Good morning, and welcome to Galaxy Digital's third quarter 2021 earnings call. Today's call is being recorded. At this time, I would like to turn the conference over to Galaxy's investor relations team. Please go ahead. You may begin.
Thank you. Good morning and welcome to Galaxy Digital's third quarter earnings call. 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 Administrators on SEDAR and available on our website or in future filings we make with other securities regulators. 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. With that, I'll now turn it over to Mike Novogratz, Founder and CEO of Galaxy Digital.
Good morning, everyone. We're actually calling from our new office down here on 300 Vesey, so there's an air of excitement. I wanna start off by quoting my favorite song, which is Bitcoin Go to the Moon, which says, "Novogratz is bullish." I promise you and my children, I will never again use my name in the third person. But it kind of completely encapsulates how I'm feeling about our industry and our company right now. Galaxy's at a unique perch in that we see institutional investors in every bucket. We see people that are building these ecosystems on a daily basis. We're really seeing the energy that's pouring into the space right now.
When I travel to the Middle East or around the country and meet with big institutional allocators, they're either allocating already or they're getting very close. This last year, we've seen $25 billion of money move into the venture space. That's a staggering amount versus where we were in the past. It's hard for me not to believe that the GDP of this space, right, the market cap, which is currently around $3 trillion, isn't a lot higher in a year. When we meet with new founders, right, our venture teams are constantly meeting with new founders. We see an explosion of innovation, people building on top of platforms and building on top of those.
The opportunities of new innovation to help guide through to trade, to custody continue to expand. When I look at the NFT space, the NFT space came from nowhere and is already trading $3.5 billion a day, right? Last quarter, $10 billion of NFTs traded. You know, it's hard not to be bullish. Because of that, you know, I think it's really clear to see that this is a growth industry and Galaxy is a growth company. Eighteen months ago, you know, kind of pre-COVID, or maybe it was two years ago, we were roughly 80 people. Today, the combined Galaxy BitGo entity would be 510 people. That's a lot of growth.
We've taken our office of people, right? We hired Jen Lee as our Chief People Officer. Now we have 10 people working on recruiting, onboarding, and integrating to try to build what we hope is the investment bank of the future. One really exciting announcement I wanna make before I get to our earnings is that we've just announced today that Neal Katyal, the former deputy solicitor general of the United States, one of the most prominent lawyers in all of America, and a dear friend of mine, is joining us as a Senior Advisor. He's gonna chair an advisory committee for us, mostly helping us in D.C. navigating what we think is gonna be an interesting political and regulatory framework, but also helping us with our own legal department here and commercial opportunities around the firm.
We want to welcome Neal. Couldn't be more excited. Let me turn to earnings real quick. Listen, it was an awesome quarter, right? Net comprehensive income increased to $517 million in the quarter. That's up over 1,000% from the previous year. Our year-to-date comprehensive income, $1.2 billion. It's pretty remarkable the earnings power that this industry is providing us. You know, I'm gonna be fair to say that some of the income is attributable to overall price appreciation of the assets that we hold and the venture investments that we hold, but our operating businesses are also doing amazingly well. Damien and Chris and Alex are gonna provide much more detail about that later in the call.
Finally, I'm excited to share that our preliminary earnings quarter to date, as of November 12, are approximately $400 million, meaning that our total year-to-date earnings are over $1.6 billion as of last Friday. Regarding our U.S. listing, as we previously announced, subject to all required regulatory approvals and processes, we remain in progress to re-domicile and list in the United States. We confidentially submitted a registration statement with the SEC relating to the move to the U.S. and are actively engaged in the comment process. We now expect to complete this process to list in the U.S. in the first quarter of 2022. Regarding our acquisition of BitGo, we expect to close this deal concurrently with our move to the U.S. in the first quarter.
Through this process, we've been running at full speed and continue to grow the business concurrently, taking advantage of market opportunities and progressing with our BitGo integration planning daily. As shareholders, you should be very excited for what Galaxy has accomplished this quarter and the combined Galaxy BitGo can accomplish next year and going forward. With that, I'm gonna turn it over to Damien Vanderwilt, our Co-President and Head of Global Markets.
Thanks very much, Mike. Good morning, everybody. I'd like to take a minute to also welcome Neal Katyal to our leadership team. I've had the pleasure of getting to know Neal through the last quarter as we were figuring out his position here, and he's really something, and we can't wait to get him in here to help us navigate D.C. and regulation, as Mike alluded to. I wanna underscore a few of Mike's comments about adoption trends before I jump into the performance of our asset management and advisory businesses, which have both had phenomenal quarters. In my over 20 years in market-facing roles, I've spoken to clients, investors, and prospects every single day, and this past quarter and fourth quarter to date, I have never seen the volume of interested inbounds come across my desk.
I've spoken to everyone from 22-year-old crypto billionaires looking for investing and trading advice to the investment committees of the most conservative pension funds in the world who are exploring adding Bitcoin and crypto to their investment mandates. Let me share some interesting insights with you from conversations with our global clients. Institutions are getting up the curve extremely quickly on our sector. Most now have dedicated crypto teams. Alternative managers are onboarding with us regularly now, and where possible, applying TradFi strategies to crypto assets. For many of the world's largest asset allocators and institutions, however, a lack of regulatory clarity continues to heavily influence the ways that their capital can be invested in the sector. Mike touched on those. The path of least resistance for many has been allocating capital to the crypto sector-focused venture and private equity funds who inherently have limited capacity.
This wall of capital is leading to rapidly ascending private company valuations, and this leads me to two important observations. One, it can be misleading to look at the way capital is being allocated today and conclude that the institutional community is not rapidly becoming sophisticated in the sector. Most are, in fact, much more sophisticated than their current investing activities suggest. Two, that when we do get regulatory clarity, there is a gigantic wall of capital that is waiting to be allocated to the sector directly, which is exactly what Galaxy Digital is designed to facilitate. Now to put some of those calls and numbers into context, remember where we stand today. As Mike mentioned, we have seen reports and data indicating that over $24 billion of investment in fundraising in the digital assets economy to date have occurred this year.
