Galaxy Digital Holdings Ltd. (OTCPK:BRPHF) Q2 2022 Earnings Conference Call August 8, 2022 8:30 AM ET
Company Participants
Mike Novogratz – Founder and Chief Executive Officer
Alex Ioffe – Chief Financial Officer
Damien Vanderwilt – Co-President and Head-Global Markets
Conference Call Participants
Chase White – Compass Point
Deepak Kaushal – BMO Capital Markets
Ken Worthington – J.P. Morgan
George Sutton – Craig-Hallum
Richard Repetto – Piper Sandler
Mark Palmer – BTIG
Owen Lau – Oppenheimer
Jamie Friedman – Susquehanna
Kevin Dede – H.C. Wainwright
Operator
Good morning, and welcome to the Galaxy Digital’s Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
At this time, I would like to turn the conference over to Galaxy’s Investor Relations Team. Please go ahead.
Unidentified Company Representative
Good morning, and welcome to Galaxy Digital’s second quarter 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 authorities, 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 Digital or its affiliates to buy or sell any securities, including Galaxy Digital securities.
With that, I’ll now turn it over to Mike Novogratz, Founder and CEO of Galaxy Digital.
Mike Novogratz
Good morning, everyone. It’s actually a beautiful day here in New York. We’re going to do this a little differently than we’ve done in the past. In the past, I’ve read a script, Damien and Chris and Alex have all chimed in. But today we thought we’d take a different tact. I’m going to kind of put you in the quarterback’s helmet and try to give you some sense of how I’m seeing the world, how I saw the first half of this year, the opportunity set and how I think about our company. Listen, no one likes to look at a red $550 million number and try to feel good about it. But I want to put this in context of the journey we’ve been on or the journey we’re going.
January 2020 Partners’ equity in the firm or our book capital was roughly $350 million and at the end of Q2 we were over $1.8 billion. What goes into that number? It goes that gains we’ve made in our portfolio less expenses we’ve paid, rents, salaries, bonuses, taxes. And so, it’s a hard number to grow that quickly. And so in some respects, I feel pretty awesome about the stewardship of that capital. Listen, I don’t take a salary, I don’t get options, I don’t get shares. And so for me, I’m a big shareholder. The focus is our book equity and our stock price. And so you’d hear today a lot about risk management and how we’re going to drive book equity higher and we’re going to drive our stock price higher because that’s where my real focus is. So put the year in perspective where if you took our losses this year plus our gains last year, we still made over $1 billion in a growth business where we – while we’re investing a ton.
And so in the big picture I feel pretty good about things. When I break our business into the two halves, right, we have four operating businesses or really eight operating business, if you want to take the intermediation business, distribution business and break it up a little bit and then we have a balance sheet that we manage. And I look at the operating businesses and I’ve got a grid on my face. I am proud of how they operated. I think in each of the businesses and I’ll get to them, we did really well. We did it. Make the same mistake some of our competitors did. Our risk management, both from security selection, our token selection to counterparty selection to credit management all was top notch and we think should be a model for how this industry self regulates. And so I feel pretty great about that.
On the balance sheet side, high to low this year. We’re down 29%. Luckily, July and beginning of August have been much better months. And so that number is smaller today than that month – that quarter end print, but that’s in context with the crypto market down 65%. The good news is last year. We sold over $1 billion of stuff last year or in the beginning of this year. I guess the bad news is we should have sold more. Managing a big balance sheet is tricky. Some of its big illiquid positions in the private side, those have been marked down. Some of it was liquid positions that we either didn’t hedge fast enough or held onto too long or had the wrong market call.
And so, the great thing about trading or investing is the numbers are the numbers. You see them there. You can compare them to our peers. But I feel like, listen, we’re sitting here at the end of the quarter with over $1 billion in cash, $1.5 billion in liquidity and operating businesses that I feel pretty good about. What else happens in big bull markets? Your cost structure gets a little bit heavier than you’d like and that’s just, I think, a natural in any bull market. And so what we’ve done in the last eight weeks has been to take a really serious look at each of our businesses in essence reunderwrite each business and look at our cost structure. We’ve taken out over 20% of vendor costs, that’s from marketing and tech spend.
And so that’s just going through 500 line items on our sheet and making smart decisions. The biggest cost in this business is people. Luckily for us we’ve got a variable comp structure, right? A lot of our comp comes in bonuses. In a year where we make $1.7 billion, those bonuses are pretty high. In a year where we’re losing money, those bonuses are less high. And so adjusting the comp pool down, we took some selective shrinking of our team. Those are usually in areas where we had underperformers or where we thought we could find synergies by combining a few businesses. And so, we took a few people out of the – off the field, but we’re adding people. We started the year less than 300 people and we’re about 375 right now and I think we’ll finish the year over 400. And so while the crypto landscape is less certain than it was, my confidence of where it’s going and the medium term hasn’t waned a bit. We are a growth company, we are investing in people, in product and engineering teams for not the next six months, but for the next six years. And so I think that’s a message I really want you to hear today.
Listen, we’ve taken our cost structure. If I look at a normalized 12-month, go-forward cash outlay down to roughly a $175 million, $177 million and if you add the equity comp that would go along with that, it’s about a $200 million number. I feel very confident that our operating businesses will make that much in revenue. And so I’m looking at a company that should be cash flow positive, and have a very big and well-managed balance sheet and an opportunity to be offensive. And so as bad as that 553 headline number feels, I don’t fear nearly as bad as I thought I would. And I hope it’s the worst quarter this firm ever has.
