Good morning, and welcome to Galaxy Digital's Fourth Quarter 2021 Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Galaxy Investor Relations team. Please go ahead. You may begin.
Good morning, and welcome to Galaxy Digital's fourth 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 regulatory authorities 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 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. It's a beautiful day in New York, at least if you're in New York. Listen, 2021, I think Galaxy will look back on as really a seminal year in our history, and one I think in the whole industry of crypto that really shifted this from being a maybe business to wow, this is now an institutional asset class. We had a really exciting 2021. You know, our results speaks for themselves. Our fourth quarter capped off an amazing year, $1.7 billion in net comprehensive income. If you'd asked me that two years ago, that would have seemed like a stretch, but lots of you know, positive things happened for us and for the industry.
Partners capital at $2.6 billion leaves us one of the most equitized and strongest balance sheets companies in the crypto space. More importantly, I think it's the human capital we added, right? We've added almost 250 people since January 1, 2020. And that's really where the excitement comes. You know, I know how this works. People look at your last year's earnings, and they say, "Thanks, but what's next?" I'm gonna actually leave the real analysis of the earnings to Alex, Chris, and Damien later on and give you a little sense of what's next. 2022, you know, we came into 2022, and it looks like it should be a more challenging year from a macro perspective. The Fed is hiking rates.
I think Chairman Powell will continue to try to regain the credibility of that institution by speaking hawkish and being hawkish. That has created lots of volatility in asset markets. We had a war breakout in the Ukraine, where Russia has invaded. You know, that's interesting. It creates lots of inflationary pressures through the commodity cycle. It creates lots of risk-off behavior and anxiety, but it also adds to a narrative in crypto, which is really positive and continues to accelerate adoption. What's interesting, this has been a year of push, pull in crypto with macro headwinds and adoption tailwinds, and we continue to see that, those adoption tailwinds.
Part of its story, like I said, when Europe and the U.S. told Russia, "Those reserves really aren't your reserves," for the first time in my investing career, people said, "Wait a minute, if that could happen there, what about China's $1.4 trillion of treasuries? Are treasuries really a risk-free rate?" The story for Bitcoin and other crypto assets got more of a tailwind. I don't think that is going backwards. I think we're in a balkanized world, and where crypto assets fit in is gonna continue to be debated, but it's gonna grow in scope. It should not be missed that Secretary Yellen, you know, Janet Yellen, in her last comments, took a much more sanguine approach towards crypto, right? The political winds in D.C. are changing.
I think Democrats who had been more opposed to crypto are realizing that voters really like this asset class. You're seeing a shift in you know regulatory front. Let me go to BitGo. We remain committed to integrating BitGo and becoming an institutional crypto platform, period. In keeping to that, we've extended our deal to the end of the year with BitGo. We adjusted the deal some for progress that BitGo has made. They've hired close to 150 people or more than 150 people since you know we originally signed. It's a bigger and better company. You know, we'll continue to work on integration side by side until we close the deal.
Regarding our U.S. listing, you know, as previously announced, subject to all the regulatory and approval processes, we remain in progress to re-domicile to the U.S. We publicly filed a registration statement on January twenty-eighth. However, we're still in the comment period with the SEC. While we, you know, certainly expect this process to be completed at one point, we're gonna make every effort as we can to be a U.S. public company, we can't really provide a great, you know, timeframe, given that, you know, it's in negotiations with the SEC. We said in our release, you know, between the second and fourth quarter, that's a pretty broad window. I think, you know, we're gonna hope for the best, and we're gonna continue to engage with the SEC.
They're very thorough and expect this to get done. Now, let me tell you about the future. We continue to invest for growth, period. We raised $500 million in a convertible in December. When we went on the road, we told investors that money was gonna be to build platforms, and it continues to be. How do you invest for growth? You hire, and hire. I think what gets me most excited is human capital, right? We're coming up with innovative ways to recruit to attract young talent. We came up with new training programs, a flag program. There's a big engineering focus. We brought in Alex Field to run our engineering team. He's had his plan approved.