Our own internal trackers indicate that the invested dollars into the space is actually closer to double that amount year to date through October. By comparison for you all, in 2020, it was less than $7 billion using the same trackers, and we still have two more months to go in 2021. What's more is we're seeing well over $400 billion now of daily crypto market volumes on exchanges and a market capitalization of the crypto sector of nearly $3 trillion. What is that telling me? I think the accelerated investment activity is boosting valuations, as I mentioned. It's adding to the number of crypto unicorns, which is notable. That number is standing at more than 20 crypto firms with valuations north of $1 billion.
Notably, that group includes a few custody platforms, we think because financial services incumbents are looking to get into that space, whether through deals or partnerships. That's, of course, part of the reason we are buying BitGo, the second-largest crypto custodian in the world. Despite that $1.2 billion deal price setting a record at the time, we're already seeing its smaller competitors appreciate in value. It seems like investors are realizing what we have known for a little while, which is that adding custody services in crypto is an integral step to becoming a leader across the space.
I remember distinctly the world pre-announcing BitGo, where one of the most frequent questions I got from our clients is, "How and where do I securely store our digital assets?" Until May of this year, my team and I had been directing them to our network of trusted crypto custodial partners. Now, once we close, our clients will have the option to custody where they transact and can rely on Galaxy for the entire life cycle of transacting and holding digital assets. Beyond custody, my read on all these eye-popping valuations is that the investing world is waking up to what we've been saying, that the addressable market opportunity is largely untapped and has the potential to increase exponentially as applications of blockchain technology for facilitation of broader trade and commerce become a reality.
As I've said previously, the one thing we could have wrong in our forecasts is the size of the TAM. It could be a lot bigger than even we at Galaxy believe it could be. Now turning to our business units, I'll provide an update for our asset management and investment banking units, and Chris will provide updates for trading, mining, and our principal investment portfolio. Beginning with asset management business, we continue to see strong demand for both passive and active exposure to cryptocurrencies. During the third quarter, we saw significant inflows into our funds, and we saw assets under management increase 57% from the end of the second quarter, reaching $2.2 billion, having grown 175% year to date.
Net client inflows in the quarter exceeded $490 million, confirming that the investment case for cryptocurrencies in a fund structure remains compelling. Even in a quarter where crypto asset prices were rising, backing out the impact of asset price increases, we continued to see net new capital coming into the Galaxy platform. The trend of our team attracting positive net inflows has continued quarter to date, as we're thrilled to share with the market that as of the end of October, our assets under management have now reached $3.2 billion. That is pretty remarkable growth since we ended 2020 at just over $800 million in assets under management. We continue to have a really strong partnership with our friends at CI in Canada through a number of products.
With our Ethereum ETF that's now well over $1 billion in AUM, we've a number of other incredible partners to the Galaxy ecosystem since we last spoke. In August, we partnered with Alerian to launch the Alerian Galaxy Global Blockchain Indexes and Alerian Galaxy Global Cryptocurrency-Focused Blockchain Indexes. These indexes support the ever-growing demand for investment opportunities in the blockchain and crypto economy. In September, we announced a strategic partnership with Invesco ETFs to develop a comprehensive suite of U.S.-listed, physically backed digital asset exchange-traded funds. This exciting alliance of market-leading capabilities will offer investors an unprecedented combination of solutions and information that gives structure to the complex and fast-moving digital asset space. We're tremendously excited to work with Invesco and the leadership there on products for the future.
On the new product front, we were excited to launch the Galaxy DeFi Index Fund, which is a passively managed fund providing institutional investors access to returns based on the performance of DeFi through a simple, secure vehicle with exposure to the largest, most liquid portions of the decentralized finance crypto market. The fund was seeded by our friends and long-term partners, NZ Funds, a wealth management firm that manages over $2 billion of New Zealanders' savings. Finally, in October, an announcement was made regarding the launch of the Invesco Alerian Galaxy Crypto Economy ETF and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF, which offer thematic equity exposure to global public companies and select investment vehicles that are actively engaged in the cryptocurrency and blockchain sectors.
Turning to our actively managed venture funds, as we reported last quarter, the Galaxy Interactive Fund has deployed substantially all of the $325 million committed in the inaugural fund, which was already the largest franchise dedicated to the interactive sector. As a reminder, we established Galaxy Interactive in 2018 to fill a gap in funding available to companies in the interactive sector, the intersection of content, finance, and technology. In October, we announced that Galaxy Interactive has raised a fund with $325 million of committed capital, with participation from over 70 new LPs, including institutional investors, endowments, strategic investors, and family offices. As shareholders, it is key to remember that Galaxy Digital retains an LP interest in both Galaxy Interactive fund offerings as well as GP.
Moving now to our investment banking business, there has been a flurry of activity in just the past few weeks demonstrating the significant amount of interest investors and companies have in the crypto economy, but also the substantial network that our banking team has built over the past year. GDIB closed three deals in the last three weeks, is working on eight active mandates, and maintains an active pipeline, including many more potential deals. Regarding the first of those deals in October of this year, our advisory team acted as exclusive financial advisor and sole placement agent on a $50 million capital raise for CoreWeave, a specialized cloud provider for both proprietary and client use cases across the digital asset, machine learning, and VFX rendering spaces.
The team also advised on 2 M&A transactions, which are expected to be announced shortly, and for one of these, we acted as the exclusive financial advisor for the acquirer. I look forward to updating you on both transactions next time we speak. Last but not least, our team served as digital assets advisor on a capital markets transaction, which is expected to be announced this week. The team remains extremely busy working through 8 active mandates in various stages of execution. The engagements remain primarily for capital raising, given the staggering amount of fundraising activity we've seen in our sector in the past few quarters. We've also been hiring to assist with the growing demand and the historic levels of transactional and fundraising activity we're seeing in our industry.
Since we last spoke to you, we've added a senior managing director in New York to enhance origination and execution efforts, for which we continue to see accelerated demand. Overall, we remain confident we'll continue to see strong growth in both our asset management and advisory businesses and the infrastructure both Steve and Michael are building to support that expansion. I'll now hand the call to Chris Ferraro, my co-president, who will walk you through some investment trends we're focused on, details for our trading and mining businesses, and an update on the very important and exciting BitGo acquisition progress.