Listen, let me real quickly touch on each of the businesses. When I think about our sales, trading, credit derivative business like I said, I feel pretty great. In credit you’ve probably seen the competitors’ monster losses in lots of places from retail credit, institutional credit. We’ve had a unbelievably well-managed business. Chris Ferraro came from a credit background, Luca who runs our credit business, they have been conservative, they have been over collateralized, we did have our first loss in credit in the firm’s history this year. It’s filed, it’s public, we put a claim into the Three Arrows. That’s in their filing.
It was within context of our balance sheet small, it was hedged, so the losses were mitigated and it was frustrating, right. You don’t like to lose money or anything. But to lose $8 million, $9 million relative to the hole that it created other people’s balance sheets was something we swallowed the business was still profitable on the quarter. We liquidated lots of other – shrunk, our balance sheet in a really managed way with lots of other counterparties and think we’ve got market share to gain there as most of our competitors have been wounded and we’re not.
Our derivative business continue to make money, hats off to Rob Bogucki and his team there. It’s a business that we think again, we’ve got the right to earn more market share as competitors got wounded. Our OTC businesses, our Quantitative Trading business from Andrew Karos used to be called Blue Fire, all continue to be profitable.
And so I flip-pass it to management. We are raising capital in a tough environment. We have launched good product. We have an alpha fund that is just getting launched run by Chris Ryan I think it’s going to be a wonderful product. The interactive fund is doing their second close.
And so, we got AUM back to $2.1 billion at the end of this month. We think that’s a business we should do well in. We finally got, I think, the right product. And so that’s a pretty easy one for us.
Mining is a business that we had invested a lot in. You’re going to see our mining revenues start to grow pretty rapidly. There is no magic to that. We had invested, we finally are plugging in our minds that we bought at low power places. And so that’s going to add to the revenue going forward.
In our Investment Banking business, run by Michael Ash is just doing a great job. We are in the middle of a ton of activity. We’re benefiting from a couple year of investment in developing domain expertise in that space.
And so again, when I look at those businesses, I’m pretty optimistic on each one of them. In the balance sheet, like I said, we’ve marked down our private positions pretty aggressively. We are liquid. In our liquid positions we have less diversity, we’ve got bigger bets in for the more liquid tokens that we think will go higher. And we feel pretty good about where we sit.
Listen with BigGo we’re in constant contact with Mike and his team. We’re evaluating what’s best for both businesses, it’s been frustrating that has taken as long as it has. With the listing in the U.S. we continue to plow ahead. And there is a long queue of other firms that are with the SEC. We remain hopeful and doing the best we can there.
I want to stop before we go to questions and just talk a little bit about crypto. Crypto is not going away. And as much as it feels when the whole market went that 80% that people got really nervous, I didn’t. And there were a few different reasons. One is I look at the 15 analysts that we just hired. And I scratched my head and say, geez, I couldn’t get a job at my own firm if I was 22 years old.
From great universities, diverse group, all over the place who know more about crypto than a lot of our more senior people, right? These are young people who believe in this revolution.
When I look at our meetings with institutions, while retail really got hurt in this institutions were just starting to get in. And so we see nothing but forward progress there. There was a big announcement this week with BlackRock opening up their Aladdin platform to crypto for the first time. That is actually a monumental shift. And it just tells me that more and more access to crypto was coming, right. The total addressable market, the TAM of crypto is much bigger than people think it is. And so we’re going to invest accordingly.
With that, I think, I’m going to leave it for questions. I want you to – oh, no, not questions, I’m going to bring in Alex Ioffe to just run you real quick through the facts of our numbers. But I want this to be interactive. I want this to you guys to ask as many questions as you want Alex?
Alex Ioffe
Yes. Thank you, Mike. Good morning. We’ll keep this short. In the tough market conditions of the second quarter, our business performed well. We ended the quarter with $1 billion in cash on the balance sheet and $1.8 billion in equity capital. After reporting a loss of $555 million, most of it from unrealized marks to market. In the quarter, we mark down our principal investments from $1 billion to $750 million and unrealized marks on digital assets were negative $230 million. Our total liquidity was $1.5 billion at the end of the quarter, consisting of $1 billion in cash. $220 million in net liquid digital assets and $250 million of stablecoins we use for exchange settlements, predominantly USDC issued by Circle.
With that, I will hand over the call to the operator to take questions. Thank you.
Question-and-Answer Session
Operator
Thank you very much. At this time, we will be conducting our question-and-answer session. [Operator Instructions] We have our first question from the line of Chase White with Compass Point. Please go ahead.
Chase White
Thanks. Good morning, guys. So couple of questions. So in general, do you guys see your prudent risk management in the face of the recent crypto market events, kind of leading to Galaxy taking additional market share going forward? And when could we start really seeing that come into force?
Mike Novogratz
Yes, I’ll take that one, Chase and welcome. And it’s great to have you covering the company. Let me hit on a few fundamental components of our risk management of credit, and then I’ll get to your market share question. As we think about our overall portfolio, the key things that we are very focused on are concentration risk. And so if you think about our concentration limits that Chris and Luka and the team manage our book towards no counterparty concentration is above 1% of partner capital. And so you can reverse engineer that, that the largest loan that we have out there is $40 million. Some other key things for you to know are over 60% of our loan book is directly to TradFi service players. So think about family offices, traditional hedge funds, high net worth individuals.
