Q1 2024 Galaxy Digital Holdings Ltd Earnings Call
Good morning, and welcome to Galaxy's first quarter 'twenty 'twenty four earnings call.
Today's call is being recorded after today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two at this time I would like to turn the conference over to Johnson Goldovsky head of Investor Relations.
Jonathan Goldowsky: Please go ahead.
Jonathan Goldowsky: Good morning, and welcome to Galaxy's first quarter 'twenty 'twenty four earnings call before we begin. Please note that our remarks. Today may include forward looking statements actual results may differ materially from those indicated or implied by our forward looking statements as a result of various factors including.
Jonathan Goldowsky: Those identified in our filings with the Canadian Securities Regulatory authority on SEDAR, plus and available on our web site or in future filings, we make with other securities regulators.
Speaker Change: Forward looking statements speak only as of today and will not be updated.
Speaker Change: 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 Chris Ferrara, President and CIO of Galaxy.
Christopher C. Ferraro: Thanks, Jonathan.
Christopher C. Ferraro: Well, we changed it up a little this morning, so I'll start by wishing everyone. A good morning from Sunny New York.
Christopher C. Ferraro: Before I jump into our business results and performance I want to spend a few minutes discussing the recent equity capital raise we completed last month.
Speaker Change: Over the past several months, we've seen a confluence of sizable growth opportunities across our business amidst the backdrop of accelerating digital asset adoption globally and in mid April we executed a strategic equity capital raise of $125 million U S to help us capitalize on these trends.
Speaker Change: In our global markets business the opportunity set has expanded dramatically.
Speaker Change: Client spot and derivative slow volumes position financing asset sale syndications, and unchain liquidity pool provisioning just to name a few have all begun to show strong recurring demand growth.
Speaker Change: In addition, and consistent with our platform objectives, we recently crossed $8 billion in trailing 12 month notional over the counter derivatives traded requiring us to register as a swap dealer in the U S and comply with a new set of regulatory requirements.
Speaker Change: These obligations will drive additional operating expenses and capital requirements, but importantly will enable us to provide increasingly larger institutional clients an opportunity to engage with us in established and regulated trading business a format that many of the world's largest asset managers hedge funds and allocators already operate within and in fact require at scale.
Speaker Change: And you don't have to just take our word for it in the preceding months the trading desk carefully manage its derivatives business opportunities, allowing the necessary time to implement its swap dealer framework prior to exit are exceeding the de minimis threshold.
Speaker Change: Post exceeding the $8 billion threshold, we have seen a significant uptick in client activity, leading to an approximate 25% increase in notional derivatives volumes relative to the 12 month period prior to crossing.
unknown: Outside of the U S. We are pursuing various sets of licenses to operate client businesses in Europe, and Asia to bolster our product and service offerings in two regions that are experiencing meaningful growth and adoption of digital assets.
Speaker Change: And in addition to expanding our business operations in the U S and internationally. We are also investing a portion of the capital we raised in the next phase of expansion of the Helios mining facilities infrastructure, which I'll provide more detail on in a few minutes.
Speaker Change: We are expecting returns on these investments to be well above our cost of capital, which we believe will drive significant shareholder value over the long term.
Speaker Change: Finally galaxy has a six plus year track record of being good stewards of our balance sheet.
Speaker Change: Over the past two years, while some of our peers have raised billions of dollars through at the market offerings to scale their businesses Galaxy had repurchased approximate 12 million shares of our stock at an average price of $6 44, Canadian and leverage the gains on our investments digital assets and operating businesses to fund our growth.
Galaxy: The roughly 12 million shares we repurchased over the past few years and just reissued to the market through this most recent equity raise represents a return on investment of over 100%.
Speaker Change: Now, while we absolutely do not intend to prioritize trading our stock with investors for profits, we do recognize more than anyone the cost of not myopically in maniacally focusing on building an industry leading franchise, we have employed capital markets activities when either the returns of our stock were unavoidably attractive or when the opportunity set to grow our business with unemployment.
Speaker Change: Notably rich as it is now.
Speaker Change: Moving on to our first quarter results, let's start with global markets.
Speaker Change: Our trading desk strategically positioned itself to be a beneficiary of the positive momentum in market conditions and digital asset prices throughout the first quarter generating $66 million in counterparty trading revenue in Q1.
Speaker Change: This 79% increase quarter over quarter was primarily driven by continued growth in our derivatives book, where we earn more revenue and <unk> 24 than we did in all of 2023.
Speaker Change: In line with this increase in revenue. We also saw a counterparty trading volumes increased 78% quarter over quarter.
Speaker Change: Our desk continued to onboard new counterparties, bringing our total count to over 1160 at the end of March.
Speaker Change: This continued growth in client trading volumes engagements with our desk as confirmation that galaxies, earning more wallet share amongst our existing clients and that we are becoming the trusted partner to new institutional asset managers and hedge funds as they begin to enter the space.
Speaker Change: Our lending business has also been a beneficiary of increased institutional activity with our average loan book size growing to $664 million up 5% quarter over quarter.
Speaker Change: And we continue to make meaningful progress on the build of Galaxy, one our institutional client platform and ended Q1 with approximately 75 clients with over $1 billion of fair market value assets being serviced by the platform.
Speaker Change: Moving onto our other segment of the global markets business, our investment banking business.
Speaker Change: Our team successfully closed one deal in the quarter, having served as an advisor to crypto slab the leading aggregator of N F. T data across blockchain ecosystems, who received a strategic investment for spirit blockchain capital.
Speaker Change: In Q1, rising crypto market optimism spurred M&A interest with even traditional non crypto firms looking at M&A opportunities to enter the space at scale.