It's a big increase in engineers across our firm. We've also brought in a new CMO, Sebastian Benkert. He came from ARK, where he did an amazing job building out Cathie Wood's brand. We can't be more excited to have him. We've added Felix Cua on our risk management side, Tom Harrop to optimize our balance sheet, Eddie Schwartz to be our Chief Security Officer. The list goes on and on. When I think of what makes a great company, it's people, and I couldn't be more proud about the people we've brought in and both the work ethic and the quality of talent. When I look, you know, going forward, you know, we put an early release on what Q1 looks like at a first glance.
I would tell you that all our businesses are profitable. All our operating businesses are growing. Our balance sheet, you know, is gonna continue to be volatile with the crypto market. We continue to, you know, hopefully outperform the crypto market in balance sheet. You know, I think when I look forward from here, I'm pretty optimistic crypto. I had said originally I thought this would be a rangy year, right? $30,000-$50,000 in Bitcoin and whatnot. Given the adoption cycle I'm seeing and given the way markets trade and how I just see new people wanting to get in, the innovation we're seeing, you know, in Web3 and in the metaverse space, I've gotten more constructive than I was at the beginning of the year.
It wouldn't surprise me to see crypto significantly higher by the end of the year. With that, to talk more about our actual earnings and the quarter, I'm gonna hand it over to Damien.
Thank you, Mike. Good morning, everybody. Before I jump into performance highlights for our asset management and investment banking segments, I do wanna contextualize a few of the macro trends specifically impacting how our clients are investing in early 2022. Venture capital invested more than $33 billion into crypto and blockchain startups last year, more than all prior years combined. Just think about that number. With much of that happening in the second half of the year at a pace of over $1 billion per week. 67% of that total went to fundraising rounds with deal sizes above $100 million. At least 43 companies that raised venture capital in 2021 are unicorns. Pre-seed deal counts continue to decline, while Series A and later are growing, a sign that companies built in the 2018-2020 crypto bear market are maturing.
I'm seeing that play out substantially in conversations with our clients of our asset management division. Allocators specifically continue to put money to work in our sector, predominantly, as I mentioned on our last earnings call for the moment, through allocating to venture and other early-stage fund management product. Turning internally to our business segments and beginning with our asset management business, there remains strong demand for our fund products across our passive and active strategies, and we launched some exciting new products during the quarter and saw AUM growth across our business. I'll also highlight I'm seeing growing demand specifically for our active product suite, which indicates a maturation of the space is starting to occur. During the fourth quarter, we saw strong inflows into our fund management suite.
Assets under management increased by 29% from the end of the third quarter of 2021, reaching $2.9 billion, which represents AUM growth of 256% for the full year. Net client inflows in the quarter exceeded $500 million, confirming that the investment case for cryptocurrencies in a fund structure remains very compelling. Looking year over year, that is nearly $1.7 billion of net inflows. Even in a quarter where crypto asset prices were rising, backing out the impact of price increases, we continued to see net new capital coming into the Galaxy platform. Now, quarter to date, against the backdrop of a modest market contraction in digital assets, we've seen AUM decline to $2.4 billion as of the end of February, consistent with the reduced total crypto market cap over the same period.
Even with that reduction in overall AUM, a key element of Galaxy strategy is providing our expertise in volatile and trickier market conditions, demonstrated in our over three-year investment management track record. On the new product front, we were excited to launch the Galaxy Solana Funds during the fourth quarter, which are passively managed funds that seek to track the performance of the Bloomberg Galaxy Solana Index. In February of this year, in a continuation of our long partnership with CI, we launched the CI Galaxy Multi-Crypto ETF, which is designed to capture the upside of investing in both Bitcoin and Ethereum while maintaining the volatility of these assets by systematically managing portfolio allocations between the cryptocurrencies and cash. We are also thrilled to continue our partnership with Goldman Sachs.
