In our last post, we discussed Did You Sell or Hold Galaxy Digital (TSXV:GLXY) Stock? Today, we’ll analyze the Galaxy Digital Stock profile and look for possible opportunities. The article is divided into four parts – Introduction, Bearish Argument, Bullish Argument and Conclusion.
How the Company Came Into Existence
- Ex-Wall Street Banker having faith in the Crypto space, who made good returns from crypto trading (from 2013 and onwards) and had 10% of crypto allocation in 2017, decided to use his experience and expertise of Wall Street in the Blockchain space.
- In 2016, He established Galaxy Digital, a full service, digital assets merchant bank.
- Galaxy Digital first bought the Canadian crypto startup First Coin Capital Corp. and then it got merged with a Canadian shell company, Bradmer Pharmaceuticals Inc., through a Reverse Takeover. And used the entity to raise C$250 Million ($201 million) in a private placement of stock. Renaming the Bradmer Pharma to Galaxy Digital Holdings and had been listed on the TSX exchange on August 1, 2018.
- Uptill now, Galaxy Digital has made 6 acquisitions and 11 various investments for $86 Million. By the quarter ending of March 2018, the company had $281.7 Million in total assets. Novogratz has personally contributed around $302 Million of his own assets to the company.
About Galaxy Digital Holdings Ltd
Based in New York and founded as a subsidiary of Galaxy Group Investments, the personal investing business of Michael Novogratz, Galaxy Digital is undertaking the Transaction in order to raise primary capital towards building a best-in-class, full service, institutional-quality merchant banking business in the cryptocurrency and blockchain space. This corporate development is an important step in the evolution of the Firm’s life cycle and provides Galaxy Digital with a strong foundation from which to build and expand its platform, network, and brand. Galaxy Digital will include Mr. Novogratz’s portfolio of digital assets. (Source : GLXY Sedar Filing, 9 January 2018)
Four Core Digital Business Segments :
Following completion of the previously announced business combination among Bradmer Pharmaceuticals Inc., Galaxy Digital LP and First Coin Capital Corp., resulting in the formation of Galaxy Digital (TSXV: GLXY), he beneficially owns 213,696,000
Class B limited partnership units of Galaxy Digital Holdings LP which, pursuant to the GDH LP Limited Partnership Agreement, are exchangeable for ordinary shares of Galaxy Digital on a one-for-one basis….Upon completion of the Arrangement, the GDH B Units beneficially owned by Mr. Novogratz represented, on a fully-diluted basis, 77.7% of the issued and outstanding Shares (assuming conversion of only the GDH B Units held by Mr. Novogratz). (Source : GLXY Sedar Filing, 1 August 2018)
Bearish Argument on TSXV:GLXY
Keeping in Mind the Red Flags
There are two potential red flags. Before Galaxy Digital, Novogratz shared the plan of $500 Mn Crypto Hedge Fund. But because of Crypto volatility, the plan was dropped. Even though we are sure about the crypto’s survival in future periods, but the near term volatility is very much sure thing.
Second, Novogratz’s exit from Fortress. The news goes as such – Fortress Investment Group is liquidating Novogratz’s $US2.3 billion ($3.19 billion) macro business and will return money to clients by the end of December after almost two years of losses, the asset manager. Read the Details on – Michael Novogratz leaves Fortress Investment as $3.2 billion macro fund shuts. Things do happen. It is not necessary that Galaxy Digital will be failing or Michael is a bad manager. We simply want to keep this fact in the back of our mind.
Choosing the TSX Venture Exchange
We could have given some benefit of doubt for any person other than Michael. Novogratz is (was) a experienced and well resourced billion dollar fund manager. If he wished the listing of Galaxy Digital to be on a major stock exchange, it would not have been a much bigger endeavor. Instead, Michael merged the firm with a shell company and got listed on the Toronto Junior Exchange. This route has been more popular with marijuana producers and cryptocurrency startups. At least 2 years of audited results are required, if you are looking for Initial Public Offering in US, and Galaxy Digital did not have that. One possible question is – If the Galaxy Digital is well funded and the organic growth is there, then why not wait for 2 years, get good revenues/profits, get results audited, get better (higher) valuations, and get the company listed on major exchange?
The second issue with TSX Venture Exchange, is that many companies listed on it have similar looking charts as below.
It simply means, on aggregate, if you posses the well diversified portfolio consisting of TSX Venture Exchange related companies, then you have likely have losses or marginal gains. And we haven’t talked anything about the Inflation or major stock indexes touching their lifetime highs (the ones indexes consisting of well established large cap companies with predictable cash flows) which are very low risk as compared to TSX Junior Exchange companies.
Bullish Argument on TSXV:GLXY
It’s A “Sellable” Idea
An Ex-Wall Street Fund Manager opening up the “Next Big” thing. Feel free to Google and research the various articles on “Galaxy Digital”. There’s much less information which comments anything negative or raises concerns/doubt about the company (Ideally, the opinions needs to be unbiased and consisting of both). How come we (or overall crypto community) are only seeing only the bright side of the picture and nothing negative. We are surely biased. This is likely because the business model for Galaxy Digital is a sellable idea. Regardless, if Galaxy Digital generates the returns on equity or not, it is surely something which we can postulate can/will be a profitable business.
A “Who’s Who” Business
One of the traits of successful financial services company is possessing powerful industry connections and a vast network. It is about attracting, hiring and retaining the top managers. Michael Novogratz, has all these traits built-in. Because of his seasoned work experience, investors in Galaxy Digital (TSXV:GLXY) stock can sleep peacefully at night, knowing that the company’s leadership is under a capable individual.
For example, Michael managed to get former Goldman Sachs Executive Director Richard Kim as Galaxy Digital’s new Chief Operating Officer; Michael also managed to launch the Bloomberg Galaxy Crypto Index (BGCI). The index is designed to track the performance of the largest, most liquid portion of the cryptocurrency market.
BGCI Cryptocurrency Weightings
Bitcoin Cash 10.65%
Ethereum Classic 1.00%
Cryptocurrency Price Correction
We believe that given current state of the crypto market, this is a great time for Galaxy Digital (TSXV:GLXY) to enter into the space of cryptocurrency and blockchain publicly traded stocks. Assuming that there will be another price correction of the cryptocurrency market, current depressed prices of crypto would theoretically provide healthy % returns once demand surges again and cryptos across the entire market go back up. If this scenario were to play out, you could very likely expect to see share price for Galaxy Digital (TSXV:GLXY) ride the charts upward as well.
It’s a Real Business
All four segments of this company (see above – Trading, Principal Investments, Asset Management, Advisory) are something which will experience increase in demand, once crypto increases in value again. Even if cryptocurrency prices were to remain the same, there would still be demand from entities trying to raise money, in which Galaxy Digital could utilize its Consultancy arm to advise.
If you were to look solely at the stock price movement – The bullish argument is more compelling. Traders are definitely interested in this stock, and many are looking at locking in quick gains on the stock price upward movement.
Conversely, if you a highly risk-adverse trader and focus solely on company fundamentals – The bearish argument is more compelling. Although the company has a real business model and is under great leadership, a few of the red flags mentioned may motivate you to hold out for now until more time passes to see which direction this company will ultimately go.
We look forward to more forthcoming information about this stock and only future periods will provide the exact idea about the survival and growth of the Galaxy Digital.