Speaker Change: On the capital markets front, we are seeing a tale of two markets strong valuations for tokens in early stage raises reminiscent of 2021, while generalist investors have not yet returned to growth stage companies.
Speaker Change: Our expectation is that capital deployment and acquisition appetite will increase with a prolonged positive market sentiment, which we anticipate will drive pipeline monetization for the business and growth in the second half of the year and into 2025.
Speaker Change: Turning to our asset management business we.
Speaker Change: We ended the first quarter with $7 $8 billion of assets under management, a 50% increase quarter over quarter.
Speaker Change: This increase in AUM was primarily driven by Gan being awarded an additional mandate and the MTX bankruptcy process net inflows into our global range of Etfs and market appreciation.
Speaker Change: As I mentioned on our last call over the past few months galaxy's asset management's mandate to monetize F. T X. The states digital asset holdings for creditors has increased in both scope and complexity.
Speaker Change: In addition to managing certain assets within F T X as liquid portfolio as well as various trust assets in January we were awarded a third mandate to wind down these states sizable locked token positions.
Speaker Change: First quarter, we kicked off the first of many dispositions of those locked assets and although this brought our AUM down from a record $10 1 billion in February the decrease in assets is a reflection of the team's successful execution and aiding creditors in reclaiming their funds.
Speaker Change: Additionally, the associated fees were meaningful revenue drivers for the business as evidenced by our 113% increase in games management fees quarter over quarter.
Speaker Change: As of quarter end the value of assets tied to the various F. T X mandates. We are managing was $3 4 billion.
Speaker Change: Although the assets under management and fees tied to the F. T X mandates will decrease over time as we continue to monetize the portfolio. We are the only firm with a proven track record of executing a multibillion dollar complex bankruptcy mandate and the crypto space, which we believe has bolstered our franchise value significantly.
Gamma: Building on games existing partnership footprint in Canada, The U S and Brazil on April 4th Gamma announced the European launch of Bitcoin and a theory M E T PS with dws groups ex tracker franchise.
Gamma: X trackers as a leading is a leader in Etfs globally with $200 billion in AUM and we couldn't be more excited to scale and grow these products together.
Gamma: Finally on the venture side of our business. We are currently raising external capital for our inaugural Crypto venture fund.
Speaker Change: As you recall in 2023, our proprietary crypto venture franchise moved into the asset manager with the intention of opening that investing program to external lp's.
Speaker Change: We are currently raising capital for this inaugural vehicle, which will complement our existing interactive and crypto fund of fund franchises.
Speaker Change: We think the market opportunity for the fund is $150 million to $200 million in institutional interest from the allocator community early on has been stronger than expected. We are on schedule for a quick first close in Q2.
Alex: Yeah, Alex the asset management is well positioned to leverage its strong track record to capture new institutional demand in this next wave of growth with over $2 7 billion and passive AUM $3 6 billion and activate your AUM at 1.5 billion adventure Galaxy is one of the largest and fastest growing digital asset managers globally.
Helios: And finally, turning to our digital infrastructure solutions business. Our mining team continues to demonstrate success in operating in scaling the Helios facility and in the first quarter reported record revenue of $31 $5 million. This represents a 69% increase quarter over quarter and an over 200% increase when compared to the same.
Speaker Change: Quarter prior year.
Speaker Change: For the first quarter, our power purchase cost and external hosting expenses net of curtailment credits were approximately $15 million, resulting in a 52% direct mining profit margin.
unknown: Our strong money margin quarter over quarter continues to position us as a leading bitcoin minor globally.
unknown: We maintain a low average marginal cost of mine of less than $19500 per bitcoin with quarter over quarter increase driven primarily by all time high network difficulty.
unknown: As everyone already likely knows the bitcoin having occurred on April 19th resulting in the big claim block subsidy dropping from $6 two five to $3 125, bitcoin roughly every 10 minutes when a new block is found.
unknown: All else being equal this means that predictably the first post having block reduces the block subsidy portion of the block reward by 50%.
Galaxy Money: From there there are several factors that impact the collective industries go forward profitability, including transaction fees Bitcoin price network difficulty machine efficiency and energy prices. So what does this mean for galaxy money.
Galaxy Money: To give everyone a tangible sense our preliminary gross.
Galaxy Money: Mining gross profit for April which included 19 days pre having an 11 days post having was still largely in line with our March profitability.
Galaxy Money: While we do acknowledge that heavy on chain fee activity did help to offset much of the having impact and are generally less predictable today as we've discussed galaxy's mining assets also benefit from an attractive power market and our proprietary active power management software, which allows us to adjust our operations based on real time profitability in either mine bitcoin or curtailed.
Galaxy Money: And also helpful. The first post having bitcoin network difficulty adjustment occurred on may 9th and resulted in a 6% downward adjustment in line with our previous expectations.
Galaxy Money: In the first quarter, we continued to add both proprietary and hosted hash rate bring total hashmi under management to $5 seven Xtra has per second representing nearly 1% of the entire bitcoin network.
Galaxy Money: Helios currently has 180 megawatts of energize mining capacity and we have started construction on the next phase of our substation to bring on an additional 300 megawatts of high voltage capacity in the third quarter of next year.
Galaxy Money: We believe this project in of itself will add significant incremental value to our asset base and will set the foundation for our growth opportunities at Helios, while we monitor the bitcoin mining and capital market conditions closely to determine how best to prudently expand our operating data center capacity in the future.
Speaker Change: Development of that substation capacity is well underway, we have already purchased and taken delivery of some of the long lead time electrical infrastructure, including four main power Transformers, which are fully paid for and already installed at the Helio substation.
