Galaxy Digital Holdings Ltd. (GLXY) reported a robust fourth quarter and full year for 2023, showcasing significant growth across its digital asset businesses. The company's trading and lending operations demonstrated solid performance, with counterparty trading revenue reaching $44 million in Q4 and $115 million for the full year.
The lending business also saw a substantial increase in loan originations. Galaxy Digital's asset management and mining sectors reported impressive year-over-year growth, and the company is actively expanding its institutional client platform, Galaxy One. Additionally, Galaxy Digital is progressing towards listing on the NASDAQ exchange and is optimistic about the future growth of the digital asset industry.
Key Takeaways
- Galaxy Digital's counterparty trading revenue hit $44 million in Q4 and $115 million for the full year.
- The lending business saw a 9% increase in the average loan book size in Q4 and a 129% rise in loan originations quarter-over-quarter.
- Galaxy One now serves over 75 active institutional clients, holding over $1 billion in client assets.
- Asset management AUM soared by 200% year-over-year, reaching $5.2 million.
- The company's mining revenue grew by 63% year-over-year, totaling $19 million in Q4.
- Plans to launch Bitcoin and ETH ETPs in Europe and an inaugural crypto venture fund are underway.
- Galaxy Digital earned $296 million in 2023 and $300 million in the first two months of 2024.
- The company is working on redomiciling to the U.S. and listing on NASDAQ, despite slow progress.
Company Outlook
- Galaxy Digital is aiming to grow assets under stake from $243 million to over $1.5 billion.
- The company is expanding mining operations and exploring infrastructure partnerships.
- Executives anticipate an increase in capital markets activity in 2024.
Bearish Highlights
- The redomiciliation to the U.S. and NASDAQ listing process is progressing slowly.
- The private market is currently lagging behind the public market, which has limited capital market activity.
Bullish Highlights
- The approval of Bitcoin ETFs is expected to drive broader institutional adoption.
- The company's ability to borrow unsecured Bitcoin and other cryptocurrencies has improved, facilitating loan business expansion.
- The U.S. approval of Bitcoin is seen as a significant endorsement of its legitimacy.
Misses
- There were no specific misses mentioned in the earnings call summary.
Q&A Highlights
- Executives discussed the potential for the majority of their counterparties to become clients of Galaxy One.
- The impact of Bitcoin ETFs on the trading business and the potential for options on ETFs to alter the market landscape was highlighted.
- A strategy for mining operations, including hedging and curtailment post-Bitcoin halving, was mentioned.
- The importance of executing the company's roadmap and expanding the client base was emphasized.
In conclusion, Galaxy Digital's earnings call revealed a company experiencing significant growth in the digital asset sector. With a strong focus on expanding its institutional client platform, asset management, and mining operations, the company is well-positioned for future success. The anticipated increase in capital markets activity and the broader institutional adoption of Bitcoin and other cryptocurrencies could further enhance Galaxy Digital's performance in the coming year.
Full transcript - Galaxy Digital Holdings OTC (BRPHF) Q4 2023:
Operator: Good day, and welcome to the Galaxy Digital Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Jonathan Goldowsky. Please go ahead, sir.
Jonathan Goldowsky: Good morning, and welcome to Galaxy's fourth quarter and full year 2023 earnings call. Before we begin, please note that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors, including those identified in our filings with the Canadian Securities Regulatory Authority on SEDAR and available on our website or in future filings we make with other securities regulators. Forward-looking statements speak only as of today and will not be updated. In addition, none of the information on this call constitutes a recommendation, solicitation or offer by Galaxy or its affiliates to buy or sell any securities, including Galaxy Securities. With that, I'll turn it over to Mike Novogratz, Founder and CEO of Galaxy.
Mike Novogratz: 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 crypto bull market. Last time we spoke was mid-November, Bitcoin was 35,000 today at 70. And 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. There's one number, I think that you should keep on your refrigerator, it's $34 trillion of debt. And in 100 days, it will be $35 trillion and in 200 days, it will 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 is going to continue to grow. And some -- friend of mine yesterday said, he sold some Bitcoin on the sell off and he forgot the cardinal rule, he said, there are only 21 million, these things are becoming like Picassos. They're not making any more. And so the story is powerful right now. And it's got a whole new set of sales people, right? With the ETF, we have opened up the $80 trillion baby boomer giant bulk of wealth here in the United States, right? $40 trillion of that is managed by RIAs. Broadly, they have not participated in the Bitcoin rally until now. And so as people go from 0% allocation to 2%, 3% allocations, you're seeing more demand than supply. Couple that with the having which is coming in the next 40 days and it just leaves us a good supply demand imbalance. And so I think the fundamentals for Bitcoin which drive the whole crypto market and digital asset market are there. What does that mean for Galaxy? It means we're firing all cylinders. Our asset management business recently reported over $10 trillion AUM. Our trading business is having a record run. Our infrastructure business, which was previously mostly Bitcoin mining, all of a sudden our validator business is up and running with over $1 billion assets under stake and 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 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 2 of us will share the Q&A.
