Galaxy Digital Holdings (GDH) was designed to be the first crypto merchant bank. Unfortunately for Mike Novogratz’s visionary project, falling crypto prices put a big hit of the value of GDH’s assets in Q1 this year. Mark-to-market losses for GDH’s crypto assets were in excess of $80 million USD, and actual trading losses helped to push total losses north of $130 million USD.
Despite a terrible Q1, Mike Novogratz is optimistic. He had this to say in a statement after the financials for GDH were released:
“I am very proud of the progress that we have made since the beginning of the year. We have assembled a world-class team with deep institutional knowledge and expertise and have also made significant strides in scaling our four core business line.”
The $130 million USD loss that GDH sustained is substantial, as the bank’s assets were valued at around $280 million USD at the end of Q1. The vast majority of those assets are digital, which probably means cryptocurrencies or something similar. Mike Novogratz was an early adopter of cryptocurrencies, and did very well during the massive rally over the last few years.
Mike Novogratz wants to make GDH the Goldman of cryptos
For the moment, GDH isn’t legally required to disclose their financials. Mike Novogratz has been talking about listing GDH on the TSX-V since last year, which would explain why GDH chose to release a pretty rough-looking financial statement. In order for GDH to list on the TSX-V, they have to disclose their financial position.
If GDH is planning on going public via a reverse merger, they could be on the threshold of a new cycle of capital raising. Publicly traded companies usually have an easier time raising cash. With securities trading on the open market, GDH would be accessible to a much wider group of investors.
Mike Novogratz, Image from ToshiTimes
The TSX-V has been a hotbed of crypto-related public listings. Last year saw the first ever listing of a Bitcoin miner, with HIVE Mining exploding in value. There have been a few more listings on the TSX-V this year. Hut-8 Mining is one of the more notable new listings, but none have created the returns that HIVE did when it hit a white-hot market last year.
Part of a Larger Cycle?
According to recent research, 2017 was an incredible year for returns in the crypto sector. The average crypto investment returned 136,000% during 2017, which is an amazingly high rate of return. In established markets a 10-15% return is very respectable, so the six digit percentage returns that cryptos delivered could be seen as overstretched.
Last year Iota returned more than 600,000% to early investors, which is a staggeringly high rate of return. In most cases these companies are still revenue-negative, so much like the internet-bubble of the late 1990’s, some amount of caution is probably warranted in the sector.
According to Mike Novogratz, widespread adoption of cryptocurrencies is still probably six or more years away. A recent poll discovered that only 2% of respondents in the US actually owned bitcoin, but this could be taken in numerous ways. For crypto bulls, the 2% figure could mean that there is a huge market waiting in the wings, but for the bears, it could just as easily be taken to mean that there is little public interest in the world’s most valuable crypto.
The same poll showed that around 25% of the respondents were “intrigued” by Bitcoin. Given the returns that cryptos have produced in the last year or two, it would be nearly impossible for people to ignore the sector. Even with the ongoing downdraft in Bitcoin prices, it is still around 800% higher than it was when 2017 began.
A New Asset Class
One of the biggest problems for the emerging crypto sector is the nature of a token. Unlike equity or debt, a token isn’t really ownership of anything. Owning a token is more or less the same thing as securing access to a blockchain, which isn’t something that fits into the established financial worldview.
Many in the crypto sector have been waiting for the established financial system to invest in cryptos, but this may not be what pushes cryptos forward. The value that adoption and widespread use of cryptos could create is hard to imagine. As cryptos are really a form of tokenized access, it is possible that instead of price, adoption and use should be the first metrics that are looked at when the health of cryptocurrencies is examined.