Speaker Change: We're also excited to share that in Q1, we purchased an additional 160 acres of land adjacent to Helios.
Speaker Change: This gives us the optionality to further scale, our mining operations, but also to opportunistically pursue other high power computing business models that rely on access to quality infrastructure and inexpensive power.
Galaxy Money: Our blockchain infrastructure business beyond Bitcoin mining also had a strong quarter and continues to position Galaxy is one of the most trusted nodes in the decentralized ecosystem.
Galaxy Money: Our assets understate doubled relative to the prior quarter to reach $486 million and as I previewed on the last earnings call. We had line of sight to scale. This number further and I'm now pleased to share that as of April 30th our assets under stake has grown to $1 $5 billion with galaxy growing to become the number two validate our globally on the Salon and network.
Speaker Change: The performance of each of our operating businesses. This quarter highlights how our diversified business model is uniquely positioned to benefit from the institutional capital. We are seeing begin to flow into the ecosystem.
Alex: Conviction in what we've built at Galaxy and our ability to execute has never been higher I'll now turn the call over to Alex to cover financial results and then he'll turn it over to Mike to close its Alex.
Alex Rodriguez: Thank you Chris Good morning, we.
Alexander M. Ioffe: We had a great quarter, we reported net income of $422 million up $120 million quarter over quarter, and an increase of $287 million compared to the same quarter last year.
Alexander M. Ioffe: This was primarily driven by market appreciation and growth in our operating businesses.
Alex: Chris covered most of it.
Alex: To highlight a few key trends.
Chris: First in this past quarter, we had the launch of the spot Bitcoin E T F in the U S.
Chris: Which facilitated adoption of the largest crypto asset by mainstream investors. We believe full scale adoption of the Bitcoin E. T F will take time to propagate.
Speaker Change: And it is a beginning of a multiyear cycle with institutional allocators and wealth platforms.
Speaker Change: We expect there to be market retrenchments, along the way, but we believe that the demand for this product will continue to increase.
Speaker Change: Second.
Speaker Change: Our trading.
Speaker Change: Asset management mining and staking operating businesses made significant gains in the past quarter.
Alex: Our equity capital was 2.2.
Speaker Change: Billion dollars as of March 31, up 400 million quarter over quarter.
Chris: And after the quarter ended as Chris noted, we raised 125 million of additional equity capital.
Speaker Change: Total liquid assets were $1 5 billion at the end of this quarter up from $910 million at the end of 2023.
Speaker Change: And consisting of $163 million in cash cash equivalents and stable coins.
Speaker Change: 821 million of net digital assets, excluding staple coins and five hundreds and $15 million of spot Bitcoin Etfs that started trading this quarter.
Speaker Change: We continue to make progress on our U S listing we have thought and receive pre clearance from the SEC on a number of accounting issues.
Speaker Change: In April we.
Speaker Change: We see significantly fewer comments from the FCC on our latest round of comments compared to the prior round.
Speaker Change: This was the sixth round of comments from the SEC.
Speaker Change: We can't be sure that the comments, we will continue to decrease but we are encouraged by the progress we have made yes.
SEC: Yesterday, we filed our responses to the latest round of FCC comments, along with the registration statement update it for the full year 2023 and for the latest accounting guidance.
unknown: Of note starting in 2023 for the U S. GAAP financials included in the latest steps for we early adopted fair value accounting for digital assets.
Speaker Change: By a new accounting standard published by FASB.
Speaker Change: At the end of last year.
Speaker Change: Now to Mike Thank you.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Unless we change the.
Michael Edward Novogratz: The order up a little bit today, because I wanted a crystal lead off with Oh, what a strong quarter, we had and.
Crystal: I wanted to talk and put that in context of how I see the business right now and how you see galaxy and IC is going forward.
Speaker Change: You know crypto as a very interesting industry and that the main asset bitcoin and and and and the crypto space really drives a lot of things it drives activity in all your different businesses.
Speaker Change: Drives enthusiasm for the space it drives adoption and so what markets are going up businesses always feel great.
Speaker Change: Hmm.
Speaker Change: Americans don't always go up and so what's important to note and I think this is really important is sometime in the last I'd.
Michael Saylor: I'd say three to three to nine months, our company and the whole industry crossed the Rubicon, where while we're still gonna have quarterly.
Michael Saylor: Quarterly results that are somewhat correlated to the price of crypto because activity goes up and down with with crypto prices.
Michael Saylor: My confidence that institutions are coming for.
Speaker Change: For long term stays has increased immensely we seen at our own business people willing to lend us.
Speaker Change: Crypto for long periods of time unsecured that didnt happened six months ago when its happening now counterparty is growing engagement around the space.
Speaker Change: Just at a different level than it was before and so it makes it easier for us to invest long term.
Speaker Change: It makes it easier for us to really have a strategy that we can think hey in two years, we have a good sense of where things are going.
Speaker Change: <unk>.
Speaker Change: Much harder two years ago, and so if there's one message to take is that while we will still have volatility and big claim price and hence volatility in earnings of the whole industry will.
Speaker Change: <unk>.
Speaker Change: I feel really confident that it's heading in a in a in a pretty bright direction.
Speaker Change: Listen we had a great quarter right asset management fees at a record mining revenue at a record, we really jumped boot strap and and and and got into the staking business in a big way.
Speaker Change: Our derivative business is.
Speaker Change: It is jumping to a new level.
Speaker Change: You know trading opportunities are abound, and so all feels pretty good.
Speaker Change: Whereas bitcoin right now right 62000 and ended the quarter at 73000, and Where's it going listen we.
Speaker Change: We had a lot of tailwind in Q4 and Q1.
