Galaxy, the crypto merchant bank, released third-quarter financials as well as a quarterly report yesterday evening — and it showed the aftermath of a beatdown. Galaxy lost a whopping $42 million on trading digital assets last quarter (net of both realized and unrealized positions) and has chalked up red ink totaling almost $176M on the year. Galaxy currently holds $90.3M of cash and $123.2 of digital assets.
For the three months ended September 30, 2018, the largest contributors to the net realized loss on digital assets of $38.1 million were losses on sales of ethereum ($22.1 million), bitcoin ($9.7 million) and XRP ($2.6 million), partially offset by $1.9 million of realized gains on ethereum classic. The bitcoin Galaxy has yet to sell is actually up more than $8M and $2M in of unrealized ethereum gains are still on the books. But a crushing unspecified short position and big losses in other crypto holdings mean Galaxy only has a small $0.4M in unrealized gains for Q3.
As of September 30, 2018, Galaxy management estimates that for every 10% change in the market prices of the its digital assets it will see a swing of $9M in the value of its holdings.
Tough times for the firm, less so for its principals
While the merchant bank has been heavily impacted by the recent downturn in crypto markets, compensation has not faltered. Excluding equity based compensation, compensation expenses were $5M in Q3, and a whopping $19.2M for the nine months ended September 30, 2018. With equity included, total comp for 11 key employees average more than $1M apiece. The vast majority of that came in the form of equity.
Busy times at Galaxy
- Trading in Galaxy (TSX: GLXY) was actually halted yesterday, after an 18.6% drop. It resumed about half an hour later. The firm responded to the price action with a press release stating: “the Company’s management is unaware of any material change in the Company’s operations that would account for the recent market activity.”
- Two weeks ago, Galaxy made news announcing the departure of two senior execs. As reported in The Block, however, Galaxy has shed at least five high-profile folks over the past several months.
- Those departures were explained by Galaxy as part of a shift in its focus. On November 9, Galaxy announced, in an effort to adapt to the regulatory framework and the opportunities it is currently seeing, it was repositioning its advisory business from focusing on small ICOs and blockchain consulting to instead serve larger, more institutional clients in the space.
- Still, there is activity at Galaxy on the investing front. The firms venture side added six new investments according to the recent filing. Three of those are “pre-ICO” and cover investment in a “full stack crypto asset management solution, a blockchain scalability platform, and a privacy first cloud computing platform. Galaxy also invested in a crypto-secured lending firm and a mining operation.