Chris Ferraro: Awesome. Thanks, Mike. Galaxy's fourth quarter and full year 2023 results reaffirmed our position as a leading player in the digital asset space. We successfully executed against our key priorities in each of our 3 operating businesses and are now capturing the upside of our long-term strategic positioning and diversified business model. 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 in for the full year 2023. The 2 10% increase quarter-over-quarter was primarily driven by revenue from derivatives and spot counterparty trading. 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 desk continued to onboard new counterparties, bringing the total count to over 1050 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 reentering 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 addition of new clients and existing clients reengaging with our desk. 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. Most importantly, these are high value sticky assets that will form a strong based 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 on. 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 5 transactions in the year. In the fourth quarter, the team completed its first restructuring mandate with Prime Trust and also realized the revenue associated with advising online gaming platform, Gamercraft, on its seed financing round, and for serving as the exclusive financial advisor to securitize in its acquisition of Onramp Invest. Our investment banking pipeline remains strong with 23 mandates representing $2.2 million in potential deal value being pursued by the team currently. Moving on to our asset management business. We ended 2023 with $5.2 million of assets under management and 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 third and fourth quarter. 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 has earned Galaxy further mandates, including the management of FTX's trust assets as well as more complex holdings such as locked tokens. 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 this $10 trillion that's coming. 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 upcoming months. 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 asset space, but has also significantly bolstered the franchise value of our firm and our asset management business. The team has also been acutely focused on the U.S. ETF landscape and on January 11, 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. However, it's only been 2 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 channel. 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 RAA having approved BTCO on its platform in recent weeks. 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. 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 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 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're on the front end of a strong new up cycle for crypto venture. 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 wave of growth. Galaxy Asset Management's proactive approach towards seizing opportunities in 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 team. 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. 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. 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 hash rate throughout the second half of 2023, which saw us successfully surpass our year end hash rate 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 accounting for the remaining 2.2 exahash. Subsequent to year-end, we've now exceeded our Q1 target hash rate of 5 exahash and have line of sight to 6 exahash by the end of Q3. 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 Bitmain 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. This remains well below the market value for Bitcoin and gives me great confidence in our team and infrastructure strategic positioning as we approach the Bitcoin having this coming month. 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. 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, including those onboarded recently to Galaxy One. 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. 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. 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 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 flow traders to develop a fully collateralized euro denominated Stablecoin. GK8 will license to the partnership its tokenization technology platform as well as provide the custodial technology support for AllUnity, demonstrating the cross selling opportunities of our strategic acquisition of GK8. 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. 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 into the ecosystem. Before I leave you, I just want to say that building a winning company in this space has not been easy and can 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. I'll now turn over to Alex.
Alex Ioffe: Yes. Thank you, Chris. Good morning. 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. We earned approximately $300 million before tax for the first 2 months of this year. Our equity capital was $1.8 million at the end of last year and $2.1 million 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 stable coins and $709 million of net digital assets excluding stable coins. We continue to make progress to redomicile to the U.S. and to list on the NASDAQ exchange. On December 22nd last year, we filed a response to our 5th round of SEC comments. Our team has been working diligently throughout this 2 plus year process, responding thoughtfully and timely to each round of questions provided by the SEC and clarifying U.S. accounting rules as they evolve for digital assets in the U.S. 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.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Bill Papanastasiou with Stifel.
Bill Papanastasiou: 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 a peer to scale the data center and perhaps engage in hosting service agreements that can help subsidize that cost for expansion?
Mike Novogratz: Yes, I think you it was a perfectly leading question, you nailed it. 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 hash rate can come from it. 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 kind of lock that potential. So how we're going to fund that, like we've committed to building up that infrastructure. We have capacity on balance sheet. 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 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.
