Galaxy Digital: Musk is Not the Big Picture

It’s been a volatile few days for the digital asset market, largely due to controversial remarks made by Tesla CEO Elon Musk, but executives at crypto-focused financial services firm Galaxy Digital Holdings urge investors to look at the big picture. 

“It’s easy to get buried in the volatility of the day; Elon Musk’s Twitter comments, bitcoin going down 4,000 points, and everyone starts running around like chickens with their head cut off,” said Mike Novogratz, Galaxy’s CEO and founder, on Monday’s earnings call. “I don’t want to miss the big picture. The big picture is that this space is growing.”  

Galaxy reported a 58% increase in assets under management during the first quarter, the firm announced Monday. The company, which is listed on the Toronto Stock Exchange, also reported a net comprehensive income of $860 million, up from $336 million during Q1 of 2020. Counterparty loan originations increased more than 510%. 

Executives acknowledged that the bullish crypto market during the first quarter certainly contributed to Galaxy’s growth, which may have investors fretting over how the firm will perform in a bearish market.

Getting going with BitGo

Earlier this month, Galaxy revealed plans to purchase cryptocurrency custody provider BitGo, which executives said will dramatically expand Galaxy’s reach and client base. The deal is subject to regulatory and shareholder approval and will likely not close until Q4. 

“The current crypto bull market has boosted Galaxy Digital’s AUM and trading earnings dramatically,” said Matt Weller, the global head of research for Forex.com. “But the firm’s recent $1.2B acquisition of custodian and service provider BitGo shows that Galaxy wants to bolster its appeal to ‘stickier’ institutional capital that is more likely to stick-out a bear market than finicky retail funds.” 

Acquiring BitGo will add 400-plus net new clients to Galaxy on day one, Damien Vanderwilt, co-President and head of global markets at Galaxy, said on the call. The acquisition will also will expand Galaxy’s staff and service capabilities, he said, signaling that the purchase provides and opportunity for Galaxy to get ahead in the industry. 

“The BitGo acquisition is really a preparation for the time when digital asset investing is commonplace, and a business can be built around it without having to rely solely on the price of bitcoin,” said Adam Blumberg, co-founder of Interaxis. “They are going to get custodial fees, and have the ability to lend to and against additional digital assets. They seem to be taking this time to diversify within the digital assets space.” 

ETF expansion

Galaxy also recently expanded into the exchange-traded product space, which is booming in Canada while American firms continue to wait for SEC approval. The CI Galaxy Bitcoin ETF (TSX: BTCX) debuted on the Toronto Stock Exchange in March. 

“The SEC’s continued delays in approving a bitcoin ETF are holding back the entire crypto industry and delaying widespread institutional allocations to the asset class,” said Weller. “If the SEC does approve a bitcoin ETF this year, the sponsor(s) would quickly attract billions in capital.” 

While Novogratz maintains that bitcoin’s significant pullback is no cause for concern, the situation does highlight an alarming characteristic of the digital asset market. 

“While not uncommon for the nascent asset class, the recent market volatility has reminded investors how quickly unrealized profits can evaporate,” said Weller. “If crypto markets continue to see more two-way trade, crypto brokerage stocks like Coinbase could be the big beneficiaries at the expense of asset managers like Galaxy Digital.”