Thanks, Damien, and good morning, all. I'll first cover the performance of our Trading, Mining, and Investing businesses. Our Trading business continued to show that despite seasonal and price volatility, we can grow through greater depth of relationships with counterparties across spot, derivatives, and lending execution, as well as providing opportunistic market-making offerings to ecosystem players. Before we get into specific key metrics, I want to provide greater clarity on a regular question we get about trading. In thinking about the business as split between, one, our firm's core long active trading on our own behalf versus, two, all beta neutral counterparty facing and liquidity provider activities, the year-to-date contribution for counterparty and market making related activities is approximately mid-teens as an overall mix of total net revenues.
To be clear, we're considering net revenue as realized and net unrealized gains in trading net of funding costs, plus net interest income from the entire trading division. Now let's start with business performance from our execution desks. Counterparty spot trading volumes decreased 28% quarter-over-quarter following all-time high volatility witnessed in the second quarter. While this was a decline from the record highs witnessed last quarter, we are still comping to a dramatic increase in excess of over 280% versus prior year period. Derivatives were a relative bright spot for us, declining in the single-digit percentages quarter-over-quarter as the increasingly sophisticated institutional approach towards managing crypto exposure demands scaled derivatives and structured trading execution. Derivatives is a clear differentiator for GDT, and we applaud Rob, Pranav, and the rest of the team for their accomplishments this year so far.
Turning to lending, we've continued to add and deepen existing client relationships. As a reminder, we believe originations tell the clearest story for growth, given the volatility of crypto asset prices that can cause notable shifts to the size of our overall loan portfolio for any given snapshot. In the third quarter, we added nearly $1.5 billion of gross counterparty loan originations, growing cumulative year-to-date loan originations to well over $3 billion. This drove a 65% sequential increase in the size of the counterparty loan book to $615 million as of September 30th. Moreover, I'm excited to report that we've now surpassed $900 million in our loan book as of last week. We continue to see robust share of fiat denominated loans at around a third of the overall book versus nearly 0% at the end of 2020.
This helps to provide a dampener against the impact of crypto price volatility on our overall loan portfolio aggregate exposure. More importantly, for measuring the impacts of market volatility, we continue to deliver robust growth while remaining over 100% collateralization on average and operating with no defaults or forced liquidations. Providing intelligent and thoughtful financing solutions to the market continues to be a core pillar of our company, and we believe that the foundation we've built here will allow us to scale this activity dramatically across both product as well as business units in quarters to come. I also want to highlight the incremental revenue paths within and surrounding the GDT business that have emerged as a notable contributor to performance over the last few months.
Specifically, these are our services to both emergent and legacy network protocol communities that include market making, liquidity and capital provision, node validator formation, and staking. James Roth and his team, working closely with our execution and lending desks, as well as with the entire Blue Fire Trading Team, have built out a suite of new offerings that we believe will fuel incremental growth, support development of projects within the crypto economy, and make Galaxy the platform of choice, not just for institutions accessing the sector, but for the formation of new institutions within the sector. Finally, I want to note that the proof of GDT's leadership within the industry continues to be exemplified by its accolades. Last month, Cboe announced it will acquire ErisX to enter the digital asset spot and derivatives markets, and it also selected Galaxy Digital for its digital advisory committee to support its planned expansion.
This all speaks to the resiliency of the institutional grade business we are building and hopefully signals to our clients and counterparties they can rely on us for liquidity and execution regardless of market conditions. Moving on to our principal investments business. We've continued to aggressively pursue and invest in the most compelling opportunities across the ecosystem. Excluding our portfolio companies within our interactive business, we now have 110 investments across 71 portfolio companies. Through fourth quarter to date, our team continued to grow our strategic portfolio with new names added such as Pyth, a new Solana-based real-world data oracle service in collaboration with Jump; Figment, one of the largest independent staking as a service providers; Skolem, the first completely DeFi-native client execution platform; and Chaos Labs, a next-gen smart contract audit and simulation company led by former Facebook alum founders.
We continue to see record-breaking fundraising and deployment around the sector, which provides us with the flexibility to realize and recycle gains opportunistically and to see our direct exposure to the space mature faster than we would have envisioned even a year earlier. Specifically, a new trend emerged this year with the public and SPAC markets taking aim at crypto. On the existing portfolio side, we've been the beneficiary of successful public listings and completed or contemplated de-SPACs, including Coinbase, Bakkt, Cipher Mining, and Bullish Global. Furthermore, we've also begun to selectively get active in the primary PIPE market where strategic alignment of interest exists. Two examples of this include Core Scientific, as well as our most recently announced investment in Monex Group, a Japanese financial services leader, as well as in one of its portfolio companies, TradeStation Group.
Monex not only has a strong footprint in the Japanese retail market with over 2.5 million customers across traditional financial brokerage and crypto through its wholly owned sub, Coincheck, but its third hallmark property, TradeStation, operates one of the most comprehensive self-directed prosumer trading platforms in the U.S. for equities, futures, options, and most recently, crypto. We're incredibly excited to support and partner with TradeStation's crypto offering in the U.S., as well as to strategically align ourselves with the Monex platform as we turn our eyes toward APAC expansion across the entire business. We're incredibly proud of the venture team's dedication to the sector and Galaxy's mission within the business to source diligence, execute on, and then help grow the sector's most cutting-edge technologies. Now turning to mining, where the team continues to build momentum in both prop mining and its mining finance offerings.
In prop mining, through strategic relationships and our knowledge of the space, we remain on track to receive a steady supply of hardware and to achieve mining capacity of nearly 2,000 Petahash per second by the end of 2022, which remains well over 1% of the total Bitcoin network hash rate as it stands today. Importantly, we continue to mine Bitcoin at a significant discount to fair market value with our all-in full cycle cost to mine still below $10,000 per coin. Turning to our client-facing business, our Mining team continues to secure collaborative mining deals across lending with over $75 million of net originations in credit facilities specific to Bitcoin miners, including Argo and Hut 8.
We've also seen miners and traditional pools of capital with direct or indirect mining exposure broaden their use of our platform, doing business with our derivatives desk for risk management exposures amid ongoing volatility. Last quarter, we also made public a dedication to manage our carbon footprint and increasing the use of clean energy. We're now happy to share that as of September thirtieth, our Mining business is using an electricity power mix consisting of more than 80% sustainable power sources, and we maintain a long-term goal to utilize an over 80% sustainable power mix. All in all, the positive trends we saw in the third quarter across the business and so far in 4Q demonstrate the continued staying power of the crypto ecosystem, but also the validity of our diversified offering model.
