Galaxy Shares 2Q Loss but Novogratz Bullish on DeFi and NFTs

Though Galaxy Digital’s income took a hit in the second quarter, the digital asset firm’s CEO said he has never been more bullish about bitcoin, DeFi and non-fungible tokens (NFTs).

The firm’s net comprehensive income decreased to a loss of $176 million in Q2 compared to a gain of $35 million in the year-ago period. Partners’ capital declined by about 12% — from $1.7 billion to $1.5 billion — during the quarter amid a 34% decline in overall digital asset prices and a 41% decline in the price of bitcoin, relative to the end of the first quarter.

“We lost money last quarter … [but] that doesn’t bother me,” Galaxy CEO Michael Novogratz said during the company’s earnings call on Monday morning. “We already have more than made up for it this quarter, and our business is hitting on all cylinders.”

Since the end of the second quarter, total cryptocurrency market capitalization has increased 33% and the total value locked in DeFi for the sector has increased over 30%. 

Galaxy Digital Asset Management’s assets under management grew to $1.6 billion, as of July 31, as the company had more than $600 million of inflows during the second quarter, a spokesperson said. Morgan Stanley began offering a few of Galaxy’s funds on its platform, and executives said that Galaxy funds are expected to launch on the platforms of two more large banks by the end of the year.

Damien Vanderwilt, the company’s co-president and head of global markets, said that Galaxy is focused on expanding its presence in Europe and Asia. Recent key hires include Tim Grant, who will lead international expansion efforts in his role as head of Europe, as well as Jennifer Lee, who will lead talent management and human resources globally as chief people officer. 

Grant and Lee join Galaxy from Swiss exchange SIX Group and asset management giant BlackRock, respectively.

Bullish on DeFi and NFTs

Galaxy, which announced in May that it would acquire custodian provider BitGo, is speaking with BitGo’s team about offering staking, said Galaxy Co-president Chris Ferraro. He noted during the call that staking will be an integral part of a custodial product offering as larger crypto networks continue to launch. 

The company most recently participated in a $50 million funding round for crypto staking startup Figment, Bloomberg reported Monday. 

“Our venture team is constantly meeting the guys building the new protocols,” Novogratz added about Galaxy’s focus on DeFi. “We want to be a place where we can invest in your protocol, we can have the BitGo team build a wallet and custody, we can have our trading group market-make in it. And so all of a sudden it really spins our whole flywheel, but it provides a real service to the new protocols to get them up and running.”

The CEO noted that while he is extremely bullish about nearly every area within crypto, he is especially bullish around DeFi and NFTs.

Earlier this month, NFT sales hit their highest level in 12 months. In just one week, NFT sales spiked 101.8% from 29,256 sales to 59,048, as of August 5.

The company has deployed $52 million of strategic capital into 14 different NFT-related companies with direct investments and through Galaxy Interactive Fund strategies, he explained, including Candy Digital, Mythical and Art Blocks.

Hedge funds and institutions that have accessed the crypto market through bitcoin are now looking at opportunities within DeFi, he added. 

“It’s really hard to understand what the total addressable market of that is,” Novogratz said, “and that’s what the excitement around Ethereum is right now.” 

Heightened focus on crypto regulation a good thing, CEO says

Novogratz said that crypto tax regulations in the recently proposed infrastructure bill and crypto advocates’ reaction to the wording of the provision offered motivation for more politicians to get educated on crypto, which he noted will ultimately lead to better regulation.

“The broader crypto community mobilized and roared, and Washington DC and Congress heard for the first time that there are 60 or 70 million American voters who really care passionately about this ecosystem, about providing a new infrastructure that’s more fair and more transparent,” he explained. I think it was an unbelievable wake-up call, and it left me more bullish than I’ve been.” 

Though the Senate failed to include an amendment in the legislation that would narrow the definition of a cryptocurrency “broker,” the CEO added that bitcoin’s price climb is evidence of optimism that more regulatory clarity within the space is coming. 

“We have a banking system where you pay on average $4.50 to use an ATM, where there’s been I think $12 billion in overdraft fees last year…and yet the progressives are trying to protect the banks and are nervous about crypto,” Novogratz told analysts on the earnings call. “A lot of this is just about education.”

The price of bitcoin was above $46,000, as of Monday at Noon eastern time, which was up 6% from a week ago, according to data by CoinGecko.

Novogratz said he believes bitcoin could reach $60,000 by the end of 2021 and called $250,000 a “reasonable target” when looking ahead five years from now.

When asked about bitcoin ETFs, Novogratz said he was uncertain about the timeline of when one might be approved. 

SEC Chairman Gary Gensler hinted earlier this month that the agency would look more favorably upon ETFs that were limited to investing in bitcoin futures contracts traded on the Chicago Mercantile Exchange. Novogratz said he thought this way of thinking was “a mistake.”   

Still, the expectation for further regulatory clarity continues to drive demand.

“Institutional clients are very encouraged by the recent focus by the Senate on the sector and anticipate more guidance from the SEC to be forthcoming,” Vanderwilt said, “enabling them to allocate more capital into the sector.”

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