Bill Papanastasiou: And I appreciate the color on the onboarding of the Galaxy One Prime brokerage platform. Seems like there's a big effort to scale that. How should we be thinking about growth to this business in the near-term? And how may that translate to Galaxy Trading and the asset management business? Obviously, the crypto market is on it's still with a leg up leading into 2024. Any color there is appreciated?
Chris Ferraro: Yes, sure. So yes, we're very excited about the realized growth of clients onto that platform. We launched that platform in late last year with basic functionality of custody trading and reporting. 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 platform. 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 now 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 in 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 client additions and asset growth. But like I pointed out in the remarks, there's a number of other high value sticky services that 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.
Bill Papanastasiou: If I can sneak one more in there, 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 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 this launch if the launch had impacted has impacted their decision or their progress in any way?
Mike Novogratz: Let me take this and be absolutely clear. We have been doing what we can do for over 2 years, try to get public in the U.S. We have had an SEC that has allowed companies that are Bitcoin only companies, right, miners and now there's ETF through, but have not allowed companies that deal with anything other than Bitcoin. That's my interpretation. And so we are hopeful, but not optimistic that in the current SEC, they're going to change their mind. 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, they like digital assets. When I go to DC and I talk to members of the House, both Democratic and Republican and the Senate, they get this should be a bipartisan issue. There is a small group of Democrats that have been blocking this and there's an SEC that has been very, very slow. And I think until we get a change in leadership, we can be hopeful but not optimistic. There is not much else we can do. We answer their questions. We are diligent. We are helpful and hopeful. But that's about the best I can give you. I would say that there's an election coming in 8 months and there will be turnover. If the Republicans win, we think that will be faster. But even if the Democrats win, I think you'll have new leadership at most of the agencies. So, hopeful there.
Operator: The next question will come from Joseph Vafi with Canaccord.
Joseph Vafi: Just maybe just start again on Galaxy One, clearly a nice tip of the spear here for new clients and existing. Just trying to frame looking across how many counterparties you have now, how many of those counterparties do you think are ultimately like target clients for Galaxy One? And then maybe I'll have a couple of follow-ups.
Chris Ferraro: I think the short answer is the majority of them. And so like historically, we have space counterparties in our markets business as principal trade counterparties. But that was a function of historically the way the OTC markets and crypto have developed. And most of those clients are true end clients as opposed to sort of like interdealer, inter broker transactions. And so all of those counterparties really for years have been looking for an institutional platform, where they can become a client, where they can hold their positions, where they can trade and where they can deal with us. And so the short answer is the vast majority of those counterparties could and should be converted into sort of Galaxy One in a client format. They'll likely deal with us both principally and as an agent and as borrowing and lending counterparties, but they're all almost accessible.
Joseph Vafi: And then I know you mentioned the assets under stake and that is potentially going to grow here pretty materially. I think, I missed maybe what the catalyst was for the comments on the big growth expected in assets under stake?
Chris Ferraro: Yes. Sure. So in our staking as a service business, which we launched in 2023, the two primary lanes through which we acquire assets to our staking nodes are either 1, through our own proprietary owned assets. And so we as we've done in everything, we like to build an infrastructure for our own use first to make sure it's great and it works well. But then 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 stakable assets are available to point to and stake to 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 over $1 billion plus on our platform in Galaxy One, those assets that are stakable now are accessible, easily accessible to cross sell and point to our validator nodes. So the growth in the client asset base in Galaxy One is pretty directly tied to the expected growth in the validator assets.
Joseph Vafi: And then just the loan book growing nicely here. How should we think about the loan book relative to growth in the loan book relative to your balance sheet capacity to be able to continue to fund that loan book growth over time?
Mike Novogratz: One thing that I would mention here that's really shifted all over the last 8 weeks is our ability to actually borrow unsecured Bitcoin and other cryptocurrencies from the market went from limited to very highly available. So both borrowing per term and that improves our liquidity position, which then allows us to look at the loan business more aggressively. And so as the whole industry does better, our cost of capital comes down and that business should grow. Now even just looking at our converts this morning, trading at something under a 10% yield to maturity, that is significantly below where it was 3, 4 months ago.
Operator: The next question will come from Martin Toner with ATB Capital Markets.
Martin Toner: In the 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?
Chris Ferraro: So volumes were up they were up a little bit, they weren't quite as flat. But the amount of revenue we are able to generate 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 the mix shift there was significantly higher. So that's why you see a pretty dramatic increase in revenue. That's the difference.