Speaker Change: The adoption of the ETF by far the biggest right that was the.
Speaker Change: The giant kind of wake up call that this is now an institutional asset.
Michael Edward Novogratz: We also had the housing that we've now put in the rearview mirror. There was also a view that the fed would bring rates down significantly this year and that view has changed it's changed in the market has changed here at Galaxy and so I think we're in a consolidation phase encrypt out a bit.
Michael Edward Novogratz: A theory of and everything else are Lana will consolidate what does that mean it means probably somewhere between 55 and 75 until the next set of circumstances.
Michael Edward Novogratz: Set of market events brings us higher.
Michael Edward Novogratz: And so what.
Speaker Change: When we're in those periods, there's still trading opportunity, but I figure on I always use. These words, it's a grind and it's time to build and we are frantically are doing both of those things, but I say grinding its coming in every day.
I: Being in touch with clients trading the opportunity set you see but more importantly, it's the bill it's the technology build its the relationship build Ah it's the.
Speaker Change: The corporate opportunities build and I think that's probably where we are.
Speaker Change: Certainly for this quarter, maybe next quarter until a either the fed starts cutting rates because the economy finally slows.
Speaker Change: Or b, we get through the election, and I think the election will bring clarity one way or the other to the crypto a regulatory landscape and so.
Speaker Change: You know I I leave it there are we had a great quarter the business feels good.
Speaker Change: I think you know.
Speaker Change: No. There's no there's no nothing on the horizon that gets me panicked, Oh, my God crypto could crash.
Speaker Change: Don't see it prices can go up and down with the macro forces, we continue to see adoption growing.
Speaker Change: As Alex talked about the ETF got launched you know big players are just now starting to put it through their system, you've read about Morgan Stanley.
Speaker Change: It was just getting started and so that whole process of wealth managers selling it to their clients isn't an overnight process and so feel pretty good both here in the U S and more importantly abroad that trip.
Alexander M. Ioffe: Crypto has found a lane in People's portfolios and will continue to grow.
Alexander M. Ioffe: And with that I'll turn it over to Q&A.
Alexander M. Ioffe: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: Youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: First question comes from Andrew Bond with Rosenblatt Securities. Please go ahead.
Speaker Change: Hey, Thanks, and good morning, guys, Chris I believe you mentioned platform derivative volume Q1 was greater than all of 'twenty three.
Andrew Bond: Are you seeing a greater percentage of this volume and kind of your revenue being driven by more traditional institutional market participants are market makers as Counterparties post ETF approvals and is it just kind of we're seeing growth or expect to see more growth with your additional regulatory approvals.
Matt: Yeah. Good morning, Thank you Matt.
Speaker Change: Yeah, I'd say early on it's a bit of a mix, there's there's existing market participants.
Matt Smith: Who are more and more using more capital efficient ways to get their positions on our hedge positions. We we are seeing institutions, who previously were not participating coming in and using more and more derivatives and and earth like basic exotics two to create their position.
We: But it's like very early stages on that front and so the we were holding the dam back truthfully proactively on on what we were doing that in that business, specifically to get ourselves ready.
Speaker Change: From a regulatory compliance and from a tech perspective for swap deal registration, we're gonna be actively registered starting June one.
Speaker Change: And once once we let we let that damned down like we said sort of the business expanded 25% very quickly and and and that whole apparatus is being set up to accept.
Speaker Change: Traditional financial institutions coming into the space and like I said that that that's been very early stages. So.
Speaker Change: Mix of both but but not not anywhere near what we expect.
Speaker Change: Ah the market to do and what we expect the platform to be built for.
Speaker Change: Got it and just a follow up maybe for Mike I kind of talked briefly on the political and regulatory environment, obviously a lot.
Michael Edward Novogratz: Going on heading into the election cycle I'm just wanted to see if you could share your view on the your thoughts on what the best outcome would be for crypto markets in your business as we head into the cycle here.
Michael Edward Novogratz: Yeah, Let me talk a little bit about like politics encrypt over the last 10 days, because I think something significant happened and it's interesting it's been kind of a buildup right crypto should be a bipartisan an apolitical like theres, a libertarian streak right freedom and privacy of bitcoin and there.
Speaker Change: There is a cut out the middleman really progressive side to so many of these crypto ecosystems right if it's in music or in.
Speaker Change: And in finance and how do we how do we cut out the middleman rate, which can be seen as progressive and so.
Speaker Change: That has been politicized is a damn damn shame.
Speaker Change: I blame that almost squarely on Elizabeth Warren and Gary Gensler.
Speaker Change: To be honest and I don't think the dams realized it was a problem and just last week.
SAB 121: No. There's a thing called the SAB 121, it's an accounting rule that forces a institution.
Michael Edward Novogratz: Institutions to hold crypto as an asset and a liability on the balance sheet, even if it's in custody and so that stopped banks from bank Bank like Bank of New York The biggest custodian in the world from custody and crypto because it's going to blow their their balance sheet up and it's gotta look really foolish.
SAB 121: Republicans put forth they are.
Republicans: <unk> built a to overturn that accounting rule and.
President: President by it and said he vitale and I'm thinking like the insanity of a president detailing an accounting rule.
SAB 121: But it just read to the crypto community as the Democrats, saying no to crypto and it's unfair there are tons of Democrats that our pro crypto guys like Roca, Honda and Richie Torres and there there are lots of them, but the power has been held by Elizabeth Warren.
SAB 121: The Senate banking committee, and Gensler and a few others.
SAB 121: And so I think you saw something the same day Trump came out with Ryan Celsius alongside of them and gave a speech and set handler pro crypto President.