We're not only scaling in our ability to provide access into the crypto sector, but also in supporting its growth from relationships within the ecosystem. Before I hand the call over to Alex, I want to provide a very short update on the BitGo acquisition. Our teams are progressing nicely on tactical and strategic integration planning led by our Chief Operating Officer, Aaron Brown. We're in active preparation to deliver a single scaled platform to clients on day one post-closing, and our discussions have already spawned numerous ideas for synergistic growth on the other side of the merger process. I'd also like to provide some quick operational highlights from the BitGo business over the last quarter.
We're pleased to announce that BitGo has continued to grow AUC across its clients with assets under custody of $35.5 billion at quarter's end and surging after the quarter to cross $64 billion in November. They also continue to support over 400 coins and tokens and 150 crypto exchanges worldwide. Moreover, the BitGo transaction enhances both our product innovation and development capabilities. As of today, as Mike mentioned, BitGo's headcount has reached 234 full-time employees with significant hiring focused on the technical aspects of the platform. We continue to believe this combined solution will be the premier one-stop shop for access to digital assets. With that, I'll turn the call over to Alex to walk everyone through the specifics of our financial performance. Alex?
Thank you, Chris. Good morning. Galaxy earned half a billion dollars for the three months ended September 30, and a remarkable $1.2 billion gain year-to-date. Our equity capital exceeded $2 billion at the end of this quarter, continuing to position Galaxy to take advantage of abundant opportunities in this rapidly developing market. In addition, as Mike said earlier, and we published in the earnings release this morning, fourth quarter to date, through last Friday, our preliminary results were approximately $400 million. This would bring year-to-date earnings to $1.6 billion and equity to $2.4 billion. Now back to the quarter. By the end of this quarter, equity capital grew by 150% from the end of last year.
This was driven by Galaxy's long-term strategy to maintain a long digital assets portfolio, our diversified investments in this sector, active trading and hedging, and our growing operating businesses. To elaborate, digital assets. Taking realized and unrealized gains on digital assets, we recognized $529 million for the quarter. Excluding non-controlling interests, money from outside investors in funds that we consolidate, gain on digital assets was $448 million for the quarter and $745 million year to date. Private investments are a great part of our story. Again, taking realized and unrealized together, we gained $177 million from investments in this quarter and $602 million year to date. Our portfolio includes investments in 71 companies. We record investments at cost or at a discount to market value.
In fairness, many of our investments are made at early stages and are not immediately liquid. Another piece of the investment story flows through gains on digital assets. We invest in new token protocols. Once the tokens are issued, they're recorded as digital assets. Typically, new tokens are made available for trading in tranches over time. We record restricted tokens in digital assets at meaningful discounts. As tokens become unrestricted, we recognize gains in digital assets. On the cost side, equity-based compensation increased in the third quarter for the full quarter effect of the grants that were made in the second quarter of this year. This was for last year's awards that were held up by a blackout period mandated in Canada prior to the announcement of our BitGo acquisition. We also increased our bonus accrual for the quarter correlated to the positive results in the business.
General and administrative fees included an accrual for local taxes, and we recorded higher professional fees related to our U.S. listing and acquisitions. Balance sheet. As I mentioned before, equity was $2 billion at the end of this quarter. Cash was $276 million. Digital assets, including digital assets receivable and excluding non-controlling interests, were $1.8 billion, and private investments were $780 million at the end of this quarter. We mentioned change in auditors last quarter. As part of moving our public listing to the U.S., we retained KPMG as our auditor. This was the first quarter they reviewed our results. I would like to welcome KPMG to Galaxy. I would also like to again thank MNP, our Canadian audit firm, for the exceptional service they provided and continue to provide to Galaxy.
We enjoyed working together, and we greatly appreciate their local expertise and talented staff. With that, back to the moderator for questions.
Thank you. Ladies and gentlemen, at this time, we will be conducting a question- and- answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Deepak Kaushal with BMO Capital Markets. Please proceed with your question.
Oh, hi, guys. Can you hear me okay?
Loud and clear.
Excellent. Mike and the team, glad to be back on the call and glad for the opportunity to ask you guys some questions. Mike, just on the first question on the U.S. listing, you know, for lack of a better word, delay, you know, the prior expectation was Q4, now you're looking at Q1. Can you give us some insight into what happened? Was it just kind of administrative? What are kind of the next steps in the process? You've done your confidential filing. What should we expect in the near term before that becomes public and listing occurs?
Listen, I can't give you much color, unfortunately, because you know, we're in process. Our process will be no different than any company filing with the SEC. You know, you put in. They give you comments, you go back and forth. Like we said, we expect and are excited for a first quarter, you know, closed BitGo concurrently with re-domiciling in the U.S. and listing here.
Just in general, maybe as an aside to that, you know, the SEC did give some heat to another publicly listed company in the crypto space with respect to lending. How is your lending business different from that? And how do you expect the regulators to look at your lending business in light of that?
Sure. Thanks, Deepak. I think first of all, I'd look to how do we finance the lending business? We financed our lending business both with internal capital, so equity capital, as well as wholesale financing lines, for lack of a better term, from institutions inside and outside of crypto ecosystem. Not retail deposits. I think that's first and foremost the biggest differentiator. I think that's probably the area that the regulators have taken the most focus on. The other side of it is from our asset perspective, our counterparties are all institutions, family offices and also high-net-worth individuals as well. You know, we don't take part directly in financing retail, nor do we take financing from retail.
Okay. That's helpful. That explained it, Chris. Thanks for that. I got two more questions, if I may. One, again, back to Mike. You know, obviously, we're in a different time versus 2018, but I get a lot of questions from investors, you know, where we are in the cycle. Just from you again, you know, what were some of the lessons learned in the last cycle in 2018, and how are you guys better prepared as a business and strategically this time around if we do see another crypto winter at some point?
I think first, the industry is much more mature. In 2017, you know, going into 2018, it was broadly speculative. It was a very immature investor base, right? It was 99% retail, buying into this story that crypto and blockchains were gonna change the world. The regulators got a little nervous, and things had gone too far. There was a supply response with so much new product. I think what's different now is, you know, institutions are a much bigger part of this. The infrastructure that's been built is much more real. The blockchains are more robust. The businesses building on top of them are generating real revenue. We're moving from a crypto-only ecosystem to interacting with the real world.