And the book itself offers a lot of diversification benefits at different market segment levels across both TradFi and crypto players. And so our ability to manage our asset liability components extends well outside of the crypto native environment. And I think that’s an important component to think about, to answer your question around market share. And so as you can probably appreciate in the back end of 2021, our sales force were giving Chris, Mike, myself and others a pretty hard time about our conservative loan agreements that we wanted to put in place. And some of our competitors stepped in and took that market share that lending market share often like it does on Wall Street comes with trading market share.
And we took a backseat and we felt a lot of pressure that’s reversed substantially as we’ve come out of the other side of this tradable bottom in crypto. And a lot of those customers that were choosing our competitors in the back end of 2021 are now doing business with us. The terms of these loans, not only are they at higher collateralization levels than we had implemented throughout 2021, they’re at slightly higher NIMs. And we anticipate being able to enjoy an environment that has both of those things, safer loans at higher NIMs for the relatively near-term and potentially the medium term.
Alex Ioffe
One thing I’d add is, listen, I think the credit business can be a big business. The cost of capital for the overall space has gone up. And so we are working really hard to figure out ways to be a better borrower, right. I mean, if we could borrow cheap and lend expensive, we’ve got a pretty good business add in item. And so that will be the real governor to how fast this business can grow, will be access to good financing.
Mike Novogratz
And by the way, we are borrowing cheap, we have $0.5 billion at 3%, five year term on the balance sheet.
Chase White
Makes sense. Thank you for that color. And then you mentioned in the release that there was a prominent shift towards M&A in the market right now. Can you help us kind of size that opportunity up? And how quickly could this kind of in M&A shift take place like, is it happening very quickly and then it’ll be over quickly or is it kind of a prolonged environment, do you think?
Mike Novogratz
Yes. So let me give you a little bit of color around that and some data, the answer is we don’t know a lot of the contributing variables, to the answer to that question, a link to capital and whether or not it will continue to flow into the sector. If you look at the data that we use in our advisory business, M&A in 2021, where you look at, at least one company in the crypto sector being part of that transaction, we saw 180 transactions.
In the first half of this year, that pace exceeded, last year with 92 deals looking at the same metric. If you look at what Sam and the FTX team have done in the very recent past, they’ve been extremely active in this down market, reference BlockFi, Bitvo, Embed just in the last two months alone.
And if you look at assets raised or capital raised by companies in the sector, in July alone $1.3 billion continued to get raised that was across 89 deals. And so year-to-date capital raised is just over $21 billion. And so the capital raising side in terms of financing has slowed a little bit, that’s reflected in what our bankers are working on.
We have been very active on the buy side for some of our customers that continues to be the case. And I think you’re going to see a lot more M&A than the run rate suggested in 2021, in the back end of this year and the first half of 2023. But I think that’s going to be the increase will be largely led by TradFi players who are able to participate now in the sector at valuation ranges that are a lot more digestible than they have been in 2021 and the first part of this year. And so the activity that we’re working on reflects that type of dynamic.
Chase White
Got it. Very helpful. Thanks, guys.
Operator
Thank you. We have next question from the line of Deepak Kaushal with BMO Capital Markets. Please go ahead.
Deepak Kaushal
Hi, good morning, guys. Thanks for taking my questions. I’ve got three. I’ll try to make them brief. First, just on the U.S. listing process, I know it’s hard for you guys talk about it. Any other colors that you can give us, Mike, I mean, is there still some back and forth going on or is there a stall or is there a bit of a summer pause here until we get back in the fall? What’s kind of the activity level and how is that changing…
Alex Ioffe
I would, I guess, point you to the other companies that are in the same process, right? If you think about bullish and circle and eToro and there’s a bunch that have been in the same queue. And just looking at those, it doesn’t seem to be great progress. I think when the market sold off as aggressively as it did, it probably took a lot of resources to – and a sense of caution were hitting a new equilibrium things of kind of balanced out the players that needed washed out – were getting washed out. And so I’m hoping it gets back to normal, we make the progress, but I can only tell you what we’re seeing and it would slow.
Deepak Kaushal
Okay, got it. We can leave that at that then. And then just on the competitive side, obviously, BlackRock and Coinbase have their partnership and that help Coinbase’s stock a bit. Are you finding that you’re handcuffed from a prime brokerage perspective? Now that you haven’t been able to close BitGo yet, is that affecting you guys competitively at all? How’s that side of the market shaping up?
Mike Novogratz
Let me give you some color around that. And I think it’s really important to ask the question of what does prime brokerage mean, it’s a term that gets thrown around a lot both in TradFi and [indiscernible] sector. And I think when you dig into different providers and different clients, what they really mean by it can be different.
The layer of services that we’re building in Galaxy that are very important to our institutional costs. Our execution, liquidity, margin lending, and netting, and leveraging, all of the additional service and products, it’s ultimately going to be critical for us to be able to stake ETH when that comes online, we’re going to have to rehype Bitcoin for customers that need that.
So all of the things that we have become expert in for our own principaling activity. We’re going to roll out to our customers, and that will happen agnostic to the downstream custody provision. Galaxy today in our asset management business and in our balance sheet leverages several different custodians to provide the backend solutions that we need depending on what the coin is that we need custody then the services attached to that.
