markets business for investors. So the M&A side has always been pretty consistent, and we built a really strong brand there, and we think we add a lot of value to companies in the space. In that vein, and the capital markets activity is sort of just on the front end of really feeling like. Great, thanks. The next question will come from Owen Lau with Oppenheimer. Please go ahead. Hi, good morning.
Can you also talk about any pockets that you think obviously you should be expanding and jewels. Thanks a lot.
Speaker Change: Yeah listen for US. This year is about executing like we have a really good road map and we just need to execute it and the world is.
Speaker Change: It's changing fast and so the execution has to happen fast right. It is it is connecting this big group of investors, both crypto investors and institutional.
Speaker Change: Traditional trade by investors to our platform.
Speaker Change: Right. This was a great first.
Speaker Change: First three months of doing that.
Speaker Change: I would love it together nine months end of the year for us to say, Hey, we have X hundred clients on the platform with.
Speaker Change: With a whole lot more assets than we have now so that's the number one priority.
Speaker Change: We are growing outside the U S. Our London offices is as vibrant.
Speaker Change: We've got a decent presence in Hong Kong.
Speaker Change: We are hiring.
Speaker Change: We're at 450 people today.
Speaker Change: Would not surprise me if that number was over 500000.
Speaker Change: Six months.
Speaker Change: And so.
Speaker Change: It's.
Speaker Change: Bull markets are great opportunities, but they are also difficult right because the game changing quick.
Michael Edward Novogratz: Thank you for taking my questions. So I have a broader question for Galaxy. Could you please talk about your top priority this year and how you plan to capitalize on the strength in the market? And do you think international expansion has a high priority? You know, I haven't heard too much conversation about international business on this call, but can you also talk about any pockets that you think Galaxy should expand into? Thanks a lot.
Speaker Change: The market for talent changes.
Speaker Change: And so we're trying to stay focused on and really doing a good job executing.
Speaker Change: Got it and then on capital formation on the profit private market side, you talk quite a bit above the venture portfolio.
Speaker Change: Alrighty.
Speaker Change: Can you talk about what kind of projects are getting funding even though this is still early stage, but but the good news for private company each of our cocoa space. Thanks.
Michael Edward Novogratz: Yeah, listen, for us, this year is about... We have a really good road map, and the world is changing fast, and so the execution has to be fast. Right, it is, it is connecting a big group of investors, both crypto investors. Uh, right. A great first...
Speaker Change: Yeah, I would say I mean, there's a number of themes, but the two key ones to point out one is his token is Asian and and the the the primary lane for tokens nation that debt is getting funded with like increasing fervor is primarily around around stable coins token I structured products.
Michael Edward Novogratz: I would love at the end of nine months and a year for us to say, hey, we have X hundred clients on the platform with a whole lot more assets that we're. So that's the number one priority. We are growing outside the U.S. Our London office. This is Vibrant, we've got a presence in Hong Kong. We are hiring. It would not surprise me if that number was over 500,000.
Digital representations of either cash or cash like or.
Speaker Change: Or sort of cash yielding asset and that's that's happening on the on the in the regulated.
Speaker Change: On the regulated sort of version, which you know, which we pointed out all unity, which were involved with directly with two big institutions in Europe.
Michael Edward Novogratz: So, you know, full markets are great opportunities, but they're also difficult. Games are changing quickly, the market for talent. And so we're trying to stay focused and really do a good job back there.
Speaker Change: And it's happening.
Speaker Change: Across a bunch of different jurisdictions, it's also happening.
Speaker Change: In the very crypto native decentralized fashion with protocols launching that are seeking to make better products than the existing stable coin market offers clients. Today are offers users today and so a lot of focus there is on how how through through regulated channels can we token is money.
Christopher C. Ferraro: And then on capital formation on the private market side, you talk quite a bit about the venture portfolio already. Can you talk about what kind of projects are getting funding, even though this is still in the early stage, but good news for private companies in the crypto space? Thanks. Yeah. Yeah, I would say there's a number of themes, but two key ones to point out.
Speaker Change: And money markets and turnaround in past that the full or a significant portion of the yield on to users. So that people feel like they're getting the most out of their out of their money.