I think NFTs was the first really big area where that showed up, and part of the reasons why we have this excitement right now is people realize, wow, we can use blockchains to.
You know, disrupt and revolutionize the art market and the advertising market and the collectibles market, and soon enough it'll be the healthcare market. I think there's been a realization that this is not just an asset play, this is a technology play. This is Web 3.0, the internet of the future, the internet of value exchange. You can give it lots of different names, but I think investors get that now. You're seeing, you know, much deeper investing in this space. Does it mean we can't have corrections? You know, absolutely not. We will have a correction at one point, right? There's a lot of euphoria going into the markets. Markets don't go straight up forever. There's plenty of things that could cause corrections.
I'm really confident that those corrections will be bought, that people will continue to build and build. You know, I told my employees in 2017, 2018, you know, they were taking a risk, a career risk that this would work out, and now I don't think they're taking a career risk. I think we have execution risk, right? There's a lot of competition in this space. We need to execute. This industry is here for good.
Okay, that's helpful. You know, Web 3.0, you mentioned that. You know, another buzzword we're hearing a lot these days is Metaverse. You know, you have investments in NFTs, in gaming. You've got your new interactive fund. You know, what do you see as the critical pieces of infrastructure in this Metaverse, you know, aside from Web 3.0? How are you guys getting exposure to that space in particular?
Yeah. We've made 22 or 23 investments in that space. You know, put $62 million of capital in lots of those companies. I can think of things like Candy Digital, which we helped start, which is a, you know, memorabilia, you know, an NFT memorabilia company who Major League Baseball is the first big client, but, you know, lots of other clients coming on board. I can think of Art Blocks, which is the premier platform where generative art lives. You know, generative art is using code to create art, and it's probably the, you know, the space of the NFT world closest to the art market, right? You know, in 15 years or 20 years, when you look back, names like Dmitri Cherniak and are gonna be known as, you know, the great artists.
Different than, you know, CryptoPunks and what we call collectibles. We're putting investments all over the space. We really think this is first inning there. If you think about right now, if you buy a great NFT, you can show it to someone on your phone or maybe on a pretty cool TV screen. You know, in the future there's gonna be AR glasses, there are gonna be whole worlds created, where your NFTs interact with the rest of the world. We really think this is early stages. We just raised another $325 million fund in Interactive. Couldn't be more proud and excited about the team we have there. Think we're on the cutting edge, continue to hire into the space, and it will be a big part of our business going forward.
Okay, great. Well, thank you for taking all my questions. I appreciate the airtime, and I'll pass the line.
Our next question comes from the line of Mark Palmer with BTIG. Please proceed with your question.
Yes, thank you. Good morning. Thanks very much for the update on BitGo's performance, particularly up through November, which is remarkable. We have been hearing an awful lot about blockchain infrastructure firms that are gearing up for a big surge in staking in 2022, especially with the anticipated merge for Ethereum 2.0. In your integration with BitGo, how are you thinking about staking volumes in 2022, and how are you preparing for a potential increase in volumes?
Sure. We are focused on staking. We think that objectively the volume of potential unlock of assets, stakeable assets, on a bunch of new networks that were launched this year is gonna dwarf what we've seen so far in the past. It is a core focus of ours and a core focus of the entire BitGo team. We think staking is something that clients of a custodian are gonna demand, and so we think it's incredibly important that we offer it. We are working on the strategy on that front. BitGo today does offer staking itself and in partnership with external partners, and we're gonna continue that strategy going forward.
It will be, unless things dramatically change, it will be a core part of our offering.
Thank you. You know, of course we saw the approval of a Bitcoin futures ETF, actually more than one. We also saw a rejection of a physically backed Bitcoin ETF. Just wanted to get your take on where things stand in terms of approval of these structures, what your expectation is going into 2022, and how that will impact your strategy with regard to the asset management group. Thank you.
Thanks, Mark. It's Damien. You know, we are filed at the moment, as you know, with Invesco, our partners, with an S-1. We're gonna be limited in giving too much perspective around the direct answer to your question. I think the futures-backed Bitcoin ETF approval was possible because of the cash settle nature of that product. None of that architecture to achieve that exposure hits the underlying Bitcoin market. That's clearly different with the Bitcoin-backed ETFs. You know, we're hopeful that as the SEC works through some of their concern list, that the future will be a bright one for firms like ourselves and Invesco and others to be able to have cash-backed Bitcoin ETFs.
Very good. Thanks very much.
Our next question comes from the line of Kenneth Worthington with J.P. Morgan. Please proceed with your question.
Hi, good morning. Thank you for taking my question. I wanted to follow up on Mike's, yours, and Damien's comments in your prepared remarks. In terms of the crypto markets, we saw a healthy sell-off mid-year and more recently a recovery with many token prices surging to new highs. Again, following up on your prepared remarks you commented on the environment. There have been a number of themes that you have spoken about, and I think have driven increased interest in the cryptocurrency markets. The thought of Bitcoin as digital gold, I think the fiat inflation hedge seemed to be a contributor earlier this year. To what extent do you think mainstream participants are evolving from seeing cryptocurrencies as maybe just an asset to seeing them more as a technology?
Is there a change here that might be driving participation and interest? More broadly, as you speak with your clients, and maybe more importantly, non-clients, where is the mainstream market in terms of understanding the crypto ecosystem?
Yeah, let me answer that. I would start with in the institutional world, right, people who are putting money into venture, the big institutions that are now putting money into not just Bitcoin, but Ethereum and other projects. I think this shift of thought that we're going from an asset play to a tech play is a big driver of the acceleration and of the FOMO actually of saying, "I can't miss the next internet." You know, in the retail market, it's harder to have our fingers on it. We don't touch them on a day-to-day basis, though I certainly do through my Twitter and, you know, conferences and lots of other ways. I think it's you know, it would be unfair to not give them some credit for sophistication.
You know, the crypto universe is very dedicated, right? You know, there's nicknames like degens and whatnot. There is a core group of people that are making their living following these projects and understanding them. I think it's a more sophisticated market than it was certainly in 2017. Listen, it's not everybody. Like in anything, you got some core group of people that are really understanding what's going on, and they're pulling new people into these ecosystems. Remember what's both really, really powerful about the way crypto works, but can also be dangerous, is that once you're engaged in a project, you've got a vested interest to pull other people into your project. You're seeing whole new ecosystems show up, right?