SAB 121: And there was just a shift there was a shift in the Twitter space. There was a shift in people I spoke to saying Wow Republicans. Good Democrats bad I think that's kind of dangerous thinking and that broadly for our industry to thrive youre going to need bipartisan support because you can't go for one.
SAB 121: From one regime to the next and not knowing where your where you stand, but it's definitely heightened.
unknown: The power of crypto right, there's been over $150 million will be $2 50, I bet within two months of pack money Super Pac money raised.
SAB 121: And even credit Brian Armstrong and his effort.
Brian Armstrong: But then theres other efforts as well a to.
SAB 121: B to be spent in this election, and so races like John testers and shared Browns are key Democratic.
SAB 121: <unk> for the dams are are seeing a ton of crypto money pouring in.
Speaker Change: And you know I I was talking to.
Speaker Change: Senator friend of mine yesterday, it's like this is the definition of stupidity, if you're a Democrat is literally like saying Hey, we're the party against dogs right. There are more crypto users in America than there are dog owners can you imagine a party coming out and saying we don't like dogs like it it's just terrible politics, but that's where we're at.
Senator: So I think youre going to see this this issue stay politicize unless the Democrats can do a real pivot.
unknown: I think they finally are waking up because this week they heard it but we'll see we'll see like on its face Trump has now set and he is going to be a pro crypto president and so you probably get better and faster regime shift if trump wins in a fight and wins.
unknown: Right does it happen overnight nothing happens overnight, but he's broadly why not endorsed it and sell off I think if your trip dellinger, our one issue voter.
Speaker Change: The Republican ticket is looking better than the Democratic taken at this point.
Speaker Change #147: Awesome. Thanks, guys.
Speaker Change: The next question comes from Martin Toner with <unk> capital markets. Please go ahead.
Martin Toner: Good morning, folks and congrats on another strong quarter.
Speaker Change: I'd like to ask a couple of questions around costs.
Martin Toner: Can you talk a little too cost and infrastructure.
Martin Toner: Infrastructure.
Martin Toner: The 40 million I mean, where is it going.
Speaker Change: And how much of it is unrelated to to power and then and then what are you doing with it.
Speaker Change: Yeah.
Speaker Change: Yeah.
Martin Toner: So the increase in costs from.
Martin Toner: From prior year.
Martin Toner: Given primarily by mining in three pieces, there are more electrical costs theres greater depreciation.
Martin Toner: Because we have more machines online.
Martin Toner: And.
Martin Toner: Last year. There was this funky thing, where we had to reverse impairment on the mining machines that we wrote down in 2022, when the bitcoin prices were down.
Speaker Change: And hence the useful.
Speaker Change: Gymnast of those machines was somewhat curtailed right, but in 2023, when the prices increased were able to reverse those impairments back to the.
Speaker Change: Original cost basis.
Speaker Change: That's under Canadian rules in the U S. That's not allowed once you write something down and stays down but in Canada and that was the other piece of the difference.
Speaker Change: Got it okay. Thanks, so much.
Speaker Change #159: The next question is on a global.
Speaker Change: Mobile market.
Speaker Change: Given that the price of digital assets has a kind of.
Speaker Change #153: Stabilized lack of a better term here volume institutional retail has gone down just wondering what impact that's going to have on your business here in Q2.
Speaker Change #148: Yeah listen I said that in my opening remarks, our business is still correlated with both price and volatility and so when we go into consolidation periods you see volumes of overall crypto trading goes down and our activity goes down now listen we're still young enough business and we're bringing on new.
Speaker Change #148: <unk>, so we're going to try to.
Speaker Change #148: Have offset the macro of less activity overall with the micro of bigger market share and so as we are expanding our Leon Marshall is now our head of sales base and in London, He's bringing on new clients every week and so we're trying to to balance that off but overall.
Leon Marshall: When you see the big claim price go sideways or lower you can expect activity to come down.
Speaker Change #154: Yeah, Martin the only thing I'll add to Mike's comments is your question focused mostly on on global markets, but if you, but if you if you zoom out to the overall business.
Leon Marshall: We're we.
Speaker Change #149: We've made a concerted effort to build and add business lines that helped balance and add ballast to sideways down markets generally and so you know the the the asset management business.
Speaker Change #151: <unk> walks you now exposed to some data has had a significant ramp in our U M, which has just started flowing through from a from a P&L and profitability standpoint in the first quarter and so so that's a good ballast to the more volatile trading business. Our mining business, you know correlated to bitcoin, but has its own its own consistent profitability dynamics.
unknown: Based on our cost structure and the way, we built that business or port our illiquid portfolio.
unknown: I'll highlight is one that I'm generally lags.
unknown: Public markets and so while while we've we've had some appreciation in that portfolio a lot of the marks and a lot of the exposures. There we don't expect to come through and show up relative to the public markets for one or two quarters later and so so on a go forward basis like.
unknown: There is an expectation that that part of the business too.
unknown: Is it going to start flowing through and offset you know what what what is overall general market slowed us and so I think the overall platform you should you should expect to.
unknown: To be more balanced and more consistent production these days than they had been in the past.
Speaker Change #157: Fantastic. Thank you last one for me how do you guys think about.
Speaker Change: <unk> market share in our institutional trading volumes.
unknown: Yeah.
Speaker Change #150: I'll start with that one and maybe Mike could add I b.
Speaker Change #155: It's just very early there, there's there's far far far more white space than there is then there is phil filled space and and it being a zero sum game for market participants and so.
Speaker Change #152: It's a hard metric to measure when when you're talking about a relatively small percentage of total addressable market only being service today and talk about market share amongst that like middle of zoomed in piece. So you know our business as you saw in the first quarter.
