Galaxy Digital Holdings Ltd.

Thank you. Good morning, and welcome to Galaxy Digital’s Shareholder Update Conference Call.

We’re joined today by our Founder and CEO, Mike Novogratz; President, Chris Ferraro; and Chief Financial Officer, Ash Prithipaul. 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. 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. And with that, I’ll now turn it over to Mike Novogratz.

Good morning, everyone. I hope it's a wonderful morning where you are, it's certainly is here in Long Island.

Listen, this is going to be a more fun call than our last few, I think back to fourth quarter last year, early this year, and our mindset was, tighten the belt, make sure costs are under control, and grind through till the space really started picking up. We had made this bet early on, on the institutionalization of crypto that it would move from a broadly retail driven market to more and more institutional adoption in that was slow.

And I would tell you that the world's change in the crypto space and in our space with COVID. COVID really accelerated both the digitalization of everything, right.

Microsoft, CEO said, they did in two months what they thought two years would take. But certainly in our space, so you've got the digitalization of assets, but you also have the macro story, which has brought from the adoption of Bitcoin as a proper inflation hedge, a proper risk hedge, a proper hard asset for many, many people.

And so, when things change, hopefully, smart companies change and so our mindset and certainly my mindset has shifted dramatically into one of -- growth into one of investment in the business into one of, really excitement about the opportunity ahead. I'm going to kind of do macro and Chris Ferraro is going to then take over and go through the business uses in micro and talking about the quarter.

But big picture, we had a very good second quarter. A lot of that was, Bitcoin going up, but it wasn't just Bitcoin going up, it was our trading desk, doing over $1 billion in OTC volume, by far our biggest month in OTC volume, asset management, linking up partnerships, our investment banking team having lots of mandates, from being an idea to actually a real banking team.

And I think you'll see in the next quarter real results of that. In our venture book, lots of the bets we had made in the last couple of years starting to really perform, and I think same thing in the future, you're going to see, some hopefully, good write-ups in that space.

And so I'm sitting here today more optimistic than I've been anytime in the last two years, ready to make investments in the business. The overall outlook is bright, but I would also say, in both a tough scenario and in this business.

And so, the bright side of that is, it really credentializes the whole space. You've got, banks getting into the custody business, you've got other people hiring bright employees to get into the trading business.

More money is going into venture. And so, if there was a doubt that blockchain, crypto, bitcoin was a business a year ago, that doubt is over.

And now it's, people investing in the space, and the space growing. There'll be moments where it grows, and the prices go up, too fast.

And then, you'll have some corrections. But in general, I think, we've crossed the Rubicon, we've crossed the bridge that this isn't -- that this might not happen, right.

Bitcoin is now an asset. Blockchain are being deployed all over the place.

And so, in a lot of ways, the last few months, have been really the most important few months, in the history of this space, because now it's established. And so, it leaves me excitedly, we excited for our team.

We are increasing headcount. We're going to bring in more talent.

We're doing good things here. We got -- we upgraded from the TSXV to TSX.

Our stock price has gone up significantly. We were buying stock, at the end of last year, thinking this is really frustrating, our stock was constantly trading below book and trading with very little energy.

And since then, I think the markets recognize the shift in the overall space, and the shift in our company. And so, I'm going to leave it there.

And pass to Chris. But I would tell you, I'm bullish, I'm optimistic.

I think Bitcoin has a long way to go. I think DeFi is just getting started.

I think, the rest of the projects, have new energy in them. And so, that's what I want you to take to my messages today, one of positive energy and excitement.

Chris?

Thanks, Mike. I'll start by confirming that we continue to monitor the COVID-19 situation daily, and are managing the firm's response to the pandemic, as such.

To that end, we've announced a continuation of our primarily remote working environment, which we expect to continue with through at least the end of September. Is partial work from home effective for us?

Yes. Is it as good as being together?

No. We prefer to be back at our desks as we, as a team thrive, working together in the trenches.

That said, I continue to be proud of and impressed by the team's productivity, commitment and accomplishments in 2020. Just as importantly, we recognize the importance of our people and our culture.

And, therefore, I've taken the opportunity during this unusual period of remote connectivity to engage as a team and help define and cultivate our culture, including recurring all hands zoom meetings. Our first employee survey, teachings on industry topics, the formation of a diversity and inclusion committee at the firm, monthly salons with external thought leaders on the topics of diversity, equity and inclusion.

And also recurring zoom breakfasts and happy hours with senior team leaders from around the firm. Moving briefly on the market and this is this is largely Mike's category.

But saying 2020 remains unique, I think would be quite the understatement of the year. I'm not sure after witnessing the volatility and asset price declines in March, that any of us would have predicted Apple today at nearly $2 trillion market cap.

But what we didn't know in March in April was that the fundamental investment case for Bitcoin, for traditional investors was crystallized in an extraordinary pace on the back of unprecedented global central bank balance sheet expansion. Everyone saw it happening, but few outside, those of us focused on the supply side theory of money, recognize the clear implications of these actions.