I mean, this year, I think the best examples are both Terra Luna and Solana. You know, ecosystems run by very charismatic, you know, founders with good technology, with lots building and lots of great partners. It's unfair to say out of nowhere. These guys have been building for years. The real acceleration of those networks came this year, and you're seeing it in things like Avalanche, Algorand, lots of other of these ecosystems are pulling people in. It's way early to figure out how this all shakes out. Will we have, you know, 4 blockchains in Web 3.0 or 40? I think anyone who tells you they know the answer is probably a little foolish because we're still early in that play.
To your question, there's more sophistication than most people think.
Ken, I might just add one thing onto Mike's comments where you may find it interesting. I would describe when I'm talking to the largest institutions now a sense of frustration at the lack of regulatory clarity, which is in many instances forcing them to have only one channel to allocate capital into our sector, and that's through fund structures, either venture or private equity, which I mentioned in my prepared remarks. Their desire is clearly to make sure that they are not missing the next legs of the movement in the underlying crypto assets. You're seeing an expansion in the private market valuations of the infrastructure companies. Once we get regulatory clarity, there is just a gigantic wall of capital that will try to find its way into the crypto asset ecosystem directly.
There is a frustration that lack of clarity is almost forcing them to miss the price appreciation that is happening in the marketplace and forcing them into a private equity environment that is extremely stretched.
Great. Thank you very much.
Our next question comes from the line of James Friedman with Susquehanna. Please proceed with your question.
Hi. Exciting times, guys. It's James at Susquehanna. I had two, I'll just ask them upfront. So I think it was Damien speaking with regard to the DeFi crypto fund. I think that's maybe the one that is actually the Bloomberg Galaxy DeFi Index, or maybe we're talking about something else. My question is, do you see any different characteristics with regard to the demand trends for the DeFi fund, not in terms of volume, but in terms of investors relative to some of your other assets? That's the first one. Then with regard to the U.S. listing, I'm just curious what and I realize, Mike, you said you can't talk a lot about it, and I totally respect that. I'm just curious, what's the spirit of that?
Why do you feel like that's real important for you if you do? Thank you.
Yeah, let me answer that question first. We went public in the TSX Venture Exchange, right? The TSX Venture Exchange, back in 2018 because it allowed us to raise permanent capital broadly on a business plan. In the U.S., you need three years of audited financials. You know, that was great. What is very clear to me now is that the liquidity of the world, you know, shows up in the Nasdaq and shows up in the U.S.
You look at a stock like ours that on average trades $50-odd million a day, some days higher, some days lower, relative to, say, the mining stocks that do one quarter, one fifth, one sixth of what we do in both diversity of activity and earnings and in lots of things, and they trade at times $500 million, $600 million a day. You know, to create liquidity for our shareholders to be able to access deep capital markets, it seems an essential to be here listed in the U.S. It's the, you know, capital markets center of the world, and, you know, we wanna be a global company with big aspirations.
We think this is a growth industry, and so being able to tap in and raise capital when we see opportunities is an important part of our game plan.
You know, I might add, just to tackle your DeFi fund question. If you look at the development in our asset management business of our index product, it has perfectly mirrored what we're hearing from our institutional clients that are choosing to use passive fund structures to allocate into the sector. What we're aiming to provide people with are the building blocks to put together an exposure that suits their investment needs. It typically, and this is true for the majority of the sales cycle of institutions in our sector, people start with Bitcoin, make an allocation. That's the longest sale. They then start doing work typically on Ethereum, then they wanna have our Ethereum tracker fund to allocate there. Then it, you know, the next area of demand ends up being DeFi.
These building blocks are in response to our client demand for allocating capital to the sector. These funds do provide onshore and offshore capabilities in most instances for people to put them together. They can create their own index weights for how much they wanna have in Bitcoin versus Eth versus DeFi. We also have a Bloomberg partnership where we've created a large cap coin index that rebalances every month. People can say, you know, we're gonna do a market cap index based allocation and use that fund product. You'll see a handful more of those types of index products come out in the fourth quarter and the first quarter, which give everyone the opportunity to sort of put together a portfolio that gives you different exposures across the ecosystem.
Got it. Thanks for that. Happy holidays.
To you. Thanks.
Our next question comes from the line of Owen Lau with Oppenheimer. Please proceed with your question.
Good morning, and thank you for taking my question. Could you please provide more thoughts about the consolidation in the crypto industry? Are we still in the early stage of M&A that companies are just adding more capabilities? Or do you see some signs that there are just too many similar projects out there competing in the same industry? Thank you.
Yeah, let me answer that two ways. There have been M&A around infrastructure, and I think we'll continue to see some. If you think about the pie, the pie is growing so quick that new companies certainly have roles to play. The big debate is really around who's building both level one and level two blockchains and which type blockchain is gonna be the blockchain of the future, right? There are probably 15, you know, contenders that wanna unseat Ethereum or either unseat Ethereum or at least be part of that ecosystem that becomes the giant distributed supercomputer where, you know, both consumer and financial companies are built on top of.
I think you're gonna continue to see new projects, both level two solutions, side chains, all trying to sort out this equation of decentralization, security and speed. That trilemma, as Vitalik Buterin once put it, isn't solved yet. That part's probably the most exciting from an investor perspective, from a computer science perspective. I think you're gonna continue to see lots of projects there. When it comes to exchanges and custody, and security, there, I think you'll continue to see some consolidation because there's economies of scale that play out.
Got it. A quick follow-up on that. Could you please add a little bit more color on your principal investments? I think, Mike, you touch a lot on the NFT, but other than NFT, where do you see the opportunity in the private market in your principal investments? Thank you.
Well, what's beautiful about open source networks, right, about blockchain itself is that you can build on top of what already exists. So we call it composability, right? You always use the example, if you had an iPhone, then you put GPS on the iPhone, and next thing, you get Uber and DoorDash and all the other delivery services and mapping services. You can think of the blockchain as the App Store in lots of ways, that things get built on top of. What we're seeing is an explosion of innovation. It's like the new generation decided, "Oh, those old rules don't exist. We can just innovate." We are constantly looking for great founders with great ideas, and there are a lot of them.
