Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Galaxy Digital Holdings Ltd (BRPHF, Financial) reported a significant increase in net income to $422 million, up $120 million quarter-over-quarter and $287 million year-over-year.
- The company successfully completed a strategic equity capital raise of USD 125 million to capitalize on growth opportunities and digital asset adoption.
- Assets under management grew by 50% quarter-over-quarter to $7.8 billion, driven by new mandates and inflows into global range of ETFs.
- Record revenue of $31.5 million in the digital infrastructure solutions business, representing a 69% increase quarter-over-quarter.
- Expansion of global market operations, including derivatives trading which saw a 25% increase in notional derivatives volumes after exceeding the $8 billion threshold.
Negative Points
- The new regulatory requirements for over-the-counter derivatives trading in the US will drive additional operating expenses and capital requirements.
- The decrease in assets under management from a record $10.1 billion in February to $7.8 billion in March due to dispositions of locked assets in the FTX bankruptcy process.
- Potential volatility in earnings due to the correlation with Bitcoin price fluctuations and market conditions.
- Challenges in the political and regulatory environment, particularly with the upcoming election cycle that could impact the crypto market and business operations.
- The need for significant investment in infrastructure and operational capabilities to support regulatory compliance and international expansion.
Q & A Highlights
Q: Chris, I believe you mentioned that platform derivative volume in Q1 was greater than all '23? And are you seeing a greater percentage of this volume and kind of your revenue being driven by more traditional institutional market participants and market makers as counterparties post the ETF approvals? And is kind of where you're seeing growth or expect to see more growth with your additional regulatory approvals?
A: Chris Ferraro - Galaxy Digital Holdings Ltd - President and Chief Investment Officer: Yes, early on, it's a mix of existing market participants using more capital-efficient ways to hedge positions and new institutions using derivatives. We held back our derivatives business to prepare for regulatory compliance for swap dealer registration. Post-registration, the business expanded quickly by 25%. This setup is to accommodate traditional financial institutions entering the space, which is still in very early stages.
Q: Can you talk a little about the political and regulatory environment heading into the election cycle and your thoughts on the best outcome for crypto markets and your businesses?
A: Michael Novogratz - Galaxy Digital Holdings Ltd - Chief Executive Officer, Founder, Director: The political landscape for crypto has become more partisan, which is unfortunate. The recent opposition from some Democrats, notably Elizabeth Warren, has politicized the issue. However, the Republican stance, particularly from Trump, appears more crypto-friendly. This partisan divide needs bipartisan support for stability in the crypto regulatory environment.
Q: Can you discuss the costs in infrastructure, particularly the $40 million, where it is going, and how much of it is unrelated to power?
A: The increase in costs is primarily driven by mining, including higher electrical costs, greater depreciation due to more machines online, and the reversal of impairments on mining machines from the previous year when Bitcoin prices increased.
Q: Given that the price of digital assets has stabilized, how do you see this affecting your business in Q2, especially with volumes going down both institutionally and retail?
A: Michael Novogratz - Galaxy Digital Holdings Ltd - Chief Executive Officer, Founder, Director: Our business is still correlated with pricing volatility. During consolidation periods, overall crypto trading volumes decrease, affecting our activity. However, we're offsetting macro decreases with micro gains in market share by onboarding new clients.
Q: Regarding your recent capital raise, how are you prioritizing investment across your three business units?
A: Chris Ferraro - Galaxy Digital Holdings Ltd - President and Chief Investment Officer: Capital is being allocated primarily to the trading side of our global markets business and our mining business. We're investing in regulatory compliance and tech for trading and in infrastructure for mining, particularly at the Helios assets, to support growth and increase data center capacity.
Q: Could you talk about the likelihood of the US passing a stable coin bill this year and the potential impact of the political landscape on this?
A: Michael Novogratz - Galaxy Digital Holdings Ltd - Chief Executive Officer, Founder, Director: The chance of passing a stable coin bill this year is very low, around 15%. The political landscape is challenging, with significant divides and a focus on other priorities by the majority of Congress.
Q: Can you provide an update on your venture side, particularly regarding raising external capital and the types of LPs involved?
A: Chris Ferraro - Galaxy Digital Holdings Ltd - President and Chief Investment Officer: We're targeting $150 million to $200 million for our venture funds, focusing on not raising too much capital prematurely. LPs include both existing investors in our other funds and new investors. We're cautious about fund sizing to ensure we can generate significant returns for our LPs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