And then the world starts to wake up. So now Bitcoin is up 60% year-to-date and up 26% alone since the June 30 quarter end.

Moreover other cryptocurrencies, particularly Ethereum has also experienced outsized price appreciation on the back of incremental network technology developments and new and increased user engagement particularly around DeFi, which you'll hear about. You can see that in the Bloomberg Galaxy Crypto Indexes basket of cryptocurrencies, which is now up 89% year-to-date and 47% just into the quarter end.

The performance of the cryptocurrency markets in FY 2020 should now be difficult to ignore by any global investor who's paying attention. It compares favorably by a significantly wide margin versus almost every other liquid asset class year-to-date.

Markets can be fickle, but they tend to trend towards the truth in the long run, and we hear a Galaxy have a long-term fundamental thesis, and thus far the trend is pointing in our direction. With all this as a backdrop and Galaxy’s ongoing maturation as an operating business, July as Mike mentioned was an opportune month for us to graduate from the TSX Venture Exchange to the main board of the TSX.

The Canadian markets have been very supportive of innovation over the years, which is the primary reason why we chose to go public via an IPO on the TSX Venture Exchange back in 2018. Over the past year, we have met with public investors conducted teachings for Wealth Advisors discussed our business with equity analysts and broadly committed to educating those interested in understanding experimenting in the cryptocurrency digital asset and blockchain technology sector.

This uplisting to the TSX is part of the evolution not just of Galaxy Digital, but of the sector itself. And we take our mission of being the bridge between the institutional and crypto world seriously, especially as one of the most visible and active companies in the space.

We'd like to thank the TSX, our Canadian regulators and most importantly, our growing base of investors for their support over the past two years. And we do look forward to advancing our business and the sector here for years to come.

Now let me touch briefly on our second quarter performance. In Q2, Galaxy reported comprehensive income of $38.5 million, which puts Galaxy ahead in the year now with year-to-date comprehensive income through June 30 of $10.8 million.

This reflects both net realized, unrealized gains from digital assets and investing activities of $28.3 million, as well as year-over-year operating revenue growth of just over 24% for the first half of this year versus last, across all of our operating business lines, including asset management and advisory service fees, financing activities and derivative gains. Turning to our trading business.

In the second quarter of 2020 saw our OTC trading desk generate over a $1 billion of quarterly volume; our second largest quarter by volume in operating history. Additionally, Q2 OTC volumes represented over 15% sequential quarterly growth over Q1, 2020 and 46% sequential growth compared to Q4 2019.

Even excluding OTC spot equivalent option volume, which is a business that we've gotten into pretty significantly this year. Our spot OTC volumes were still up 2% sequentially, while industry spot exchange volumes were down 17%, which signals to us continue market share gains for the Galaxy trading platform.

OTC desks that succeed and grow their volumes do so because their offer optimize outcomes for large bespoke trades that generic retail exchanges are unable to fulfill. For Galaxy's OTC desk, we believe our strong year-to-date volume growth continued to build in Q2 as a result of our sustained investments into key relationships in enormous space, low cost access to a global diverse pool of liquidity, high quality execution as well as our differentiated profiles of trusted public and audited counterparty in the space.

Institutions trade with Galaxy because we provide them with a knowledgeable experienced team, low cost market access and a trusted counterparty who not only has the resources, but is committed to delivering on our promises in any market conditions. To that end in June, our trading business and backed which is intercultural exchanges digital asset derivatives trading and custody platform announced a partnership to launch a joint white-glove service for asset managers looking to acquire built positions in and securely store Bitcoin.

Galaxy trading is providing in the market access, lending and financing and a suite of bespoke structured products, while the backed warehouse, a qualified custodian of Bitcoin regulated by the NYDFS is safeguarding those digital assets for the clients. We already have counterparties live in this joint solution, and we see this offering as a key point of differentiation in growth for the business going into the second half of 2020.

Turning to Asset Management. 2020 has been a period of increased market demand for Bitcoin and cryptocurrencies, generally.

As we've said in previous quarters, our Galaxy Crypto Index fund holds a basket of the largest most liquid cryptocurrencies, in order to provide broad based exposure to the growth of the asset class. While our Bitcoin funds meet the growing institutional and wealth demand for safe, simple, secured ownership of Bitcoin for store value utility in what is now becoming a clearly inflationary market environment.

In June, asset management announced a strategic partnership with CAIS, the leading alternative investment platform to provide financial advisors with streamlined access to Galaxy Digital’s investment products, as well as educational resources spanning blockchain and digital assets. The CAIS platform offers financial advisors with over a $1 trillion of client reach, direct access to complete end-to-end solutions, including a broad selection of alternative investment funds and products, independent due diligence from Mercer, tools and analytics, a streamlined investment process, and integration with custodians for greater reporting accuracy.

Galaxy Digital Capital Management is the only asset manager offering cryptocurrency and blockchain technology related investment products on their platform. As of today, we do expect to be live there and accepting subscriptions into our funds.