You know, tons of the best engineering minds coming out of university are going right into this space. Our team, you know, John Cole , Michael Jordan, Will Nelly, our what I'll call Web3 venture team, is constantly out there meeting these founders, looking for opportunities. Chris, you wanna highlight a few of the-
To hit on some specific things as it pertains to sort of on-chain, right? There are core on-chain protocols that's building the base layer infrastructure for peer-to-peer transacting. Then there's things like we mentioned Pyth, which is a real world data oracle, right? Bringing real world data programmatically on-chain is gonna be incredibly important in order to bridge the two gaps and allow smart contracts to interact with things that are happening sort of outside just the ones and the zeros in Web3. Another example is staking we talked about, right? Staking as an infrastructure is incredibly important.
We have a handful of investments now in staking providers throughout the ecosystem because we see that, as we articulated, we see that piece of the ecosystem sort of the demand on a go-forward basis exploding. Like, those are a couple examples. Online credit scoring is another good one. As people's identities sort of exist more on-chain than they do in the real world, we need a way to figure out who those people are and how they are gonna act and should good actors get lower cost of capital and get more financing.
On-chain credit scoring and on-chain identity is also something that we're really focused on because we think sort of these are the level two, three and four layers of the ecosystem that are being built now that are really gonna drive the economy on-chain.
Got it. Thank you, Mike. Thank you, Chris.
Our next question comes from the line of George Sutton with Craig-Hallum. Please proceed with your question.
Thank you. Congratulations on the results, and I'm pleased to hear you're in the comments process relative to a U.S. listing. Damien, you mentioned a gigantic wall of capital to be allocated. I'm just curious how much of that you feel is dependent upon some regulatory clarity.
I think it's happening anyways. This is Mike. I'm sorry I'm cutting Damien off. That's my privilege of age. I think it's happening anyways, right? I was just with some big pension funds that are moving that direction. They're gonna allocate. I think it would accelerate a lot, right? Because again, if you think about the more conservative institution, you know, how do institutions look? Well, who goes first? Who goes second? Once you have two or three people in that bucket, if it's insurance company, if it's pension fund, if it's college endowment, they all wanna know what the other guys are doing. We're starting to hit the tipping point in almost every one of those buckets. I just know that if they get the okay from their regulators, it'll accelerate.
Because, you know, you're pitching a board. The board are less close to the markets than the portfolio managers or the guys that run these funds. They tend to be older, not younger, right? There's a direct correlation of age and understanding crypto, right? You talk to 24-year-olds, they all get it. You talk to 74-year-olds and very few get it. I think this is just a process. Regulatory clarity will completely accelerate it.
Mike, just, one other quick question for you. You mentioned healthcare could be the next big area of disruption for the blockchain. I'm just curious if you could give a little bit more of a picture of what you're referring to there.
Let me restate that. I think I don't think it's gonna be the next big area of disruption. I do think it'll probably be one of the hardest because of all the problems in healthcare. It would be insane if we have a future where we have value being transmitted all around a blockchain and you can keep your private data, to think that we're not gonna have our healthcare records in your own NFT, right?
I do think we'll get there. It's probably the tail end of this revolution, not the beginning. If I misspoke, I apologize.
Thanks for your clarity.
There are some projects working on it, but it's you know, with HIPAA stuff and just the way our healthcare system is set up, it's a tough you know, row to hoe right now. It just makes so much intuitive sense. Think about it. You go to the doctors, and they want your healthcare records, and you're like, "Oh, those are in Kansas." They should be in your wallet right next to your Bitcoin, your Ethereum, your opera tickets, and your NFTs.
Thank you.
Our next question comes from the line of Kevin Dede with H.C. Wainwright. Please proceed with your question.
Morning, gentlemen. Thanks for having me. Damien, just a little more clarity and, you know, if you wanna jump in on it, Mike, that's great. I
Oh, happy to.
Yeah, I'm just still a little confused, right? I get the whole wall of capital, clearly evident. What's not clear to me is what happens with regulatory clarity. Do you see a compression in the private equity market given that the institutional public one opens up? And do you think that would come with a collapse in private valuations? How should we look at that?
Yeah. I would tell you that the probably one of the most central issues here in the U.S. for investors and providers of liquidity is the determination of what crypto assets are probably securities and those that are not. While that fundamental interpretation subjectivity exists, most large fiduciaries are not gonna take any risk there, and they're going to allocate capital into the sector through mechanisms that are permissible. Venture capital funds and private equity funds. That is where you're starting to see I would say excess capital try to find its way into the sector relative to what would probably be happening if there was clarity over where people could allocate directly. I don't necessarily think that clarity will see a collapse in private equity valuations.
The reality of private equity in our sector there is very few assets available for people to invest in or to acquire relative to the TAM, as I also mentioned, and the number of people who wanna be exposed to the sector. I think what you will see once we have regulatory clarity is assets that are currently allocated into other sectors find their way into crypto, but be allocated directly, and people being able to allocate portfolios into the full ecosystem of coins and digital assets that we're involved in.
Okay. Thank you, Damien. I'm not sure who would wanna take this. A little clarity on the mining strategy, given the target appears to be to maintain greater than 1% of the network hash. I'm wondering if that's the strategic intent longer term.
Yeah. I think at its most fundamental level, we think Bitcoin is an incredibly important part of the crypto ecosystem. It's the bellwether asset, and we think being a participant on the network and helping secure the network is important from a good actor perspective, let alone the financial profile of maintaining. We picked 1% as a target, as our initial target. We're gonna achieve that. Where that goes from there, yeah, I think we all look around and say we'd love to maintain at least 1% of the Bitcoin network. That's not necessarily a hard and fast goal. That'll depend on how the network evolves, where hash rate goes, where our own capital base is, and how we allocate.
As a starting place, that feels pretty good. We love the economics in Bitcoin mining today. We think there are forces at hand that suggest those economics are gonna stay highly attractive for an extended period of time, not the least of which is foreseeable continued supply chain mismatch between available supply of high-quality equipment and network demand. We like the business a lot, we're committed to it, and we think there are actual longer term tailwinds behind it, which is slightly different than what it's been over the past five years prior to now.