Christopher C. Ferraro: One is tokenization, and the primary lane for tokenization that is getting funded with increasing fervor is primarily around stablecoins, tokenized structured products, you know, basically digital representations of either cash or cash-like or sort of cash-yielding assets. And that's happening in the regulated version, which we pointed out, AllUnity, which we're involved with directly with two big institutions in Europe. And it's happening across a bunch of different jurisdictions. It's also happening in a very crypto-native, decentralized fashion with protocols launching that are seeking to make better products than the existing stablecoin market offers clients today. Or offers it to users today.
Speaker Change: And you know that that Oh, one. Other example of that is just look at Blackrock.
Speaker Change: Having filed to talk about it it's money market fund with securitized and so that's one big area. It's it's it's happening globally and it's happening across a lot of different vectors. The other area.
Speaker Change: I'd say its just the continued continued march forward on optimizing for block space in block space performance and and so that that covers the whole gamut of.
Speaker Change: Additional.
They are to where she was getting funded technologies that that parse the blockchain into different parts of our modular blockchain with data availability like with Celestia for example, as well as zero knowledge proof and optimistic roll ups and stuff all geared towards how does this infrastructure speed up and get more efficient so.
Christopher C. Ferraro: And so a lot of focus there is on how, through regulated channels, we tokenize money and money markets and turn around and pass that full or significant portion of the yield on to users so that people feel like they're getting the most out of their money. And, you know, one other example of that is BlackRock having filed to tokenize its money market funds with Securitize. And so that's one big area. It's happening globally, and it's happening across a lot of different dimensions. The other area, I would say, is just the continued march forward on optimizing for block space and block space performance. Layer 2 is getting funded, technologies that parse the blockchain into different parts for modular blockchains with data availability, like with Celestia, for example, as well as zero-knowledge proof and optimistic roll-ups.
Speaker Change: It can be the thing that powers the financial system globally, and so that that constant drone historic of that development side has started to pick up pretty pretty aggressively again too.
Speaker Change: Got it thanks a lot.
Speaker Change: The next question will come from Devin Ryan with JMP Securities. Please go ahead.
Devin Ryan: Great Good morning, everyone.
Devin Ryan: Most questions have been asked here, but just kind of follow up on the trading business.
Devin Ryan: You had touched on this a bit in a prior question, but you mentioned success onboarding more kind of traditional asset management, Counterparties and I'm sure you'll be watching is helpful.
Devin Ryan: And so as we think about broadening out of institutional adoption from here how much does the ETF approval de risks the space in the eyes of some of these more traditional players and maybe act as a catalyst for them to enter or engaged with you guys and where are we in that process and then or are they just the ones that are coming in are they just sticking with.
Christopher C. Ferraro: It's all geared towards, you know, how does this infrastructure speed up and get more efficient so that it can be the thing that powers the financial system globally? And so that constant drone of that development side has started to pick up pretty aggressively. Got it. Thanks a lot.
Devin Ryan: Bitcoin because essentially the last are you seeing more traditional players starting to get comfortable with a broader list of assets.
Devin Patrick Ryan: The next question will come from Devin Ryan with JMP Securities. Please go ahead. Good morning, everyone.
Speaker Change: Yeah, I'll take a crack at that listen.
Speaker Change: I think the answer is it de risks the cleaning of giant way right. No. One has any no ones no one's getting fired for buying bitcoin no one is having to make.
Devin Patrick Ryan: Most questions have been asked here, but just kind of follow up on the trading business. And, Chris, you had touched on this a bit in a prior question, but you mentioned success onboarding more traditional asset management counterparties, and I'm sure the ETF launch was helpful in that. And so, as we think about broadening institutional adoption from here, how much does ETF approval de-risk the space in the eyes of some of these more traditional players and maybe act as a catalyst for them to enter or engage with you guys? And where are we in that process? And then, are they just the ones that are coming in?
Speaker Change: Make the case of <unk>.
Speaker Change: <unk> should be a macro asset now it is a macro asset.
Speaker Change: And.
Speaker Change: It's a highly volatile one.
Speaker Change: It doesn't fit in every single portfolio, but it is a weapon.
Speaker Change: That.
Speaker Change: Hedge funds use Uh huh.