We believe this speaks volumes to the long-term scalable infrastructure that we've worked so hard to put into place, and when paired with strategic relationships like this with CAIS, we believe constitutes the right formula for strong scalable growth for our platform going forward. Finally in the second quarter, our Galaxy Interactive Venture Capital team, who managed the Galaxy EOS VC fund within the Asset Management Group, continued to press their advantage in the interactive content space, investing $21.8 million across five new investments and three follow-on investments during the quarter.

As you all know, the positive trends in the gaming and interactive space have accelerated at an unprecedented pace, in part as a result of pandemics impact on consumer behavior. And so we could not be more excited here at Galaxy about having a top tier team focused on this correct sector at the right time.

Overall in asset management, we ended the second quarter just above $375 million of AUM. Let me now proceed to Galaxy Digital Investment Banking, which has continued the hard work of establishing itself as the leading strategic advisor -- advisory firm in the digital asset and blockchain sector.

The team here deserves all the credit available to them. They've worked themselves into the center of many of the most interesting strategic conversations around the space; in mining, exchanges, consumer platform offerings and they built a strong and growing franchise here within Galaxy that the entire firm can truly be proud of.

In 2020 thus far, we've seen continued growth in our mandated backlog out of engagements, a growing pipeline of expected future realized fee income, and the team is currently in the execution phase of multiple active M&A and financing mandates. This sustained positive momentum we expect will help Galaxy Digital in transitioning the leadership of our investment banking business in the fourth quarter, as our current Head of Investment Banking, Ian Taylor will be departing back to Australia then.

We wish Ian the best and we thank him for significant contributions and establishing this business for Galaxy, particularly in assembling such a highly capable team around him of smart, experienced and trustworthy professionals, who have really become sectoral experts in key relationship builders here for the firm. We're excited to see this team drive our investment banking franchise here at Galaxy into its next phase of success.

Finally, in terms of our firm balance sheet and principal investments, our team has continued to selectively pursue compelling strategic opportunities across equity and debt financings. The team invested just over $5.7 million of total new capital in the second quarter to two new and four follow-on investments in the second quarter.

With that, I'd now like to turn it back over to Ash, who's going to walk everyone through the specifics of our financial performance in the second quarter. Ash?

Thanks Chris. I will now provide some additional details regarding our financial results for the quarter.

I have a comprehensive income for the three months ended June 30th total $38.5 million, with a comprehensive income for six months amounting to $10.8 million. The current quarterly gain was largely a result of realized gains on digital assets.

Second quarter 2020 figure includes $3.3 million of equity based compensation expense, which is a non-cash charge and has no net effect on equity. This brings our total equity or net book value to $375 million as of June 30th, or CAD1.82 of net book value per share or $1.33 of net book value per share.

As of June 30th, the number of compensatory cost per unit and stock options outstanding was $17.2 million and $22.1 million respectively. The aggregate compensatory awards have a value of $11.2 million remaining to be amortized over their life.

Operating expenses for three months ended June 30th was $14.8 million inclusive of equity based compensation of $3.3 million over the same period. Operating expenses were lower for the three and six months ended June 30th, 2020 as compared to the three and six months ended June 30th, 2019, due primarily to lower equity based compensation and lower compensation expense in 2020.

Regarding our back sheet, $7.2 million of new and follow-on investments during the second quarter brought the investment balance to $177.8 million. As of June 30th, we held 42 individual investment positions excluding our cryptocurrency and pre-active holdings, with no investment position representing more than 7.8% of our net asset value.

We're pleased to report that we had $135.8 million of liquidity as of quarter end. Our liquidity includes our working capital and net digital assets, which is then measured against forward commitments and projected future expenses.

Our current liquidity is ample and will allow us to continue to operate the business and take advantage of market opportunities. With that, I'll now turn the call back to the operator, so that we can address questions from equity analysts and investors.

Operator, any questions from equity analysts?

Hi, good morning, everyone. I've got a bunch of questions.

And I kind of hesitate dominating the call, but I'll ask a few and if it gets too long, I'll come back in queue. Just on the operating business, I'm just trying to get a sense of how you guys performed on your principal book relative to the market.

If we had a test appointment, we're seeing 37% return versus the market up 50%. Do you guys outperformed or did you underperform or were you in line?

How do you kind of range this all?

Well. So, listen, I would break it into two halves, right?

There's a -- if you're thinking about our balance sheet, you can roughly think half of that has been in coins -- Bitcoin and other coins and half of it is in venture investments. Those venture investments aren't nearly as fast to adjust in pricing to the moves of Bitcoin itself.

And so, my sense is on the quarter there were not a whole lot of write offs to the venture book. But I think coming down the pipe, a lot of those investments are doing much, much better.

And you'll see those in next Q3 and Q4 And so, when I think of it in turn, what betas should we have to the market? How are we done?

I think we've probably did very well and we outperformed a little bit of like, what it would be if you just had purely held X amount of Bitcoin and I like our books. So it's hard to – if we don't have a great index, I think we've probably added $10 million of alpha versus just being long Bitcoin.