Speaker Change #152: Grew pretty dramatically close to 80% on revenues and volumes.
Speaker Change #152: But like I said, that's it we think about it in the context of.
Speaker Change #152: How is the how much white space is crypto actually touching and are we getting our piece of it and so you know as long as we're focused on that it's not just about trading zero zero sum games with other markets.
unknown: Yeah.
unknown: It's going to be very I think it's going to take a couple of years until there is a.
unknown: Established enough set of competitors.
unknown: And <unk>.
unknown: A decent way to try to understand who's getting what business.
unknown:
unknown: You know the the volatility of our space is so dramatic that even derivative business.
unknown: Yeah.
unknown: The P&L is often determined by now.
unknown: Not just flipping a spread on on the trade you do but how you've positioned it in that 24 hour period or 48 hour period. So.
unknown:
unknown: You know that that over time, you'll be able to see.
unknown: Some leader board of us versus the competitors, but we're still very early.
unknown: Yeah.
unknown: Demonstrably on the drilling side of the business.
unknown: We are the largest market share participant I think I think almost definition the definition really.
unknown: Given the swap dealer designation, I mean, crypto and and the spot side of the business, there's a lot more.
coinbase: A lot more dispersed and globally and it's also a much much much lower margin business generally and that and that that shared not just by ourselves coinbase other big other big intermediaries globally, but also exchanges.
Speaker Change #164: Retail platforms and the like so.
Speaker Change #160: Yeah, but that's how we talk about the landscape.
Speaker Change: Very helpful. Thanks, so much.
Joseph Anthony Vafi: The next question comes from Joseph <unk> with Canaccord. Please go ahead.
Joseph Anthony Vafi: Hey, guys. Good morning, nice to see all the progress and the business Congrats on that just wondering here.
Speaker Change #158: All three businesses all with growth driver a lots of opportunity cost across all three plus you got a recent capital raise is there a way.
Joseph <unk>: That you're thinking about where you are prioritizing investment.
Joseph <unk>: Across the three you and yet across the three units and I guess kind of how you prioritize which one of those three units may get more investment attention versus others, and then I'll follow up thanks.
unknown: Sure.
Joseph <unk>: Morning, Joseph I appreciate you joining yeah. So.
unknown: Yeah.
Speaker Change #101: Where we have circled the capital to be to be allocated or in a couple of places and again for us for US. This is this is somewhat dynamic and and we we live and breathe and watch the markets every day and and sort of reassess our priors.
unknown: Often as we should.
Us: But the places that we've focused on is one in the in the trading side sales and trading side of the gold markets business as.
Speaker Change #105: As we said we have we have seen a significant influx early influx of demand from.
Us: Bigger trading counterparties and bigger clients who want.
Speaker Change #105: Access to trade services, what positions financed et cetera.
Speaker Change #162: In addition to that the regulatory regimes, where we are we are eyes wide open proactively walking into to service. These clients both in the U S with swap dealer designation and internationally with different licenses.
Speaker Change #105: Require an investment in <unk>.
unknown: Opex investment as well as capital requirements, and so that that area of the business.
unknown: Is one where we had the capital base to support B E U.
Speaker Change: We we thought it was prudent to do a small capital raise to help supplement that based on the demand. The forward demand that we were seeing form.
Speaker Change: At the end of the last year in the first quarter in that business, specifically to support the growth and so so that area of the business is is one another area of the business.
Speaker Change #108: Winning business, we we have actually even post having we have a number of of opportunities. We have an asset that we acquired that was deeply undervalued in our in our in our strong opinion.
Speaker Change #108: And it's still today not fully understood by market participants in the market in terms of its potential value and so now the capital that goes into the mining business is a lot longer the permanent capital than capital that we move in and out of the markets business with demand and so the decisions we make on the mining business are.
Speaker Change #108: Are more permanent and as such we take we take take a lot more scrutiny and have a lot higher bar to make investment decisions. The opportunities. We see now for the mining business and the Helios asset are very attractive and we think are our full cycle opportunities and so Paul.
Paul: Of the capital that we raised in the in.
Paul: In the and the equity raise we've ring fence to make the next steps we need to help grow the footprint.
Speaker Change: At that at that asset in particular in the the the longer lived longer duration, but high value in electrical infrastructure side of the business and so that means expanding the substation at Helios, which we've said now we will give helios the opportunity to expand its data center capacity by over 300.
Speaker Change #103: Oh watch by Q3 of next year.
Speaker Change #103: We also did a small acquisition of land to expand the footprint.
Speaker Change #102: And in all of that looks towards both bitcoin mining now that hash price has settled post having which towards bitcoin mining as being a very still a very attractive investment and return on capital, but also speaks to a pretty early nascent opportunity that we're seeing and have not yet formulated yet.
Speaker Change #102: You know if you look more broader outside of crypto. There. There is a somewhat insatiable demand that's already formed and is being executed on by the major hyperscale or thinking about the need for power to power data and data science in particular behind AI.
Speaker Change: We ourselves are not committed to that business model, yet, but I will tell you the number of early stage conversations and interest level in.
Speaker Change #163: The asset that we have given that it is a reliable electrical infrastructure at low cost and ready built and in the process of expanding it is interesting to everybody in that market and so those are the two primary areas that we've we've allocated our capital.
Speaker Change: Capital to today and again, it's dynamic, but that's the most interesting return on capital for US right now.
Speaker Change: Sure that's very helpful. Chris Thank you.
Speaker Change: Trying to see that those investments are being put to work and then just secondly, I know, it's a little early days with Gws and those two piece youre launching.