And so we can plug-in the downstream custody services to our prime from a number of different providers if needed. And of course, we’re hopeful that BitGo will be one of those. So really from a prime services, product delivery perspective to our institutional clients, that front end service solution is what we’re good at and what we’re continuing to build. And so that, that will not limit us in any way to providing services to our institutional clients.
Deepak Kaushal
Okay. So it doesn’t sound like it’s a competitive handcuff at the moment. But is it delaying opportunities that you haven’t been able to close the deal yet?
Mike Novogratz
I would say no for the reasons I highlighted.
Alex Ioffe
Yes. And listen, we are investing a lot in our technology build out here. And so it’s building product that will service those institutional clients. I mean the interesting thing is when you think of it something like Aladdin, it’s an agnostic platform. They will have lots of people that plug-in once their product to plug-in. So our race is to get that product built sooner rather than later.
Deepak Kaushal
Okay. Thanks. And then my last question, just on the M&A front again, it related to competition. I think the prior question around M&A, I think a lot of the answer was related to your investment thing besides business. How about Galaxy’s M&A activities, you mentioned FTX buying a lot of companies. What’s your first to the market like you haven’t seen enough on the street yet Mike to take around things or…
Alex Ioffe
I was really focused on cleaning our house, getting our understanding of how we spend money and where we spend money, getting our eight businesses, our eight operating businesses, really mission driven and steely-eyed and focus. And so it’s kind of Stage 1 clean our own house up and get set and Stage 2 look up – look for the offense.
We’ve been going through lots of opportunities during Stage 1 as well, and haven’t found the exact fit yet. It will – it would’ve been a huge mistake to have gone through this full cycle and not done something offensively. Listen, we have a billion dollars in cash and we feel – we think we’re on a cash flow positive operating run rate at this point. And so I want to be offensive and we’re looking.
Deepak Kaushal
Okay, that makes a lot of sense. I mean, certainly tumultuous quarter. I mean, you guys are on the right side of the regulations. When do you think you start getting credit for that?
Alex Ioffe
Listen, I used to sit at conferences and tell the space, especially, when it was much smaller that we need to self regulate as a space or the regulators are going to regulate us. And when I look around at some of the behavior of our industry, there was not a whole lot of self-regulation going, right. There was asset liability mismatched. There was excessive leverage. There was all kinds of craft behavior in our space. We are hoping to be a model of what regulation should look like. And so that’s been our play. I do think the regulatory landscape in DC is still at a bit of a standstill, right. There was some great legislation, bipartisan pushed. See the ad committee recently to move Bitcoin and Ether to the CFTC.
We’ll see if that gets any traction, probably not until after the election. But my sense is we’re not going to see much movement until after the election. And that is going to be one of these frustrations. So our plan is to stay in contact with everybody to try to be a role model. And hopefully, you’ll see – when markets crash and get everyone gets scared. The first reaction is everyone kind of running for the hills? I think what you’re going to see next is companies realizing, hey, I’ve got a sustainable business model I don’t and this is where we talk about the M&A activity picking up. I think you’ll see some people go out of business, others grow, you’re seeing TradFI guys deciding to get in at this opportunity. So I think the next six months, we’ll be pretty interesting for us and hopefully, our framework on how we do business leaves us in a good position, both with regulators and helping set the new rules, but also with customers.
Deepak Kaushal
Okay. Well, look, I’ll leave it at that. I mean, it looks a lot better than it did back in 2018, so, and a billion dollars in cash is great. So thanks for taking my questions and I’ll pass on.
Operator
Thank you. We have next question from the line of Ken Worthington with J.P. Morgan. Please go ahead.
Ken Worthington
Hi. Good morning, and thanks for taking the questions. Maybe first higher level is the contagion from Terra and Luna over, and if we’re going to see more fallout, where does it come from and what drives it?
Mike Novogratz
Yes. Listen, I think what you saw was a big deleveraging of a whole group of players that had in many ways, borrowed customer deposits in these lending platforms, if it was Celsius or Voyager or BlockFi or many of the exchanges and then lent them out into less liquid and longer duration assets. I think that deleveraging happened. That was the wash down to 850 in Ethereum and 1,800 in Bitcoin.
We’ve seen a bounce from there as the fear went away. Those companies still are going to be absorbed or liquidated. And they’ll – so there’ll be some pressure on a asset sales that happen over time, but it becomes a smaller and smaller portion of the market. I don’t think there’s another shoe to fall in terms of bad credit or someone who needs to be liquidated.
I think now the industry needs new energy, right? So energy comes from narrative in our industry. And so we’re seeing it in Ethereum with the merge. And so Ethereum is outperforming, because there’s a story to tell, and there’s a really exciting shift in the supply demand equation of Ethereum, right? So you’re going to have a less inflationary currency. You’re going to have people who are incented and paid to huddle or to state their Ethereum.
And so prices are set on the margin. That’s a story that Ethereum is shifting into a new chapter. The Bitcoin story continues to just slowly gain traction and adoption. We’ll see what the macro environment is. If the Fed flinch is if we have inflationary accelerate. But I think that story is less exciting than it was certainly when federal banks were pumping in tons of liquidity and the third part of our business, which is really the long lasting part of like building out Web3 that just keeps grinding away.
And it takes time, right? So if that’s the NFT space, that’s DeFi space. That’s not going away. There’s a lot of venture money funding that, but again, I think for the industry to kind of take that next big leg up, we’re going to need to see this institutional money come in. We’re going to need to see that narrative. And again, is it going to happen in the next two months? I cross my fingers and say a few Hail Mary’s, but we’re taking a much more sanguine view that over the next 18 months, 24 months, all the stuff will happen.