And we – in the venture book we'll see over the next two quarters, but I feel pretty good about it.

Okay. Are there any -- go ahead.

Go ahead, sir.

Sorry, Deepak. I'm just going to back that up with emphasizing in the illiquid part of our balance sheet, which is significant in terms of our investment portfolio, like that there is a definitely a lag in terms of events and financial reporting in that book and therefore future gains or losses versus real time market moves in our digital assets.

And the other thing, I'd say is, I think we ended the year -- last year with $106 million of cash. We still maintain a large cash balance.

We are also fitting – a part of our balance sheet, we are dedicating towards financing companies and other folks in the space in terms of their trading, right. And so, the character of where our balance sheet is exposed relative to the market is certainly never going to be one-to-one beta and is likely going to be dampened going forward.

Got it. If I think of your – and I meant the hard question to answer, if I think of the venture book and your liquid book as a whole, what would be the vintage of that mark?

Would it be a mark in the 2017 heydays, or would it be a mark -- an average mark during crypto winter? I mean, how far I think about the potential for the revaluation that part of your book and versus what we see in the public market in the trading market?

Yeah. So -- let me -- I'll try to answer that and then I may actually go to Ash or Mike to add color.

I mean, I think what you're asking is, so we remark all the investments on a line item basis every quarter, based on new information of portfolio company performance, portfolio company financings and also market conditions. So, the positions of our balance sheet – some of them do maintain consistent and have not changed.

They do -- they are revaluate every quarter. So in general, I would say, the vintage of our balance sheet should closely represent sort of the current times, at all times.

Now there's some lag earlier and later, not but in general, it should move with it. So, I would think about, like current market conditions, what they were at the end of June, what they are today, should ultimately over the medium to long-term result in commensurate moves, if we're doing our job correctly in value of our illiquid investment portfolio.

Deepak let me take another crack at that too. So, you can get -- if you take a little time to go through our balance sheet, we break it down into -- we have a bucket of investments in the interactive gaming space of which, those things aren't going to get marked.

They're going to take more like classic venture investments, so get marked up with each issuing fundraising round not with a real beta to the market. We have some investments really have a high correlation to the Bitcoin itself, right, claims and now debtor's bankruptcy.

Some companies that we invest in that hold a whole lot of Bitcoin themselves. And so there are some where there's a pretty direct correlation to the overall market.

And then we have a lot of investments in infrastructure, in custody and security. And those things will do better with a lag, like the fact that this whole space is energized, means if you're a good security company, good custody company, a good trading company, your business is a heck of a lot better than it was six months ago.

Not necessarily doing the financing around to mark yourself up right away. You're not necessarily selling yourself or have a real good way of marking it up.

And so there's a real definitive lag in lots of the portfolio. And so, again, at the same price, you'd be so much happier to buy it today than you would have three months ago.

And so, it's a hard way to answer -- we're going to try to no longer and get more specific about bucketing, the pieces of our books for guys like us, so you can have a better way of estimating. But I think you always have to go through specifically -- we do disclose, I think our top 10 investments.

It's – it's a mix. It's a mix.

Yeah. And a lot of detail that you guys disclose, we're still going through that…

But I would say vintage wise, right. If you think what we originally contributed in 2018, we're really you know, 2017 vintage stuff.

The average is probably, somewhere in 2018, right? You had some investments that were contributed in 2017.

And then we've deployed capital over the last 2.5 years and pretty steady state to give you a sense of vintage would be.

Great. So just to kind of recap, if most of those were in 2018, during crypto winter then there seems to be a lot of hidden value in in the venture book on your balance sheet.

That's the conclusion here?

I think our venture book is going to do well, yes.

Okay. Great.

I'm just skipping over to asset management. You seemed like other things in the market get some AUM.

And your AUM is kind if been slow. I know you've got the partnership with CAIS.

So how big of a catalyst can CAIS be…

Well, listen, we

What’s the pipeline in those channel partners and what's kind of the targeted AUM for the next 12 months?

We're going to know a lot more if we may – unless we've worked our butts [ph] off, we've got great partnerships. We are going after the wealth channel, not the retail channel.

And quite frankly, we'll go off to some of the institutions, but they're not coming as fast as what we think the wealth channel will be. And we have set up, we think the best product with great partnerships, and the checkered flag is just falling now.

Listen, we've had some inflows, right, we're over $15 million in that fund, but nothing like what we – here what we expect. And so my expectation, my hope, and my real belief is that from the end of the year, we're going to be gaining assets at an accelerating rate in these – with these partnerships and with these products that we've built.

And so listen, if it's – if it's March of next year, and we haven't we're going to really have to scratch our head and say, what did we do wrong? I think I don't think we've done anything wrong.

I think, we took a long time to build the right product getting approved by Mercer and a green light there, so big, big deal, we’re the fund that’s got -- one of the consultants that have rated them. And that's a big deal for the institutional world and for the wealth world.

And so, give us three to six months on that before you make judgment. And I think you'll be happy.