Speaker Change: In Europe, but any real time up there.
Speaker Change: There would be appreciated thanks, a lot guys.
Speaker Change #117: Yeah. Thanks.
Speaker Change #117: No real no real time update there the products are pretty early on in their launch. We just went out rang the bell and started sort of preliminary official launch.
Speaker Change: On the marketing side, there with dws and region and those are going to take time to build interest and get distribution to proliferate across the continent.
Speaker Change: Great. Thanks, Chris.
Speaker Change: The next question comes from Owen Lau with Oppenheimer. Please go ahead.
Speaker Change #104: Good morning, and thank you for taking my questions.
Speaker Change #110: Going back to regulation could you. Please talk about your view on how likely the U S can pass a stable coin Vod sphere and Mike can you just talk about Democrats are finally waking up this week.
Speaker Change #124: Do you think it will increase the chance that they would support the staple quite bill bundle with another bill in total where we'll get the appropriate goal and also if you can also give us an update on your old unity partnership and when do you expect the launch of your old stable client that would be great. Thanks, Ron on the regulations that listen there is a.
Speaker Change #137: There's a vote this week.
Speaker Change: On SaaS 'twenty, one and I think that'll tell us a lot in the Senate.
Speaker Change: Where that comes out.
Speaker Change #113: Apparently you know.
Speaker Change #118: Chuck Schumer has told people to vote your conscience.
Speaker Change: And so we'll get a sense of how many demos.
Speaker Change: Supported.
Speaker Change #100: You'll have all of the Republicans, but how many downloads it as if there are enough downturns can can it get through and then we'll see if bite and details that that'll be the first litmus test I think theres, a very very remote chance I'd put it at 15% that's a stable clean bill gets through.
Speaker Change #105: This year and you know, even though the market structure bill even less.
Speaker Change #105: You know we're in an election year, you are having a hard time getting guns and Republicans to too much together and.
Speaker Change #116: While for US this is unbelievably important Ah.
Speaker Change #116: And for a handful of senators and congressmen, it's imported a broadly it just doesn't rise to the level of important enough.
Speaker Change: For.
Speaker Change #115: The math for the mass of Congress.
Speaker Change: To care enough about.
Speaker Change: Got it and then any update on Oh its.
Speaker Change: All units.
Speaker Change: Right.
Speaker Change: And then Arizona I was I was going with that so so on the all unity side. We are we are we are driving forward there in.
Speaker Change #107: In partnership with M D Dws Deutsche Bank and flow traders.
Speaker Change #107: To get the application together with Boston.
Speaker Change #111: To launch the business and launch the product through German regulation, which which we think is the most robust.
Speaker Change #112: And will be the most easily passed portable throughout the entirety of the continent and is the right the right.
Speaker Change #112: The right entry point in the right place to really build a foundation for a a.
Speaker Change #109: Private euro based.
Speaker Change #109: Stable coin regulated stable coin, we have we've hired and brought on and he has been spearheading the effort and awesome CEO, Alex Hoffner, there and you know he's doing everything that that are at an early stage founder needs to do now to get the business running he's driving the application process.
Alexander M. Ioffe: On the regulatory side with Boston, he's attracting talent to the team.
Speaker Change #109: Irene the people, we need to really execute on the plan.
Speaker Change #109: And so between him ourselves and our partners, where we're often running there in terms of timing.
Speaker Change #109: The choice, we made as a group with all unity was to launch a euro stable coin with fully my car requirements and so that process is some is pretty much untapped.
Speaker Change #109: And there aren't comps to it and so timing wise, our expectation is is that likely going to be a 2025, and then we would love for it to be 'twenty, 'twenty, four, but but working with Boston to create a euro stable coin that's going to proliferate throughout the entire content is not something that I think anyone takes takes lightly but it is something that we think.
Speaker Change #109: Has has a is the right approach and has a shot of becoming financial infrastructure in Europe and so.
Speaker Change #119: All good things take their program at a time and investment let me chime in for one second because there was an alternative path right, which was to go to the unregulated version of what you already see some out there.
Speaker Change #126: And just.
Speaker Change #128: Talking and our partners talking to the Big corporates are.
Speaker Change #109: In Europe.
Speaker Change #109: I think the adoption.
Speaker Change #127: From a payments perspective from a from a.
Speaker Change #131: On Internet of things perspective amongst.
Speaker Change #131: Big corporate players in Europe.
Speaker Change #109: Not going to really accelerate until you've got a Deutsche Bank Blessed art.
Speaker Change #136: Touch even like our compliant product.
Speaker Change #109: Product and so we're taking the longer route that we think will lead to a much bigger pie.
Speaker Change #109: Versus launching.
Speaker Change #121: And unregulated.
Speaker Change #121: Some version of that which will start playing out there.
Speaker Change #125: Got it that is super helpful. And then on the adventure Si raising external capital could you. Please talk about the Lp's. There have these lp's already faster in this space or do you see new investors coming in you also talked about $150 million to $200 million market off with <unk>.
Speaker Change #122: Do you have any aspirational goal on how large the fund can be and when can you get there. Thanks a lot.
Speaker Change #121: Sure.
Speaker Change #130: I'll hit the last one first and then I'll go to the LP demand. So when we say $150 million to $200 million market opportunity like the the worst thing. We think you can do in investing particularly with with external capital is to raise too much and then feel compare.
Speaker Change #121: Compelled to have to put money to work.
Speaker Change #121: That is that's what big asset Aggregators do.
Speaker Change #121: That's not what we think.
Speaker Change #121: Alpha generator generative asset manager should do.
Speaker Change #121: One 150 to 200 million is probably low relative to what the market opportunity will be over a three year investment period, but the resurges of.
