Galaxy Digital’s stock price skyrocketed: is it at risk now?

You could say it’s been a good time for investors in Galaxy Digital since last July - the stock price is up 1,800%! But what does this company do, and can they withstand lower cryptocurrency prices?

Key takeaways on Galaxy Digital

  • Galaxy Digital is an investment firm and financial services company focusing on crypto and blockchain technologies.
  • The company has reported strong growth and profitability for the year 2020, as well as for the first quarter of 2021, thanks to a surge in interest for cryptocurrencies.
  • Galaxy Digital has joined a growing list of 8 companies looking to open a Bitcoin ETF listed in the US; it just submitted its S-1 form to the SEC.
  • Rumour has it that the company is to buy BitGo, which would allow them to perform custody operations in-house.

 

What is Galaxy Digital Holding?

Founded in 2018, Galaxy Digital is an investment firm with a strong focus on the blockchain industry. They manage a portfolio of around 80 investments valued at $260 million and have a market capitalization of $11 billion. They have offices all around the world, from New York and Chicago to Tokyo and the Cayman Islands.

Representative investments of Galaxy Digital Holding (Source: Company report)

Representative investments of Galaxy Digital Holding (Source: Company report)

 

The company initially started as an investment management firm only, but has extended its business offering to various financial services, such as banking and trading, with a specific focus on blockchain technology and cryptocurrencies.

They also built a joint venture with Block.One, creating a $325 million fund to develop the EOS digital ecosystem. Block.One is an open-source software publisher that is specializing in blockchain technology, and the EOS ecosystem aims to provide a platform to develop smart contracts and dApps (decentralized apps) which could easily scale to accept millions of user-to-user transactions per second, eliminating extra fees.

Finally, Galaxy Digital announced in January that they launched a business line with the aim to provide bitcoin miners with a suite of financial services and products. They also began their own mining operations at a third-party hosted site, interestingly competing with the clients they aim to serve.

 

An impressive performance over the past year

 

Galaxy Digital Holding's stock price over the last year (Source: Trading View)

Galaxy Digital Holding's stock price over the last year (Source: Trading View)

 

Galaxy Digital’s stock price soared this year, rising by almost 240% as of April 20th, 2021. That figure was even higher a week ago, when the stock was up 291.1% for the year. This meant a 1,800% increase since last July, when the stock began trading on the Toronto Stock Exchange.

Their assets under management have seen substantial growth. They were up 50% since the end of January, from $834.7 million on January 21st to 1.275 billion on March 31st. Over the trailing 12-month period, assets under management are up by more than 250%.

 

Why is Galaxy Digital so successful? A strong belief in BTC

Needless to say, the company’s success can largely be attributed to the rise of cryptocurrencies. The bitcoin price has risen by 92% in 2021 as of April 19th, and 675.1% over the trailing 12 months. As mentioned previously, the company has a large exposure to blockchain-related companies, such as 1Inch, BitGo, Blockfi, Terra, and many others.

Galaxy Digital’s CEO Mike Novogratz strongly believes in bitcoin, convinced that it will overtake the market value of gold as more and more institutional investors start buying in. “The more people involved in this space, the bigger firms, if it's Tesla, or MicroStrategy, or Goldman, or Morgan Stanley, the more wealthy individuals — the harder it is politically to say, 'hey we don't like this anymore,’” he told CNBC.

Thanks to its positive results and the rising price of Bitcoin, Galaxy Digital is now among the 8 companies applying to launch a Bitcoin ETF, as they recently submitted an S-1 from to the US Securities and Exchange Commission (SEC). The company is already set to be a sub-advisor for the world’s first Ether ETF, the CI Galaxy Ethereum ETF (ETHX), which recently launched on the Toronto Stock Exchange (TSE).

 

Next move: Rumours of buying crypto custodian BitGo very soon

Founded a little over 8 years ago, BitGo is a company that offers Blockchain security platform APIs, custodial and settlement services.

And custody is one of the missing parts in Galaxy Digital’s arsenal, which is why they are now in talks for an acquisition. We do not yet have any information about the size of the deal, but there were rumours that BitGo was to be sold to PayPal for $750 million last year, though the deal did not happen. Both companies declined to comment.

In any case, it seems that BitGo would be a worthy addition to Galaxy Digital’s portfolio of services, as the company does not do any custody to date. So far, BitGo has raised almost $70 million over six funding rounds – including investments from Galaxy Digital itself.

 

Forward-looking commentary regarding Galaxy Digital and cryptos

What seems interesting with Galaxy Digital is both the growth potential of the crypto market as well as the vast range of services the company provides in the sector. The success of the company is not directly linked to the price of bitcoin: whether bitcoin is at $40,000 or $80,000, the adoption of related digital asset applications, generates real cashflow, putting Galaxy Digital in a good place for growth.

Of course, if bitcoin were to drop and remain at a much lower price over the long term, it could easily pressure valuations for companies in the segment. With more and more institutions taking a stake in crypto, as well as central banks developing digital currencies, it seems that everything is falling into place to build an alternative financial system. Of course, this will not be attained without bumps on the road: there will most likely be more than one correction.

One element to watch out for is potential regulatory challenges to cryptocurrencies, which might slow down adoption. Countries like India are considering an outright ban on trading and holding cryptocurrencies because the government sees it as a threat to financial stability.

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