'The Drexel of Crypto': An inside look at Galaxy Digital

Galaxy Digital is one of the best-known brands in the market for digital currencies, led by bitcoin stalwart Mike Novogratz. 

Galaxy Digital's origin story dates back to the bitcoin boom of 2017. Originally, it was going to be a $500 million hedge fund, which reportedly had lured the attention of family offices and other hedge fund managers. It marked a striking comeback story for Novogratz, who left his previous employer Fortress Investments after it liquidated his $2.3 billion macro fund – effectively resulting in an exile from Wall Street. 

Fast forward to 2019 and Galaxy Digital looks a lot different than it was described in the first reports from the bitcoin boom. 

"The Drexel of Crypto"

On an upcoming episode of The Scoop, Novogratz says Galaxy Digital most closely resembles the defunct investment bank Drexel. It's an odd comparison considering Drexel went bankrupt following years of legal troubles, its bond department head Michael Milken served nearly two years in federal prison for fraud in the early 1990s.

"The original thought when I talked about Drexel was they helped to credentialize the entire junk bond space or high-yield space. It didn't exist before them." 

In a similar way, Novogratz hopes Galaxy can serve as a proper Vanguard for the digital currency market, serving as a bridge between the institutional world he's from and the nascent crypto market.

To that end, Galaxy operates three main businesses: trading, advisory, and asset management. Here's an overview of the main business lines, gleaning from new information from Novogratz's appearance on The Scoop as well as public filings. 

• Trading: Galaxy's over-the-counter trading business has come a long way, recently hiring over the past year a number of luminaries in the digital asset market. Among them Joshua Lim, who previously sat on team that ran the central limit order book for investment bank UBS. There's also Tim Plakas, who joined the firm from Coinbase. The unit is led by Peter Wisniewski. Recently, the firm expanded its business into trading options. Improvements to its on-boarding processes allowed the firm to see a 60% increase in the number of counter parties actively trading with Galaxy in the second quarter of 2019 over the previous quarter, according to a filing.
  • 2Q19 net income: $100,680,938 from $98 million worth of net realized gains on digital assets
• Asset management: Galaxy's asset management arm has garnered the most headlines. At the heart of the business is a $325 million fund that invests in ventures aimed at building the EOS ecosystem. It has invested in esports firm Matcherino as well as Everipedia, the blockchain-based Wikipedia rival. Sam Englebart leads the EOS fund. Steve Kurz oversees the asset management business. The Bloomberg Galaxy Crypto Index is part of the asset management business as well. Interest in the instrument has been relatively muted, according to Novogratz.
  • 2Q19 net income: ($2,632,256) loss
• Principal investing: The firm also invests in companies using funds from its own balance sheet. As per the company's website, it has invested in 20 companies, including Bakkt, Ripple, and BlockFi. In order to tap into more deal flow, Novogratz said the firm is expanding into San Francisco via a new hire. 
  • 2019 1H realized gain on investments: $38.1 million
• Advisory: The firm's advisory business has undergone the most change over the past year, pivoting from advising small initial coin offering projects to larger institutions, according to Novogratz. It generated over $16,000 in advisory fees in the second quarter of 2019, according to filings. Novogratz didn't reveal any specific deals to The Block, but did hint at one potential real estate deal the advisory group is working on. "We're working on a really large real estate transaction that if it got done would be a big deal for the whole space," Novogratz said. According to Novogratz the advisory team is made up of 8 people, including Ian Taylor, who joined the firm from Goldman Sachs.
  • 2Q19 net income: ($2,372,749) largely off operating expenses without any revenue in the quarter