Okay.

Yeah. Look, I mean, there is case -- case on platform has clients that reach a $1 trillion of assets under management.

The wealth space is, I think, over a $10 trillion market. And we're actually working across that entire space.

And like the asset management business, the strategy there, which -- we've invested a lot in this business. This is the year we started to turn on marketing.

I think you'll see in the FT, we have we have full spreads talking about Bitcoin and talking about our funds management business. And the strategy of the asset management platform is to build the pipes and an institutional quality platform that investors can trust and invest in.

And then, launch products that we think makes sense over the long term that are not going to be shot -- flashes in the pan, that are going to have longevity through markets, through changes in market structure. And so, those are the products that we've launched.

And we think they have long term prospects, which differs we think from our competitors, regardless of current AUMs.

Excellent, I’m patient, so I'm looking forward to that. I got one more question on the operating business and a couple of big picture questions for Mike.

So, just on the advisory side, how should we read into to Ian departure, is this another pivot in that business. Is it or -- ?

Not at all. We are going to double down on advisory.

Listen, it's frustrating. Ian had his own reasons to go back to Australia.

I like him a lot. He did a great job.

He was entrepreneurial. He helped establish and build a great team.

It's frustrating, but he's got reasons to go and I'm going to wish him well. We're going to double down on this business.

Hopefully, you'll see in the next quarter or two, some great results that we have coming down the pipeline. But it's a business that we spent a lot of time developing domain expertise in certain verticals.

We've got guys that know more about mining than almost anyone in the space. And so, it was always a long lead business, so you can't hire a bank that say, well, go bank something we know nothing about, when I got guys that know so much about mining, guys that know a lot about the exchange business.

And so, as we build that expertise in the verticals and as this overall business heats up, I just think there's lots to do there. And so we're going to be adding bodies and wishing Ian well and thanking him for the good start he gave us.

Got it, got it. Okay.

So, Mike, big picture question. So are we really seeing an institutional wave here in this latest rally?

What specific signs you’ve seen? Because I'm seeing just the Robin Hood retail rally in traditional equities, why is this different -- ?

No, listen, we are seeing it this way. It can't come as fast as everybody wants, because if you look at by -- Paul Tudor Jones as an example, who got into, you've got to often change your doc, your fund documents, you got to go to your investors, you got to figure out where you're going to get a custody and who you’re going to deal with?

So it's not as easy as saying, I want to buy gold; let me pick up the phone and call my broker. We are seeing tons of activity below the hood and people are buying, right.

And so, I would tell you, almost every macro player, either personally has a little desk participating in this and are working at looking, should I put into my fund or not somehow put it in there funding and they just haven't been public about it. And so I think you're going to see hedge funds move into the space.

But more importantly, you're going to see, again, the wealth platforms which are institutional in their nature, right? I've been on calls with heads of wealth management businesses at the major places at the bulge bracket banks, who are all saying, okay, how do we do this?

You saw the OCC news that banks can now be custodians. And so when you look down the road, it doesn't have to be 10 years down the road, three, four years down the road with stable coins which are on their way and growing fast, with Bitcoin becoming a bigger hedge with Ethereum's platform growing with almost every single bank is going to have to participate in this.

When your big clients, if your Barclays banking -- exchange and your big clients want to trade foreign exchange to a stable coin or want to trade Bitcoin, you say, though that can't do it, because it's not a great answer. And so, like I said on that -- my earlier calls, I think we've crossed the Rubicon, and that everyone is scrambling to try to be in this business.

And so I can just tell by the calls I'm on, the level of portfolio manager, who's engaged in this, who's not asking first level questions, but asking, third level questions that were a lot further along, and we're starting to see adoption. Listen, we were at 98% retail market.

We're not -- we're not anymore, but we're -- but we haven't done a 50% market. What's good about the institutional hands is they're less leveraged, but it's hard to get leveraged institutionally in the space at this point, where a lot of retail get leveraged out on the Asian Exchanges.

And so, in the long run, it will result in less volatility. You're kind of taking -- when you think about Bitcoin, there are only 21 million coins, there will only ever be 21 million coins.

And so when -- when this public company buys $250 million worth and puts them in their Treasury, most likely they're not selling those in the next few weeks. You're just taking supply off the market.

So, to me, this is an important migration of people. And if the tailwind, that's not going away, I'd be much more nervous, if I thought, we're going to fear COVID and all of a sudden everyone's going to be fiscally conservative.

But there's not a political map that I can come up with. That shows this huge wave of fiscal conservatism coming.

And so -- that's it.

So, I got one more question. And again, I thank you for all the airtime.

I appreciate it a lot and happy to have it. NASDAQ market we've seen some penny stocks get like -- crypto stocks get quite the bid.

Coinbase is talking about listing. Is it window open and what's the timing for you guys to look at that market for listing?

Listen, we are certainly -- we always consider all the capital markets options we have. We have a specific issue in.

We have a big balance sheet. We need to grow our franchise businesses big enough through organic growth or acquisition, to qualify under the 40 Act to be a U.S.-listed company.