Speaker Change: By itself that that real money investors are are putting more and more into their funds as a diversify our that high net worth people are putting into their funds.
Speaker Change: That's the kind of the gateway drug.
Speaker Change: Like in any other.
Speaker Change: Market the early adopters feel very comfortable with our serial and and now Solana and.
Speaker Change: In Europe.
Speaker Change: Bottoming out the universe of.
Speaker Change: Cryptos, where kind of the.
Speaker Change: The more conservative guidance in place.
Michael Edward Novogratz: Are they just sticking with Bitcoin because, essentially, they've been blessed? Or are you seeing these more traditional players starting to get comfortable with a broader list of assets? I'll take a crack at that.
Speaker Change: Crypto community is at the far tail of this stuff right with mean tokens and gaming tokens and level twos inside chains, and so I think it's just an evolution.
Speaker Change: But we're seeing it play out in lifetime.
Michael Edward Novogratz: Listen, I think the answer is it de-risks Bitcoin in a giant way. Right, no one is any, no one, no one. It's the case of why... It is the, and... You know, it's a highly volatile one. It doesn't fit in every single portfolio, but it is a weapon that hedge funds use. Buy and Sell That real money investors are putting more and more into their funds as a diversifier. [inaudible] So that's kind of the gateway drug, like any other.
Speaker Change: And I think.
Speaker Change: The U S approval was really the big.
Speaker Change: No big Bang or the space, because its saying the government.
Speaker Change: As much as you against or didn't want to.
Speaker Change: He endorses we approve it.
Speaker Change: Completely legitimate and legal and youre not going to have any trouble doing this listen the rest of the trip, though it's still a regulatory tug of war.
Speaker Change: And you.
You know like I said, I think that will change at the end of the at the end of the year.
Michael Edward Novogratz: Market, the early adopters feel very comfortable with Ethereum and now Solana. Broadening out the universe of..., cryptos where I'm a more conservative guy. The crypto community is at the far tail of... Bye. So I think it's just an evolution.
Speaker Change: But it hasn't yet and so you know.
Speaker Change: Some people are betting on that change in and playing through in other peoples are more cautious and so.
Speaker Change: A year from now assuming I'm right and we get legislation passed in the U S.
Speaker Change: And a different.
Speaker Change: Tone out of the SEC this industry will be a lot bigger.
Michael Edward Novogratz: But we're seeing it, you know, play out in life. U.S. Approval was really the, you know, big bang of space, because it's saying the government, as much as Gary Gensler did at one time, We endorse this, it's legitimate and legal, and you're not going to have any... Listen, the rest of crypto, it's still a regulatory tug-of-war. You know, like I said, I think that will change at the end of the year. But it hasn't yet. And so, you know, some people are betting on that change, playing through, and other people's are more caught.
Speaker Change: Yeah.
Okay, great. Thanks, that's great color I'll leave it there.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Mike Novogratz for any closing remarks. Please go ahead Sir.
Thanks for joining us today I hope you hear our enthusiasm for galaxy for the space for the opportunity set.
No that we are working our tail off tails off.
Speaker Change: To try to you know.
Speaker Change: <unk> returns for our investors to try to build a world class company.
Devin Patrick Ryan: So I think a year from now, assuming I'm right and we get legislation passed in the U.S. and different, this industry will be a lot better. Okay, great. Thanks, Mike. That's great, Tyler. I'll leave it there.
Speaker Change: It's an exciting time.
Speaker Change: We're really happier.
Speaker Change: Journey with us thanks.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Michael Edward Novogratz: This concludes our question and answer session. I would like to turn the conference back over to Mr. Mike Novogratz for any closing remarks. Please go ahead, sir.
Speaker Change: Hum.
Speaker Change: [music].
Michael Edward Novogratz: Thanks for joining us today. I hope you hear, you know, our enthusiasm for Galaxy, for the space, for the opportunity set. Know that we are working our tails off to try to, you know, produce returns for our investors, to try to build a world-class company. It's an exciting time. We're really happy you're along. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. ? ? Happy music playing ?? ? ? Happy music playing ?? ? ? Happy music playing ??
Speaker Change: Okay.
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Speaker Change: [music].
Speaker Change: Yeah.
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Speaker Change: Yes.