Martin Toner: Can you talk to the venture assets in the firm? What I didn't get a chance to look. 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?
Chris Ferraro: Yes. Alex and I should tag team this one. 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 a couple of important points. One, we've conservatively marked our venture book historically consistently 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 of the public markets have been reflected, but the private market valuation turns are lagging pretty dramatically. So my comments around the opportunity on the venture side, so to speak to that, we've just started in the last 6 months or so to see capital formation really pick up again in early stage venture. And that takes real time to actually get deals funded, print headline valuations, compare those valuations to prior valuations, which then feeds on itself and starts to see the private market get marked there. 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.
Mike Novogratz: Yes. 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 and we think on a way to be significantly higher than that this year. So that is just the beginning of the cycle.
Operator: The next question will come from Andrew Bond with Rosenblatt Securities.
Andrew Bond: 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?
Mike Novogratz: It's not something we've seen a dramatic shift in yet, right? But I'm noticing 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 certainly from some players is going to move to the ETF from the Bitcoin OTC market. Now remember, the ETF is open 8 hours a day, 5 days a week and the Bitcoin market is open 24 hours a day, 7 days a week. And so it's a piece of it. I think what you haven't seen yet and will be part of the next surge of Bitcoin price and opportunity lots of ways is when the options on the ETF become available, right? Because think about how retail U.S. Trades, it's a very option driven market and the SEC still hasn't approved options on the ETF. That will come. They are dragging their feet, but with great certainty or with high certainty, high probability, I think we will get an options market on these ETFs. And that's also going to change. Now we see that as opportunity, right? The ability to trade both in TradeFi and in crypto is, I think, an advantage that Galaxy has where a lot of the other crypto firms haven't sorted that out yet, a lot of the TradFi firms haven't. So we literally see liquidity coming into the space as a good thing for us.
Chris Ferraro: Yes. And the only other thing I'll add is the ETFs in the U.S. at least are just Bitcoin. And Bitcoin historically, 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. And so not only so any impact there like the ETF launching 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, 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 Bitcoin.
Andrew Bond: And just to follow-up maybe on the hedging side of that a little bit. We're seeing a lot of flow moving to regulated futures exchanges like CME and, obviously, you guys are big in derivatives and churn on options volumes on tariffs. 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?
Mike Novogratz: Yes. We participate with most of the players that do the ETF buying, right? And so the virtues of the world who are the buying and selling for the big ETF platforms, they have become better and better counterparties.
Operator: The next question will come from Joe Flynn with Compass Point.
Joe Flynn: On the mining front, your cost per coin was quite strong throughout calendar '23. I guess, in regard to 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 or curtailment?
Chris Ferraro: Yes. So we're sort of status quo on our strategy. 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 we're 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. And so I think we've seen the benefit of that strategy. And then we've got the having coming. And so some of the things we don't know necessarily on the Bitcoin network side is, what post having is going to do to hash rate. We have expectations. I think our baseline expectation is that we're going to see as a starting point 10% to 15% of global hash rate come off at some point post have it pretty close post having. And then from there, once we see how that starts to settle and then take off, 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 position is going to be from a curtailment perspective. And so 2024 is going to be much more dynamic hedging year.
Joe Flynn: And on the investment banking front, you guys mentioned you've had this $2 billion pipeline for quite a while, but has really resulted in meaningful deal closing yet. But I was hoping you just maybe have a comment on how we should be thinking about the outlook or any cadence on potential deals going forward?
Chris Ferraro: Yes. I mean the 2 big themes I think for that business at least on the capital market side has been one, the private market lagging the public market. And so just like on the investing side of the business that dynamic and there being very little capital markets activity privately or publicly frankly in 2023 is what led that sort of that team to be to have a pipeline, be working with clients, but ultimately not have capital really come into the space. I mean that's what the whole industry saw. That started to unlock. And like I said, we see it as investors on the front end that starts to trickle down into 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 a building momentum in 2024. And that's where the advisory business really comes into play as you start to get to capital markets activity outside of like early company formation. So that's one. Two, the other one is, the public markets for crypto were also were equally stagnant. And while we've just now started to see some deals get printed for public companies that as you guys have probably already seen with the converts. That activity is also with, I think, a leading indicator for, what we are likely to see, maybe not in 2024, but definitely 2025 in terms of public market activity and all of that is really what you need to have a healthy functioning, really active capital markets business for an investment bank. And so the M&A side has always been pretty consistent and we built a really strong brand there. We've got 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 it's going to unlock.