I would love to be on the NASDAQ today only in that, there's a lot more liquidity there and there's more excitement there, and I think our stock would trade higher. And so we're commercial people and our core and getting there is certainly an agenda item at one point.

But we still have it -- we have a big balance sheet and so it's a question of growing the rest of our business so the balance sheet isn't -- isn’t as big as it is, relative to -- and essentially Bitcoin since it's not -- not a security doesn't count. So, that's a big plus.

But it's certainly something on our mind.

Okay. Well, hopefully, you can solve the 40 Act issues soon.

And you get a bigger audience out there. But thanks again for taking all my questions.

I appreciate your time.

Yes.

Yeah. Thanks for taking my question, guys.

So I'm going to start on the investment banking comment you made there, talking about doubling down. So what is it that, kind of, look like in your view in six months?

What I mean by that is, are you looking at basically more crypto mining companies going public? Are you talking about special purpose action companies, I think, that’s probably little bit more likely here, that's kind of the message, I'm getting.

But, can you just walk me through, what you think that landscape looks like recall six to 12 months?

Sure. And just to clarify the question, did you, sort of, mean for us, or do you mean also like for the market broadway for certain advisory…?

Both.

This way I think the truth is different, so…

Yeah. I mean, hopefully the same.

We're wanted to pursue where the reaction is? Look, I think the -- I think we, this year started in earnest, what we thought was coming, which was consolidation in M&A opportunity.

And so there have been a handful of smaller trades, a couple big trades. We're actively working mandates at the moment that will likely conclude this year.

And so, we see the pipeline for that activity continuing and growing. And that's just on the back of having a really fragmented landscape, various degrees of success or not so much success.

Some companies running out of funding runway but great teams, great technology. And so, you're going to see a M&A activity from a consolidation standpoint within the industry.

Its a trend that is now. And we think we'll be here six months and 12 months from now.

You -- I believe, you'll also see external M&A activity or at the very least investment from non-crypto blockchain companies, investing capital and/or buying technology into the space as a way of getting involved, which I think there one example you've seen, a bunch of articles at around JPMorgan investing in consensus, one of the largest thereon based on developer shops and technology businesses in our space. That's an example of, a part of the market, I think you'll see grow quite substantially six months, four months from now.

Mining side, really big opportunity in mining, we've said that now for the last couple of months, we've done the work, we've done the math, the economics are, solid and sound. And if you understand Bitcoin, and you understand the thesis, and you understand how mining economics work, then it looks like attractive return on capital, way better, significantly better than alternative forms of infrastructure investment.

And so, as a piece of a portfolio, we're very focused on the opportunity set for infrastructure funds, for yield seeking infrastructure investors to look at Bitcoin mining, because the math is there, the capacity is moving towards jurisdictions where investment is a lot easier like in North America and the U.S. in particular.

And so that is a, I think you'll see a lot of project financing. I'm not sure, if you'll see a lot of public activity, but you'll definitely see a lot of project style financing activity in Bitcoin mining, we believe.

And then you mentioned specs. Well, I could say for sure we have had an inbound, number of inbound spec sponsors, spec opportunities, spec -- people spec looking for acquisition targets into our space very recently, which is probably no surprise given the amount of capitals raised into the spec space.

And so I -- whether -- I have a very specific example of a company we're invested in who has been thinking about it and their perspective has been, first we're going to make a decision about whether we want to be a public company, and then if we want to be a public company, let's make a decision around whether a spec gets us there faster, more efficiently or not. And so, whether that converts into a bunch of actual converted spec positions, maybe not sure.

Okay. Helpful.

The second one I had is just dollar changing gears here. Is this year's advertising campaign and talking about what the higher institutional demand, so just wondering how you guys measure or see the value in your own ad campaigns or group versus just more people being interested in the space by themselves?

I'm just curious of what -- how you guys can bifurcate the value you are getting there, specific interest from that if it's really just primarily, people coming to conclusions by themselves.

I think there's a in certainly in the well space which those ads are targeting, right, is there's an education process that us in case are doing -- we've been doing for a long time on our own and now we're doing it jointly with them with that, in that space of getting the wealth managers, the registered investment advisors comfortable at how the whole thing works, how mining fits into the Bitcoin system, what custody actually means. And so that education pieces, I think, important.

Listen, the ad itself and marketing is to try to build our brand in that [Technical Difficulty] go on TV and we think everyone knows about Galaxy, but our original surveys was we weren't as well known as we thought. And so we've done really good job through a small advertising budget really between online targeted ad marketing and some of these ads to get the name recognition and the brand recognition way up.

And I think that's the first piece of building a sustainable big asset management business. So…

Yeah.

And that's….

Sure.

A lot infrastructure investment -- now it's time to start harvesting.

Yeah, like specifically, to one of part of your questions like where we've done surveys on Galaxy brand awareness, the numbers -- the numbers are, we began the year at 2% brand awareness through the RIA channel for Galaxy. And as of the beginning of August, we're at 40% new brand awareness in the RIA channel now after the marketing push this year.