Ken Worthington
Okay, great. And then following up on M&A, which seems like the topic de jure. So you talked about comp getting outsize in the bull market. And I guess, my opinion is a bull market can also support maybe too many companies. So is the crypto ecosystem in need of some consolidation? And if so, what parts of the ecosystem seem to be more ripe? I think you mentioned the lenders might be ripe. And then you also mentioned that TradFI buying into crypto, what parts of the crypto ecosystem do you see TradFI firms most interested in?
Mike Novogratz
So what’s interesting is who were the big winners in crypto? They were the exchanges and exchanges really weren’t even exchanges, right? They were broker dealers in lots of ways. Some – like Voyager was a broker, a broker shop, others Blockchain.com or Coinbase, they collected customers who were playing in this new world. They were high margin businesses. And the customers were really resilient and really sticky and so pretty good business.
I think you’ll see some consolidation there. And you’ve seen that with Sam at FTX, already with both Voyager and BlockFi. And I think you’re going to continue to see some consolidation there. When you think of things like custody, you’re going to need a lot more custodians. If you really believe that we’re going to start having tokenization at one point in the future of other assets and that the crypto economy is going to continue to grow. I think you’ll see some – we already have big traditional players investing lots in custody. They don’t have the regulatory framework to do it yet, but they’re investing in advance. And so that’ll be an interesting space.
What we do, there’s not a ton of competition in. We have competition in each of our segments, but in the derivative business lending, institutional lending business Genesis is a big competitor. They’ve had their own issues recently. I think they’ll continue, they’re not going away. But we don’t have a lot of kind of institutional level broker dealer derivative businesses to compete against, or even credit businesses, right? The big credit business that had suffered so much were places that were taking in retail dollars and then lending them back out. So I think that game is probably over for a while.
Alex Ioffe
Ken, I’ll just add a couple of things to help answer your question in addition to Mike’s comments. I think every sub sector of digital assets has a group of firms that are larger. And in many cases, they were able to raise capital in the 2021 and Q1 of 2022 period. And a lot of these subscale smaller firms weren’t as able or inclined to do so. And so I do think you’re going to see a natural runway driven M&A cycle in almost every sub sector. Mike mentioned a bunch of them. And that’s going to be something that we’re right in the middle of in our Advisory business.
We take a lot of cues from that through our Venture Investing business where Chris and the team really monitor very carefully all of our portfolio companies, which now total 100. And to give you a sense, I think an interesting stat for our portfolio, the average runway across the majority of those companies is just over 33 months. And that informs a lot, I think when you look at the sector through that lens and where runway is, it really is more prevalent in some of the larger firms. And that’s why you’ll see a driver of roll up in M&A.
Mike Novogratz
And last thing I’d say, and it flipped my head for a second. The one area that I think needs capital and got off sides in this space was mining, right? I think the mining space it just looked like it was such a good business that people were raising capital instantly committing it to buy chips and shelf space in the future. And so that space, we find pretty interesting. We think we’ve got a role to play in both lending and in potentially consolidation in that space. But if you think about kind of the one sector, that’s probably got the weakest legs right now are the most challenges, it could be the mining space.
Ken Worthington
Okay, great. Thank you very much.
Operator
Thank you. We have next question from the line of George Sutton with Craig-Hallum. Please go ahead.
George Sutton
Thank you. Just one question. Mike, I appreciate the bifurcation you made relative to retail versus institutional. In past calls, you’ve talked about a mountain of institutional capital teeing up to investing crypto. Obviously the world has changed a bit. But where does that stand today in terms of potential in your view?
Mike Novogratz
That mountain looks more like a hill for 2022, but the momentum is still headed that direction, right? So even one of the publicly big, big funds that said they were going to put a whole bunch of money in, they’re going to put some money in this year and a lot more next year. And I think this selloff slowed people, and just think of the process of investment committees of more conservative institutions, they don’t like to put themselves in harm’s way in the middle of a perceived crises.
And so I think as this space bottoms out and starts rebuilding both narrative and price, you’re going to see those institutions come in. And Damien has been on tons of calls as has Steve Kurz, as has Michael Ashe. Our team is out there talking to people and we don’t see a retreat. We see a pause, but just kind of a slow march board. I read something this morning about Morgan Stanley hiring more people. I don’t have the full story. But we’re seeing that consistently. And so what was refreshing is, I didn’t have to in my conversations, re-litigate the basics of why we were doing this.
People still get it and still believe in Web3, still believe that Bitcoin is going to be a macro asset for a long period of time. And still believe that we’re going to build a more decentralized blockchain, a public blockchain ecosystem that things will be built on in the future. And so after 80% selloffs, sometimes you worry like, are we starting over? We absolutely weren’t starting over. And so in that respect, we don’t have the mountain of capital coming in this year, but I still feel like there’s a put almost in terms of time and capital marching towards our space.
George Sutton
That’s great. Actually one other question while I’m thinking about it, you did mention the Senate Ag Committee proposed bill. They’re suggesting the CFTC be the regulator. Could you just give us your thoughts on the CFTC? Obviously I understand its sensitive relative the SEC right now, but curious your thoughts there.
