Summary Shares of Galaxy Digital have gained momentum this year alongside the rebound in the broader crypto sector. A pending corporate reorganization and uplisting to the Nasdaq should be positive for shareholder value. The company is well-positioned to consolidate its position as a leading financial services provider within the digital assets space. Galaxy Digital Holdings Ltd. ( BRPHF ) is a leader in financial services specializing in connecting institutional clients with digital assets and blockchain technologies. The company is further diversified into infrastructure solutions which includes a growing Bitcoin mining operation. Following a turbulent 2022 defined by the sharp drop in crypto prices and high-profile sector bankruptcies, the setup this year has been the sector recovery led by the ongoing rally in Bitcoin ( BTC-USD ). Shares of Galaxy Digital are up more than 70% year-to-date, repricing a more positive outlook with a renewed sense that the long-term tailwinds toward digital assets remain intact. Indeed, that was our thesis for the stock when we covered BRPHF last September, suggesting the company would " emerge stronger following the crypto reset". Our update today reiterates that bullish call highlighting the company's recent developments. In our view, catalysts to watch over the next several months make Galaxy Digital well-positioned to rally higher. Data by YCharts BRPHF Key Metrics Galaxy Digital is set to report its Q2 results on August 8th. The expectation here is for a continuation of trends in Q1 when the company reported an adjusted net income of $134 million , reversing a net loss of $288 million in the previous Q4, consistent with rebounding crypto prices over the period. The key here is to recognize that Galaxy consolidates three operating units within its corporate structure and financial results. All are benefiting from the relative risk-on environment with a building consensus that the worst of the 2022 volatility has passed. Source: Company IR "Galaxy Global Markets" is the largest segment, contributing to the bulk of total revenue and income, consisting of trading, market-making, and investment banking activities. The rally in digital assets in Q1 supported higher trading volumes and new loan originations, but more importantly, helped add to the value of portfolio holdings through unrealized gains. Similarly, the environment has been positive for the "Galaxy Asset Management" segment covering investment strategies between passively managed funds, active mandates, as well as venture capital allocations. Assets under management at $2.4 billion, climbed by 40% from the level in the preceding Q4, based on a return of inflows and the appreciation of portfolio investments. Source: Company IR We can also bring up the "Digital Infrastructure Solutions" group which Galaxy acquired through its purchase of the " Helios Bitcoin Mining Facility " From Argo Blockchain PLC ( ARBKF ) last December. The energy-efficient data center in Dickens County, Texas utilizes immersion cooling with room for expansion. The company is reporting 3.0 EH/s of hosted hast rate capacity, with approximately 30% of that being proprietary mining, and the remainder operated for clients. In Q1, this segment contributed to $10.2 million in income with management targeting an increase in hash rate capacity to 4.0 EH/s by year-end. For context, 4.0 EH/s is relatively modest compared to Bitcoin mining category leaders like Marathon Digital Inc ( MARA ) reporting 17.7 EH/s in operational hash rate but highlights the appeal of Galaxy Digital being its diversified business model. Galaxy Digital notes that it ended the last quarter with a liquidity position of $814 million which includes a balance sheet cash position of $400 million and $414 million of net digital assets. During the last earnings conference call , CEO Mike Novogratz noted that the "banking crisis" has added to the allure of digital assets as an alternative to the traditional banking system. While not offering forward guidance, the management team has projected optimism noting good trading and an expectation the company can continue to fund growth internally through the balance sheet and underlying profitability. Bullish Exposure to Crypto In our view, the attraction of BRPHF is that the stock offers diversified equity to the high-level themes driving digital assets, blockchain technologies, and the broader crypto sector. Naturally, any long-term bullish case will necessitate continued growth of the market, a favorable regulatory environment, and ultimately higher crypto prices. On this point, the idea here is that even with digital assets making headlines over the past decade, the upside considers that growth remains in the early stages. Galaxy shares data that the combined market cap of "crypto" across the combined value of all existing cryptocurrencies including Bitcoin and alternative tokens at $1.2 Trillion is still less than one-tenth of the market cap of Gold from exchange-traded products and tracked physical holdings globally at $13.2 Trillion, and even the total market capitalization of all publicly traded U.S. Technology and Financial firms at $13.6 Trillion. Source: Company IR In other words, the potential that crypto simply captures some market share represents a powerful tailwind over the next decade. Favorably, adoption is seen as accelerating with a greater understanding of crypto as a store of value and an alternative monetary system based on the benefits of decentralization. For Galaxy Digital, the opportunity is to assist both institutional investors and other service providers through its best-in-class platform and sector expertise. The case we make is that following the collapse of the crypto exchange "FTX" and smaller players in 2022 has opened the door for Galaxy to consolidate its market positioning. Source: Company IR What's Next For Galaxy Digital? One of the most positive developments for Galaxy Digital and the broader crypto sector could be the pending approval of a spot Bitcoin ETF. Outside of various attempts from fund sponsors in recent years, indications are that the SEC may be willing to push forward applications from major sponsors like BlackRock ( BLK ), Fidelity Investments, and Invesco ( IVZ ). The reason this is important is that it would further reinforce the legitimacy of Bitcoin in a more regulated context, supporting further investor inflows and trading activity for Galaxy Digital in particular. Separately, Galaxy is moving forward towards a proposed reorganization of its corporate structure into a Delaware-incorporated company and uplisting on the Nasdaq. Pending an SEC review, we believe an announcement of a potential IPO allowing BRPHF to move out of its "pink sheets' profile could help liquidity in the stock trading and add to shareholder value. Investors can also look forward to further share repurchases including an existing 10 million ordinary shares buyback program representing 10% of the public float. Source: Company IR Final Thoughts There's a lot to like about Galaxy Digital. The upcoming Q2 earnings report offers a good chance for the company to confirm it has maintained operating momentum and is translating the stronger crypto environment into firming financials. With that, we are bullish and see shares trading higher going forward. Ultimately, we expect the stock to outperform crypto benchmarks including the price of Bitcoin to the upside. That being said, the big risk here is that sentiment towards the crypto sector reverses which would likely translate into renewed volatility. Similarly, any setback to the regulatory environment in the U.S. including failure of a Bitcoin ETF or even the Nasdaq listing for shares of Galaxy Digital would open the door for a major repricing of the stock lower. Seeking Alpha