Chris, you commented on trading volume through the September quarter, across derivatives and spot. I was wondering if you could just add a little more color on what you've seen since.
Sure. We have seen volumes pretty much across the board of our core product offerings increase post September 30, which is commensurate with what you'd expect, and is correlated to sort of the flash we've given on our own results, generally speaking. You know, crypto market's volatile, but in general, we have seen a rebound in October into early November. It's still early though.
Okay. Mike, a couple for you maybe. Could you talk a little about how you see position of crypto versus gold in an inflationary environment, that seems to be one we're in at the moment. Do you think-
Yeah, I think.
And, and-
If you had asked gold bugs, two years ago, where the price of gold would be given, you know, what's happened in monetary and fiscal conditions around the world, they would've all answered far higher than here at, you know, $1,800. You know, what's happened? There's been a substitution of Bitcoin for gold, and we've seen it directly, you've seen it indirectly, you see it in the charts. I still think gold is probably an okay asset to own in this environment, but it's just gotten crushed by Bitcoin, and I think that adoption cycle continues. If you think about any other shift when we went from analog to digital, right? I mean, how many people still use Kodak film?
You know, Bitcoin is just a better version of a store of value, and it's being accepted at an accelerating pace. Store of value gets its worth from the social construct that people agree that it's valuable, that I'm gonna hold my hard-earned, you know, money, my labor, my savings in this form. You know, there are now over 200 million people around the world that participate in the Bitcoin ecosystem, and it continues to grow. As you get the credentialization, not just of those 200 million people, but of guys like Stan Druckenmiller and Paul Jones, and insurance companies, and now pension funds. The debate about is it a store of value is way over. It was over nine months ago. Now it's just adoption.
It doesn't mean it won't be volatile, right? It still trades at 90 vol. You know, 10 times the volatility or 7 times the volatility of gold. You know, on a vol-adjusted basis, it's actually almost the same, you know, the same amount of risk in people's portfolios. I just think you're gonna continue to see it adopted. You know, it's cheaper to store, it's more maneuverable.
Maneuverable?
No, not maneuverable. I'm missing the word. It's easier to move. It just, you know, it's a better mousetrap.
Well, couldn't you sorta extrapolate that to include all of crypto, Mike? I think that's kinda where I was hoping you'd go.
You know, listen, I think there are three buckets I'd put crypto in. One is I'd put Bitcoin as its own individual brand, and it's one that. It doesn't mean it will be the only store of value, right? People are storing value in CryptoPunks right now, right? It's a cultural association. There are only 10,000 CryptoPunks. There will only be 10,000 CryptoPunks. Galaxy bought a CryptoPunk, so if you're a Galaxy shareholder, you now own a part of a CryptoPunk. You know, it's a really powerful community. When Jay-Z made his avatar a CryptoPunk, I remember I was on the
I was on stage at Christie's, and I said, "Ooh, we should all buy them," 'cause the King of Culture just said, "This is important." That will be a store of value in some sense, in the same way art is. But in terms of a fungible, big, liquid store of value, I think Bitcoin is gonna be the winner. You know, the second part of crypto, while it has some affinity to it, right, Ethereum, and Solana, and you know, Polygon, and all these other ecosystems, they really are tech bets. They really are a bet that we rebuild this infrastructure, what I call, you know, Web 3, and that adoption on that infrastructure really accelerates.
You know, their valuation is part of that infrastructure and part of that sense of being part of the community in the same way Bitcoin is, and so it's not zero or one. The broad use case is there's utility in these things. When you get things like DeFi, which are built on top of those platforms, there's real earnings. There's real, you know, money that gets generated. I think in the long run, most DeFi protocols will be looked at more like we look at equities. You know, like, we'll have long-short, short DeFi analysts. They've been less in favor in the last six months because, you know, Layer 1 and Layer 2 protocols are where really the activity is, and the NFT space really decentralized a lot.
Let's not count DeFi out. You know, I think you're gonna see a renaissance with these protocols. There's still some regulatory hurdles to get through in DeFi. Most notably is who gets to use it, right? If you're trading against the smart contract, are you trading against someone who's been KYC'd? There are lots of people working on solutions to that, including ourselves, and I'm very confident within the next 12 months, that's gonna be easier and easier for regulators to understand and be okay with. Then I think you'll see an explosion of use cases. That's what's gonna get the traditional finance companies nervous.
Okay, last question for me, Mike. Last quarter, we pinned you to the wall on your call on Bitcoin. I think you said $60K. We went way past that before the end of the year. We got 6 weeks left. What's your guess?
Listen, you know. Having been a macro investor my whole life, what typically happens in the last stretch, you know, the horses come around the bend and they see the finish line of these 31 and the winners push ahead. It will absolutely not surprise me to see a pretty sharp move of Bitcoin, Ethereum, and many of these projects into year-end. I do think we'll have a correction sometime in the first quarter. People will wake up to say, "Whoa, I've got to pay tax." They'll wake up. If you're a hedge fund, you're taking your promote. There's a vested collective interest to drive prices higher. We're in. You know, listen, being an investor in crypto after the kind of move we had is difficult, right?
Because on the one hand, you're saying, "I see all this flow, it's gonna drive prices significantly higher." You look at how far it's moved and you're saying, "Oh God, a correction could be painful." You know, the genius of being a speculator or an investor in this stuff is to be able to hold both those things at the same time as possible, and to try to keep as much sensitivity to what you're seeing in the shorter run, so you can protect against those big moves. I don't see anything right now in the real short run that could really damage the ecosystem, but that doesn't mean there's nothing out there.
Okay. Thanks so much, Mike and gentlemen, and you know, maybe you'll give us a chance to ask at the end of the fourth quarter. Thanks very much.
You got it.
There are no further questions in the queue. I'd like to hand the call back to Mike Novogratz for closing comments.
Guys, thanks for you know, supporting us. Thanks for being on the call today. You know, it's been an amazing year for Galaxy. We could not be more excited. It was a great quarter. We're off to a great start this quarter. I wanted to you know, just emphasize we are a growth company in a growth industry. We're going as hard as we can. Chris Ferraro always mentions to our employees that they need to take at least one vacation a year, but we've got you know, a unbelievably talented group of young men and women that are working their tails off. Thanks for listening, and we'll be back.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.