Mike Novogratz
Yes, we just want clarity. What has been so frustrating, as a guy who’s been in this space since 2013 is the lack of clarity. Once you tell us the rules we’ll play within the rules, but when they constantly ask the players to figure out what the rules are, when the rules aren’t clear, it really makes things complicated. The nice part of the CFTC is, it’s got a pretty straightforward regulatory mission, it’s not consumer, and the SECs [ph] got a much bigger workforce, a much bigger mandate. And so I just want them to make a decision.
George Sutton
Perfect. Thank you.
Operator
Thank you. We have next question from the line of Richard Repetto with Piper Sandler. Please go ahead.
Richard Repetto
Yes, good morning, Mike. I guess the first question is just looking at, or listening to a lot of your comments, as you described yourself sanguine and would you compare like looking at the length of potential correction here would – is it comparable to the internet? For a few of us that were around the internet bubble bursting, which went for probably three years, have you done any comparisons or any clues that you have into the length of the collection time here?
Mike Novogratz
I’ve looked at all those analogs. I looked at them in 2017 and when we crashed at 2018, that was the first thought I had. It’s like, how long is this going to take? And what has been refreshing and surprising to me is just the resilience of this community. Right? And I think it’s because this is, it’s a purpose driven community. It’s like a revolution in lots of ways. Like the young people still believe this is there. Right. And if you think about why people got into crypto, it was this breakdown in confidence, in institutions. And if you look around the world at our institutions, right, if you look at a potential election between Trump and Biden people are looking at politics and economics and the whole system.
I mean, Nancy Pelosi is going to Taiwan and almost creating a World War III, so the frail state of relations with China, with Russia, like there’s nothing in the world that says, Hey, huh, this is the great moderation again, we’re going back to the good old times, right? We have this breakdown of trust, which is really the fuel for the crypto revolution. And so what’s interesting is how resilient it is, even retail. I mean, you can beat the heck out of retail, and I still keep coming back. And it surprises me in some ways how strong this community is.
And so I’m more optimistic than I would normally be as just a macro thinker that things could come back quicker. We’re preparing to be pessimistic and hoping to be optimistic. And so that’s how I’m thinking of things. But what we’re seeing is really promising. And I, my best forward indicator is the smart kids coming into the space. And I said this in my remarks, if you look at our 15 analysts, you’re like, those guys are as sharp of an analyst class, as you’re going to get at any firm from big tech firms to big Wall Street firms. And so, as long as that youth is pouring into our space, I’m pretty optimistic.
Richard Repetto
Got it. That’s helpful, Mike. And then you talked earlier about M&A, and you talked about certain sectors, you might be more interested. That’s gotten more beaten up like mining or lending. But I guess the question is, as you look for your own M&A, how have the guidelines changed? Are you more focused on sustainability, and resilience versus valuation or strategic fit with other galaxy, but like, has anything changed in the lens that you look at M&A at given what’s gone on here for the last several months.
Mike Novogratz
What I look at our businesses, and if I, keep our balance sheet aside for a second, because in our balance sheet, we have lots of future hopeful businesses, right? That the businesses are going to change the way things happen. When I look at our businesses in lots of ways that are bread and butter businesses, that will be here in a year, that will be here in four years and in five years, right? Lending derivatives, asset management advisory, they’re kind of core businesses, in some ways, they’re the more boring businesses than what the future is going to hold. And so when we think about, M&A there’s – is there something that could roll into what we do already and strengthen that position. That’s one lane. The other lane is, do we bolt-on something or do we think about inquiring something that plays to where the world is shifting in the next 36 months?
And so we’re looking at both, the more decentralized, if it’s tokenization, if it’s that space appeals to me personally, because that’s kind of why the people got into this revolution. And so that’s on my radar. But it’s something I think we can be a little patient with. What I like about the portfolio businesses we have now is, I’m completely certain that in four years there’ll be important businesses. The move to a decentralized world’s not happening in the next four years when everything is decentralized, I don’t think it’ll ever get there. But we’ll trend that way. And so why I felt pretty strong coming into this call is like, I look at each of our businesses and I was like, Hey, we should gain market share in each of them, and we should be profitable, and they’re good solid businesses run by a really strong team. And so I think if you see us add something, unless it’s a fill in, it’ll be stuff that we don’t have.
Richard Repetto
Got it. And just wanted to squeeze one last quick one on regulation, because you did seemed like you had a tilt that the CFDC whatever might be a little bit more user friendly, I guess. Because and you made, I think you referring to like their principle based sort of regulatory – what do you call it oversight? And, but I guess the question is, when you look, I think the SEC is certainly going to get some portion of it with tokenization, what Chair [indiscernible] thinks is really securities. So maybe a little bit more on the balance between the CFTC and the SEC. And we know how aggressive, I guess [indiscernible] as a regulator too.
Mike Novogratz
What has frustrated me is I saw a lot of companies are collect those issue tokens and the token economics were created to kind of get around would this archaic security definition that comes from whatever 1936 or whenever the Howey Test showed up. And so it’s not the way it really should work. I think token economics need to do a better job of reflecting what people want to get out of buying those tokens. And so some do look like security tokens or should look like security tokens. But maybe the lane that we have existing right now is too restrictive. And so there hasn’t been any good back and forth dialogue of creating kind of a new regulatory framework for this new technology, which is not exactly the same as what an old security used to look like.