As Goldman has made our Ethereum funds available to their clients, this is just one of the many ways Galaxy's working with Goldman, and Chris will touch on other examples in a few moments. Goldman Sachs and Morgan Stanley continue to be first movers in offering their clients access to Bitcoin and Ethereum through Galaxy Passive fund structures, demonstrating the amount of demand clients have for exposure to the asset class. Turning now to our actively managed funds, I'll start with our fund of funds business, which is actively raising its third fund, a diversified multi-manager fund of funds investing in leading global crypto and blockchain venture firms, giving our clients access to a diverse portfolio of crypto venture specialists when it comes to geography, stage, and sector focus. We look forward to updating you on closes with that fund shortly.
Additionally, our Galaxy Interactive strategy had the first close of its third fund, growing total strategy AUM by over $70 million - $735 million. This fund will be dedicated to immersive virtual worlds and investing at the intersection of content, social commerce, and technology. We are also excited to announce the launch of NG+, a new co-investment consortium focused on the Web3 gaming space, a Galaxy Interactive partnership with Republic Crypto and Alameda Research. NG+ will continue to invest and cultivate the next generation of tokenized video games. These investments will flow directly into Galaxy Interactive's third fund.
It's important for shareholders to remember that Galaxy Digital will retain a large LP interest in all three of Galaxy Interactive's funds and in our Vision Hill fund of funds strategy, providing our shareholders with collective exposure to some of the most exciting areas of private, early-stage crypto investing. All in all, we are now proud to offer our clients 15 different fund products to choose from across our passive and active strategies. Last but certainly not least, we are really thrilled to welcome Chris Rhine to the team as a new portfolio manager focused exclusively on long-only active strategies. Chris was previously head of strategic equities and a portfolio manager at Cohen & Steers. I look forward to sharing more details on the strategies Chris is focused on during our next earnings call.
Turning now to our investment banking business, we continue to build on the momentum we've demonstrated over the prior few quarters. We announced a number of deals for the quarter, and as of last week, have an active pipeline of eight deals representing mandates of more than $1 billion in potential transaction volumes. Among the significant deals announced were two deals for Blockdaemon, a leading institutional-grade blockchain infrastructure company for node management and staking, for their acquisitions of Gem and Anyblock Analytics. Our banking team acted as the exclusive financial advisor on both of those transactions, building on a strong relationship with the Blockdaemon executive team. Our team again served as the exclusive financial advisor to BRD on their acquisition by Coinbase in November.
This transaction will further accelerate Coinbase's capabilities within their Coinbase Wallet business and allow BRD wallet users the opportunity to migrate their assets to Coinbase Wallet. We were also involved as placement agent on a bridge financing convertible debt for a payments infrastructure provider in December, demonstrating the wide breadth of offerings provided by our advisory team. Last month, our team worked on two fundraising rounds, Kratos' $85 million Series A financing, where we were exclusive financial advisor and sole placement agent, and Compute North's $80 million Series C financing, where we advised Compute North and their teams on the equity financing. Notably, over 2021 in full, our team closed eight transactions, more than we've closed in all previous years combined. Given our 2022 pipeline, we expect our investment banking franchise to continue growing at this rapid pace.
Proving that point just last week, our team closed another transaction where we acted as financial advisor for the Thunder Bridge Capital Partners IV SPAC and its merger with Coincheck, set to close and list in the second half of this year. Building on Mike's earlier comments, staffing up to serve both our asset management and advisory business is critical. We are constantly looking for top-tier talent and have brought on the likes of Blackstone executive Bill Burt as COO of our asset management business, Chris Rhine, as I mentioned earlier, and one of my old Goldman colleagues, Danielle Johnson, who most recently was head of venture capital coverage at Credit Suisse, to join our advisory business as head of capital markets. We're really pleased to welcome Bill and Danielle to our ranks.