Speaker Change #135: The crypto ecosystem the beginnings of.
Speaker Change #135: A plethora of new use cases for blockchain.
Speaker Change #125: And decentralized crypto.
Speaker Change #125: Applications are are real but they're nascent.
Speaker Change #125: And they're just picking up steam and so it's really hard to size.
Speaker Change #141: The market the right way for two years forward three years four from investment program perspective, and so we say one $5 million to $200 million because we know that that's that's an opportunity size that if we take an L. P. Money, we can put to work and make L. P is a ton of money given what we see today.
Speaker Change #125: That may change as the year progresses.
Speaker Change #125: If it does then we will likely invest the capital a little bit faster than we than we thought integrate positions and then we'd resize and talk about sort of what the next the next leg for that opportunity set is.
Speaker Change #125: But we very strongly feel like from it from a franchise perspective sizing the opportunity.
Speaker Change #125: On the small side and correctly is the right way to generate alpha for investors and that's how you build the right asset manager liked but that's how we think about about fund size for that.
Speaker Change #129: The the sorry, I'm I'm I'm blanking on the other question L. P. As the other question on who are we what are we talking to.
Speaker Change #129: The answer is.
Speaker Change #134: A mix of both and we benefit from the fact that we've been in the business generally with Lps and talking to institutional Lps are allocators.
Speaker Change #129: 456 years now we.
Speaker Change #129: We have investors, who have previously allocated to our own.
Speaker Change #129: Passive products, becoming fun, if you're in PON Index fund, we have investors who are allocated to our interactive funds.
Speaker Change #129: We have investors, who have invested are allocated to our fund of funds and so that that pool of investors is one that we now can more quickly go back to them and because we have generated good returns for them and we've done right by them are more apt to very quickly make new decisions to re up and so that's like the that's the initial base that we'd go to that's hundreds of of.
Speaker Change #129: Of high net worth and institutional Allocators and then we've also used the opportunity to engage in prior conversations.
Speaker Change #129: From investors, who haven't yet invested in new conversations and so it's it's a pretty healthy mix and venture exposure.
Speaker Change #129: Tends to be the place where.
Speaker Change #129: Risk forward sort of thesis forward allocated as investors start to look and be interested in write checks because they know that that's where the best returns happen.
Speaker Change #129: In crypto and so yeah.
Speaker Change #129: Hopefully that's some helpful texture.
Speaker Change #132: Got it thanks a lot.
Speaker Change #144: The next question comes from Bill Popper Anastasia with Stifel. Please go ahead.
Speaker Change #138: Yes, good morning, gentlemen, and congrats on another strong quarter I just have one question here I'm, hoping you can comment on what you think the adoption curve for <unk> will look like over the next few years I believe it was Larry Fink that says that the Etfs were enablers for adoption.
Speaker Change #143: How's the galaxy positioning for this trend and do you see an opportunity to.
Speaker Change #143: To have a larger on chain presence over time.
Speaker Change #138: Yes.
Speaker Change #140: Momentum propelled thank you.
Speaker Change #133: Yeah listen I.
Speaker Change #145: I think <unk> is going to go slow until it goes fast and I know that's a cheeky answer.
Speaker Change #133: But that's actually what I really believe.
Speaker Change #133: You don't know where that inflection point is I know, we're closer to it now than we were last year I know lots of our competitors in the trade space. This is what they really are freaking out about are staying up at night thinking about as the as the.
Speaker Change #133: World World moves to more <unk>. So what are we doing right. We have an effort we are constantly looking at potential partnership.
Speaker Change #133: We are building our onshore capabilities as fast as we can both in and in trading and lending and everything else and so are you know by the end of the year, you'll see a significant I think P&L impact.
Speaker Change #133: From stuff, we do on chain that we didn't have last year.
Speaker Change #133: That all prepares you for the day that you really start seeing bigger tokens Ations you haven't seen it yet is the reality.
Speaker Change #133: You know this Blackrock fund is pretty fascinating and we'll see how that.
Speaker Change #133: That pans out.
Speaker Change #133: But I know, we're closer and I like I said in my earlier remarks, when I said this business is a little bit easier to run it's not easy to run it a little bit easier because it really does feel like we crossed the rubicon and adoption of this.
Speaker Change #133: This whole idea of digital assets and crypto being part of the financial infrastructure of the world.
Speaker Change #133: I fully believe that until there is a big part of that.
Speaker Change #142: Okay. That's good color.
Speaker Change #142: Mike.
Speaker Change #133: Okay.
Speaker Change #133: This concludes our question and answer session I would like to turn the conference back over to Mike Novogratz founder and CEO of Galaxy for any closing remarks.
Michael Edward Novogratz: Hey, guys. Thanks for your time your support.
Speaker Change #133: We are working really hard we continue to think.
Speaker Change #133: I think this.
Speaker Change #133: This will be an opportunistic year a good year.
Speaker Change #133: But a year, where we really need to build and so I'm, hoping this time next year. We're looking at you guys with a much more robust.
Speaker Change #139: Firm, because we'd have to have 12 months to to work our tails off.
Speaker Change #139: Be well.
Speaker Change #145: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #133: Yeah.
Speaker Change #133: Yeah.
Speaker Change #133:
Speaker Change #133: Yeah.
Speaker Change #133: Yes.
Speaker Change #133: [music].
Speaker Change #133: Yes.
Speaker Change #133: Yeah.
Speaker Change #133: Okay.
Speaker Change #133: [music].
Speaker Change #133: Yes.
Speaker Change #133: <unk>.
Speaker Change #133: Yes.
Speaker Change #133: [music].