Why the CFTC is appealing for something like Bitcoin and Ethereum. It just takes those things off the plate. So, okay, we know now that they’re not in the mix and yes, the SEC is going to be involved somehow unless they create a new industry. And so I just want clarity. So we start moving forward, because quite frankly, I think our industry needs to create token economics for lots of things that I can convince my mother, Hey, this is why you’re buying this token. And it’s not some mumbo jumbo, but she can actually understand it. And that’s not the case in lots of tokens out there. And so, and I think part of that is because the creators of tokens were operating and trying to figure out how to operate in this gray space. So like let’s get out of the gray space.
Alex Ioffe
And Richard just be clear. We welcome clarity in the rules and we’ll look forward to working with all regulators.
Richard Repetto
I fully understand that. Thank you very much.
Operator
Thank you. [Operator Instructions] Your next question from the line of Mark Palmer with BTIG. Please go ahead.
Mark Palmer
Yes. Thank you. Good morning. We are seeing a lot of the crypto institutional trading focus on the derivative space, which it has been huge in the rest of the world for a long time. It’s really beginning to gain some traction in the U.S. or at least it was prior to the recent downturn. Can you talk about Galaxy derivatives offering how you were shaping that up to not only fit client needs, but also take into account the competitive environment in the regulatory state of play?
Mike Novogratz
Sure. We think it’s one of our best businesses and one of our advantages and partly that’s just the team we have on the field and their knowledge of how to run a derivative book. When I think about our loans to minors why we didn’t suffer any losses in this big drawdown it’s because we went to most of them and said, Hey, we think you should collar up your loans by foot sell [ph] calls and build it into structured notes or build it in their loan agreements. And so that’s that collaboration between our credit business and our derivative business. And I think our clients were happy that when crypto went down, they didn’t have to puke out all their Bitcoin. We were happy because it made our loan book much safer.
And so I think that structured product actually selling TradeFi and crypto hedge funds, volatility products using it for private equity, people that want to hedge that business is only going to grow. And so our derivative business is kind of almost a classic TradeFi derivative business moved over to crypto. When people talk about crypto derivatives, mostly what they’re talking about are the futures that players like FTX and Binance offer, which are – overnight are actually instant representations of a potential token. So we’re not in that business yet. We trade them a lot. But that’s a business that that we’re not in. And that’s – so, that word derivative is a little tricky in the cryptosphere. Our derivative business looks more like a TradeFi derivative business in terms of it’s a big options book. It’s structured product. And we think that’s only going to grow.
Operator
Thank you. We have next question from the line of Owen Lau with Oppenheimer. Please go ahead.
Owen Lau
Good morning, and thank you for taking my questions. So given what the industry has been through over the past few months. And I know Mike you just talk about regulations and we appreciate your color. But what are the top priorities that the industry can do to regain some of the credibility? And then in terms of directing your investment dollars into private companies, have you changed any of your philosophy that you would allocate more into certain projects that the industry should do more and also less on certain projects that you think the industry shouldn’t go further? Thank you.
Mike Novogratz
So I think the big takeaway from the last quarter was that the on-chain, why people get into crypto. One of the dominant reasons was transparency. And so if you think of things that were on-chain lending, it was all transparent. And so no one’s bitching about Compound or AAVE, these on-chain lending platforms. I didn’t know, it’s all right there where it was the lack of transparency at places like Celsius or other credit shops where retail depositors left their Bitcoin or their Ethereum or their stablecoins. And next thing, had their money levered up 30, 40 times and it invested in other projects. And they were taking lots of risk. And so I think if there’s one lesson it’s the industry needs more transparency because you could run those same businesses and actually put the portfolio on shame.
And so we’re somewhere halfway in between, and that we’re a public company. We offer transparency quarterly. We run a much more conservative shop, and so we – but we are still a trade-by company that deals in crypto. And so I think that push to having certainly those retail facing clients a lot more transparent right. They needed to operate like they were regulated entities and they didn’t. And so now they’re either going to get regulated or they got to operate with a lot more transparency. And I think there’s probably a lane in there for us to exploit because I think we’ll pull our skirt back and show our balance sheet and then we do it every quarter.
Owen Lau
Got it. That’s very helpful. And then the public market has come back quite a bit so far in the third quarter. Could you please talk about the activity in the private market maybe including how much capital under sidelines, fundraising and valuation over the past few weeks compared to the second quarter? Thanks.
Mike Novogratz
There’s still – if there’s a hot deal it’s still trading at – there’s a couple deals out there that surprising me at the issuer getting terms that we don’t think they should, it looked like an old deal and so if there’s a really hot deal, it feels like lessons weren’t learned. They’re not a lot of those. And so really good teams and really good tech are still a attracting money and everything else seems to be wait and see. Like, I think there’s a – there’s a come-to-Jesus moment coming where companies that raise really high valuations have enough cash, but their next round might be a down round. And there’s probably a big opportunity in raising a convert fund or being in that restructuring biz. And so, because people had just raised money, if you were lucky enough to have raised money, you can wait and see but the private valuation game changes much slower than the public valuation game.
And so there’s still like, like we marked our private book down a lot. And – but I’m not sure other people are marking their books down or how companies are thinking about it. And so I don’t think you can expect that gap to close in three months. I think that’s a 15-month wait-and-see thing. And I would tell you that a lot of participants, because it was only a bull market, don’t even really understand the mechanics of when money is raised at a high prep valuation and gets crammed down what it does to the other shareholders or quite frankly the employee stakes.
Owen Lau
Got it. Thanks Mike.
Operator
Thank you. [Operator Instructions] We have next question from the line of Jamie Friedman with Susquehanna. Please go ahead.