So, you know, there's that -- we're -- there's quantitative data, that drives -- that at least has validated the marketing effort thus far. And so from there once we build brand, our thesis and our asset management businesses build brand first have good product AUM follows.

Okay, understood. I am going to shift gears again.

So you guys have a lot of crypto assets, whether it's Bitcoin and some others also, maybe can't disclose it, specifically with your own. So I'm curious about how this works in terms of like the regulatory framework and legal framework.

So as you guys know, there's a very popular way of earning money in crypto, the crypto space -- and both farming and decentralized finance, right. So if I think about where you are position now, is there any, I guess, any plans are you able to participate in that market to help generate additional returns?

And then secondly, do you have a view on coin basis recent entry to allow customers to put up their crypto as collateral and take out loans? Is that something you guys can participate on?

Just wondering how it works for you guys, and there's -- either those are interesting avenues to?

Sure. I'm going to let Chris take this.

We've had a big investment in a financing company. I'll let Chris talk about that space.

And I'll chime in at the end.

Yeah, sure. So the -- we've had a team inside of Galaxy spending a lot of time on DeFi from a protocol level op to use your example.

The -- look we've done the work. We understand all the projects.

We have them rank orders as to what we think is -- interesting what we think is not. We unlike some of our non-regulators, smaller competitors, do have today issues with some DeFi projects.

The reality is, we've done the analysis and dealing with a decentralized contract that is not clear. At the very least as to whether or not, you're satisfying proper KYC/AML procedures in not knowing who your potential counterparty could be.

And so, we're coming at the space a little differently. We have a handful of initiatives internally where we have -- we're making investments in technology around implementing into DeFi as opposed to necessarily interacting with the DeFi protocols ourselves.

They're still pretty small. The entire flow in space of DeFi in terms of scalability versus our balance sheet makes it such that to date, I don't think we've missed a whole lot from not participating in yield generating stuff in DeFi.

And so, look we're close to it. I think for us, in terms of actual participation is a little bit of waiting to see how the regulatory framework evolves, how it scales and whether it makes sense to us to really be involved directly.

Turn to the other side, CeFi, centralized finance, which I think coin base is a launch of crypto backed loans is a great example of that. We partnered with Zac Prince and Flori over at BlockFi, two years ago when BlockFi created, I think the first crypto backed loan.

And so we've been partnered with them. And originally, we're helping them finance all of their crypto-backed loans from the very beginning.

And so we're definitely big believers of it. We think it's a great product.

I think coin basis, sort of, just come to the party in that regard. So that's an activity we've been doing.

BlockFi has been in in a big way. There are a couple other players who have done that unchained capital, for example.

And so that is all fair game for us. It's all we think, very interesting.

We think the risk adjusted yields in returns and those kinds of products are far better than traditional markets because there is just aren't -- there's isn’t a lot of capital chasing it and there's not a lot of people focused on it. And so that's an area where we put our balance sheet behind, and we're pretty bullish on.

Okay. And then just last one for me, you guys obviously talked about educating people on the space and you mentioned Bitcoin several times in this conversation, and maybe only in theory once.

So I'm just curious, like, maybe you could walk me through from a high level, how educated the average investor is, I don't expect you give me alter amounts of details, but I'm just trying to get an idea of what the range is? I mean, people still really don't understand what Bitcoin is, I mean, are they educated to the point where they know what DK Sharks [ph] is, they know what charting is.

No, no. I think…

…different types of adverse. I'm just curious where people are at?

I think the average institutional investor understands Bitcoin as digital gold and has bought into the identity, the social construct that enough people believe Bitcoin is a digital gold, therefore, it is a digital gold. And they understand how it's mined and how it's -- how a Bitcoin ledger works.

But I would bet you, 80% of the institutions that are buying Bitcoin, don't know what the easy stock seller or lots of the broader ecosystem and how it works. Now, listen, the core crypto native community, and a lot of retail community believe it or not that has fueled [Technical Difficulty] that kind of crypto revolution over the next possible years, [Technical Difficulty] very educated.

And so it's interesting, right? You could have a much more sophisticated conversation with smaller scale investors than you would with the big scale investors, because those projects are too risky for them, are too small on liquidity for them.

And so some institutions are also buying Ethereum. They like – they use a silver gold analogy as opposed to, I mean, my view of Ethereum is very bullish, but it's very different than Bitcoin.

It's – Ethereum is still in the venture space, right? Well, it's big, big bet on building a backbone a trust level, a trust layer that lots of stuff they get built on like decentralized finance, like stable coins.

And so if the Ethereum works, it can be very, very valuable. The entire non-Bitcoin part of crypto still is venture.

It's still a big sandbox. And it's proof-of-concepts.

It's things that are starting to work. But it's not ready for primetime for the rest of the world, where Bitcoin is a finished product.