Operator: The next question will come from Owen Lau with Oppenheimer.
Owen Lau: So I have a broader question for Galaxy. Could you please talk about your top priority this year And how do you plan to capitalize the strength in the market? And do you think international expansion has a high priority? I haven't heard too much conversation about international on this call, but can you also talk about any pockets that you think obviously should expand into?
Mike Novogratz: Yes. Listen, for us this year is about executing. Like we have a really good roadmap and we just need to execute it. And the world is it's changing fast and so the execution has to happen fast, right? It is connecting this big group of investors, both crypto investors and institutional and traditional TradeFi investors to our platform, right? This was a great first 3 months of doing that. I would love at the end of 9 months, end of the year for us to say, hey, we have X 100 clients on the platform with a whole lot more assets than we have now. So that's the number one priority. We are growing outside the U.S. Our London office is vibrant. We've got a decent presence in Hong Kong. We are hiring, we're 450 people today. It would not surprise me if that number was over 500 in 6 months. And so, it's whole markets are great opportunities, but they're also difficult, because the game is changing quick, the market for talent changes. And so we're trying to stay focused on really doing a good job executing.
Owen Lau: And then on capital formation on the price of 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 a good news for private companies in the crypto space?
Chris Ferraro: I would say, I mean, there's a number of themes, but 2 key ones to point out. One is tokenization and the primary lane for tokenization that is getting funded with like increasing fervor is primarily around Stablecoins, tokenized structured products. Basically, digital representations of either cash or cash like or sort of cash yielding assets. And that's happening in the regulated sort of version, which we pointed out AllUnity, which were involved with directly with 2 big institutions in Europe, and it's happening across a bunch of different jurisdictions. It's also happening 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 or offers users today. And so a lot of focus there is on how through regulated channels can we tokenize money and money markets and turnaround and pass that the full or a significant portion of the yield on to users that feel people feel like they're getting the most out of their money. And that one other example of that is just look at BlackRock (NYSE:BLK) 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 vectors. The other area, I would say it's just the continued march forward on optimizing for block space and block space performance. And so that covers the whole gamut of additional layer 2 is getting funded technologies that parse the blockchain into different parts for modular blockchain with data availability, like with Celestia, for example, as well as zero knowledge proof and optimistic roll ups. And so all geared towards, 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 has started of that development side has started to pick up pretty aggressively again too.
Operator: The next question will come from Devin Ryan with JMP Securities.
Devin 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 the prior question, but you mentioned success onboarding more kind of traditional asset management counterparties and I'm sure the ETF launch was helpful in that. And so as we think about broadening out of institutional adoption from here, how much does the ETF approval derisk 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? Are they just sticking with Bitcoin because essentially you've been blessed or you're seeing these more traditional players starting to get comfortable with the broader list of assets?
Mike Novogratz: Listen, I think the answer is it derisks Bitcoin in a giant way, right? No one is getting fired for buying Bitcoin. No one is having to make the case of why Bitcoin should be a macro asset now. It is a macro asset. And it's a highly volatile one. It doesn't fit in every single portfolio, but it is a weapon that hedge funds use to buy and sell that real money investors are putting more and more into their funds as a diversifier that high network people are putting into their funds. And so that's the kind of the gateway drug. Like in any other market, the early adopters feel very comfortable with Ethereum and now Solana. And you're broadening out the universe of cryptos where kind of the more conservative guide plays. The crypto community is at the far tail of this stuff with meme tokens and gaming tokens and level 2s and side chains. And so, I think it's just an evolution, but we're seeing it play out in lifetime. And I think the U.S. approval was really the big bang of the space, because it's saying the government as much as Gary Gensler didn't want to, we endorse this, we approve it, it's completely legitimate and legal and you're not going to have any trouble doing this. Listen, the rest of crypto, it's still a regulatory tug of war. And like I said, I think that will change at the end of the year, but it hasn't yet. And so some people are betting on that change and playing through and other people's are more cautious. So I think a year from now assuming I'm right and we get legislation passed in the U.S. and a different tone out of the SEC, this industry will be a lot bigger.
Operator: 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.
Mike Novogratz: Thanks for joining us today. I hope you hear our enthusiasm for Galaxy, for the space, for the opportunity set. Know that we are working our tails off to try to 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 on the journey with us. Thanks.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.