Jamie Friedman
Hi. Thank you. Damien, I think in your prepared remark mentioning, and it says in the press release that you on-boarded over 50 – over 40 excuse me new counterparties to the trading platform. So this one’s about GDT? And I was just wondering, yes, how do we think about critical mass? Like, I think you have 850 some odd is boarding an incremental 40 important how – how much concentration is there within the 850 that you have on the counterpart side? Thank you.
Damien Vanderwilt
Yes. So the answer – it’s a good question. The answer is it depends on who they are, of the 40 that have been most recent. Encouragingly, they are some larger AUM organizations that have taken time for us to get on-boarded. The large trade-fi asset management groups do as you would expect an extra amount of diligence and the user negotiations just take that much longer as people have to get comfortable without credit and the whole host of things. And so the 40 that have come recently in a lot of cases have been really significant institutions. So we’re very excited by that. The competitive landscape that we’ve talked about a bunch on this call has allowed us to advance those on-boardings and develop those relationships more quickly as services that those clients need are less easily available from some of our competitors than they used to.
And so you should expect to see a continuation of that. And I think a lot more of our on-boards as a percentage are in the trade-fi space relative to the asset management groups of which there are many who are crypto native and focused on crypto. And so they are important and the second part of your question much like in trade-fi books, when you look at the Goldman Morgan, JP Morgan the distribution of businesses the ID20 Rule applies here in the same way that it broadly does there.
Jamie Friedman
Got it. Thanks for the color. I’ll drop back in the queue.
Mike Novogratz
One last comment I’ll make, I qualify this that my numbers aren’t going to be perfect. But when I think about, how do we become 400 people? I look at our stock sometimes and where it’s trading. I was like – last time I was down here, we had $700 million of book and our operating businesses probably were doing less than $15 million of revenue. And we think, they’ll do – $200 million this year.
We really had a business plan in late 2019 for great operating businesses, but not a lot of juice flowing through the machine. And so, in the last two years, we’ve spent a lot of money, time and effort building up these franchises, which are starting to hit critical mass. And so I don’t want, sometimes is the volatility of our book just, out outweighs our obscures, the actual business of that we’re trying to build, right. Which is a long-term, sustainable business servicing the institutional clients. That’s why we have 400 people, right. If we were just an investing business, we’d have 40 or 50.
And so, I – it can frustrate me at times because, the way we set this company up, has both businesses under the same, under the same roof. But I just want to keep that focus on really this kind of grinding growth path to building sustainable, profitable businesses on the institutional front.
Operator
Thank you. We have next question from the line of Kevin Dede with H.C. Wainwright. Please go ahead.
Kevin Dede
Good morning, Mike. Thanks for fitting me in at the end. And listen, I’m just kind of curious as you see, sort of the whole crypto space move through this downturn, which businesses do you think, your eight operating businesses respond most favorably as the environment changes. I mean, you talked about your derivative business being pretty strong and helping manage your lenders. And you’re also talking about your mining business, wanting to see more investment there. What’s – what do you think is the best way for us to think about, Galaxy rebound here?
Mike Novogratz
Yes, I guess, listen mining is just going to happen because we had invested in it and the mining’s, miners are coming off online. And so you will see us going from mining. I don’t know if it’s one and a half to two, two coins a day towards 10 coins a day over the next, period of time, that’s going to have no revenue. But I think in general real big opportunity to validate mining, but it’s a tough business. A lot of money got invested. And so hash rate continues to stay high.
People are having a hard time, finding good places to plug in their chips. And so being excellent at mining means a lot more than I did in a complete bull market being excellent. What do I mean by that? It’s having access to low power; it’s having teams that actually know how to keep your chips online and actually having shelf space. The business, I think we have the most upside in, is from where we are now is our Asset Management business. Listen, we did a lot of our best investing on balance sheet at the expense of growing asset management with you in the past. And so if you look at our balance, our and I talked about it at start, right.
We turned $350 million into $1.9 billion or double [ph] we are today. With spending a lot to finance the rest of the growth of our business, that wasn’t an asset management. And so we’re now building out, we think world-class product, right, our interactive fund, our Venture fund-to-fund business, our Alpha fund. And I think you’ll see that as a continuing theme. And so growing that business is it’s a real focus here. We’ve got great partners but in some ways that suffered at the expense of our balance sheet growing right. We had a lot of our best investors on the balance sheet side. And as we migrate more of that to the Asset Management business, I think that should be a big growth opportunity.
Kevin Dede
Thanks Mike.
Operator
Thank you. Ladies and gentlemen, we’ve reached the end of the question-and-answer session, and I’d like to turn the call back over to Michael Novogratz for closing remarks. Over to you, sir.
Mike Novogratz
Yes, guys. I hope you’ve got my enthusiasm for our team. Listen, I didn’t tell you like we’re bullish. We are, we’ve come out with a new brand. We’re rolling out a complete new brand for Galaxy, cool logo and a feel with our website and our brand that our marketing team had worked on for a long time in the next few weeks.
We’ve got our new office remodeled it bit. And so we are, we’re in this for the long haul where like I said, I will never be happy losing 29% of my balance sheet in six months. And as an investor, it has kept me up at night. But I’m really optimistic about, the runway for our businesses. And I still think this is a space that over the next two to five years should be a really interesting and bullish place to be. And so I hope you got those messages and look forward to talking to you next quarter.
Operator
Thank you very much, sir. Ladies and gentlemen, this concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Be the first to comment