It's ready for primetime for the rest of the world. And so I think it's a lot easier to have a conversation with a serious wealth manager about putting some of the portfolio in Bitcoin to be a hedged and they understand that, the hedge versus central banks printing non-stop, than it is to get them to try to understand well, do I need to have a bet on DeFi, because it's going to have at one point disintermediate JPMorgan and everyone else.

And so I kind of split those into the macro bet and the venture bet. Make sense?

Yeah, it does. And just a quick follow-up just to kind of wrap this up is, just out of curiosity, so you said 80%, I’ve kind of familiar with Bitcoin just to me and my world, want to understand Bitcoin and the next step is to understand basic smart contract.

So what percent would you say of your kind of larger cohorts of institutional investors understand what a smart contract is?

I think, listen, I think they all understand it. Their desire to go down the rabbit hole is probably less, but I think they….

Yeah.

And so a lot of that is just like what can I justify? What feels right for my investors or for the bet I'm willing to bake?

Again, if you think of everything other than Bitcoin is venture bet, it's a very different mindset than who might be buying Bitcoin.

Yeah, I mean, we've seen – we've actually seen tangible examples of traditional asset managers who have – who we trade with, who have purchased Bitcoin through us, who have shifted their – in the last two months shifted their some of the research efforts on as you pointed out, that is the natural place to go onto smart contracts in Ethereum specifically. And so it's now a process of our team, spending time walking through all the information that we have, our research pieces on Ethereum, that's the next focus.

That's where – that sort of opens up the world, I think, to everything else next, but the next stop is Ethereum and smart contracts from – its an obvious asset for them to look out for that because of its relative size.

Okay. Thank you for taking all the questions.

Great. Thanks.

Thank you, Mitch and Deepak. Our first question is, can you go through the strategy for your trading business?

And what are the components of it?

Sure. I'll take this one, Mike, if that's okay.

Yes, so, look, the strategy for a trading business is, it's been a long build for us and it will continue to be a long build in heavy investment. For us, the trading business starts with liquidity connectivity and liquidity access.

And so, we've poured a lot of resources into ensuring that our platform has access to the deepest pools of liquidity on a global basis, and that we can access them quickly, fast -- quickly, efficiently and at low cost. And with that, as a foundation, the idea is to take that access and turn it around and offer it to other market participants.

And so, fundamental layer of market access and connectivity and then from there, offering market participants, spot trading and execution, and so that that can be either principally with our OTC desk or relatively soon through agency execution. They can interact with the markets, our connectivity via voice and chat as we've done historically, more recently through our electronic platform, where traders can access markets, either via our GUI that we've built, or directly via -- are connected via API.

And then in addition to -- from there -- from spot connectivity, then we ourselves maintain inventory and have an active lending desk, which is meant to provide lending and borrowing for counterparties and allow short sale facilitation and working capital finance for some of the big trading shops. And so, our desk offers that.

We do bespoke financing and bespoke leverage in that we will finance on a secured basis coin. And I think you'll see us over time productize that into what ultimately becomes everything that what traditional investors think about as margin financing and prime brokerage.

And then we've made it a big push into providing being a market maker and providing liquidity to the derivatives market. And so, whether that's exchange for physical from futures into spot, it's the Bitcoin Ethereum options market and really pricing and trading volatility.

And then, wrapping it all together in structured products and solutions for miners and for market participants who want synthetic access to a specific trend or specific metric without necessarily have wanting to own the physical and so our structured product line up is something that we're actively cultivating and also going to be offering on platform. So, that's the strategy for trading business.

It is meant to be a full service, sell side suite of trading offers to the marketplace, and there will be a very heavy push on the trade financing, margin financing, portfolio-based cross margining prime services offering for us on a go-forward basis to help facilitate market participation.

Great. Thank you.

Well, it looks like we've got time for one more question. And our last question will be the OCC issued a letter allowing banks to offer cryptocurrency custody services.

How does this affect your asset management strategy?

Yes, I think I think that -- sure. Yeah, I think the OCC announcement makes our business better.

It makes our -- not just our asset managers. It makes our asset management business, our trading business and our prime -- future prime service offering makes that all better, right?

We've said from the beginning, we're focused on value-added products sitting on top of custody. We ourselves, we're not going to invest in being a custodian.

And so, having a service provider for us, a custodian get the custodian roll be pushed into larger, validate institutions with big balance sheets, who are going to give comfort to investors to hold their assets there. All that does is make our business stronger, because our business is meant to focus on building products that sit on top of that layer.

And so, we welcome the banks to provide -- start providing custody solutions. We're in active dialogue with a number of them today as it stands for us to be the service provider on top of the custody layer that the OCC has now said, they're comfortable with banks providing.

And so, across the board, it makes our business better, I think is the easy answer.

Great, thank you. And I'll turn it back to Mike for some closing remarks.

All right. Guys, I hope you heard our enthusiasm for what we see in our own business and the landscape going forward.

We're looking forward to -- I hope very productive third call in the next three months. We're off to a great start of the quarter and couldn't be more excited about the opportunity set.

So, thanks for your time and have a great end of summer -- if you can call COVID summer, summer.