I'll now hand the call over to Chris Ferraro, who will walk you through details for our trading and mining businesses, as well as give you all an update on our portfolio companies and our areas of focus for our investments.
Thank you, Damien. I'll cover the performance of our trading, mining, and principal investing businesses. Our trading business finished off 2021 in strong fashion, benefiting from both increased trading activity and the increased depth of our relationships across spot and derivatives, lending, and market making services. To start by providing greater visibility into the reported results, recall that IFRS disclosure of our trading results includes one, our core net long treasury holdings, two, our own proprietary trading around that core net long, as well as three, all of our market neutral counterparty facing and liquidity provider activities.
The latter bucket, our market neutral counterparty liquidity activities for full year 2021 contributed approximately 10% of the total GDT net revenues, which we define as realized and unrealized gains for the entire trading business after netting associated funding costs and interest expenses, some of which show up below the line in operating expenses. Now, let's look at the business performance from our execution desks within those results. Counterparty spot trading volumes increased by just over 60% quarter-over-quarter, broadly in line with the record volumes we saw during the second quarter of 2021. While February and March have definitely seen dampened activity across the market broadly, volumes through most of the first quarter have remained in line, if not ahead, of third quarter 2021 levels.
Derivative volumes saw similar strength in the quarter, rising over 50% sequentially to mark another record for franchise activity. Furthermore, with the notable uptick in volatility in Q1 2022, our derivative franchise has had its best quarter lifetime to date. We've noted for several quarters now that derivatives and structured products remain a cornerstone to our differentiated approach for meeting increasingly sophisticated demands from institutional investors, and hats off to the entire team effort for a strong finish to 2021 and into 2022. Turning to lending, we've continued to add new and deepen existing client relationships. As a reminder, we believe originations tells the clearest story for growth given the volatility of crypto asset prices that can cause notable shifts to the size of our overall loan and yield portfolio at any point in time.
We added roughly $1.5 billion of gross counterparty loan originations in the fourth quarter, a roughly 7% sequential increase, which put full-year originations at over $5 billion. This drove a 20% sequential increase in the size of the counterparty loan and yield book to $736 million as of year-end. That's a greater than 500% increase in the size of our loan and yield book versus the end of 2020. As of earlier this week, that book stands at over $900 million, having delivered over $2 billion of net originations year to date in 2022.
To reiterate, our focus on building a strong risk-adjusted financing business is core to our DNA, and doing so with a non-retail institutional counterparty base is what we believe will add the most enduring value to the Galaxy franchise over the long run. Finally, I want to touch on GDT's ability to not only differentiate against crypto competitors, but for its role as a reliable execution desk for TradFi standard-bearers. We announced just last week that GDT executed the first OTC non-deliverable options transaction with Goldman Sachs, building on our strategic partnership from last year, where we were chosen as a liquidity provider for Goldman's Bitcoin futures block trades on the CME Group. While it's still very early and these trades are not material drivers of our business today, they do provide evidence of an increasingly open door to the traditional financial world for established platforms like Galaxy.
What's more is it speaks to our position as a trusted partner for and beneficiary of TradFi adoption, not as a target for disintermediation. Now, moving 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 interactive business, we now have 122 investments across 86 portfolio companies on balance sheet. Throughout fourth quarter 2021 and year to date in 2022, our team continued to grow our strategic portfolio with new investments initiated in the Polygon network, as it has gained traction around gaming NFTs, smart contract verification and evaluation firm Certora, and Airdrop Labs, which provides crypto-enabled experiences for e-commerce like NFT receipts.
We continue to see record-breaking fundraising with over $33 billion of venture deployment around the sector last year, and several of our portfolio companies have benefited as investors look for exposure to the most innovative platforms in the ecosystem. For example, Fireblocks, a leading custody technology platform we supported from its earliest stages, successfully completed its Series E fundraise at an $8 billion valuation. Other notable examples include our early investment in interoperability protocol Axelar, on-ramp technology services platform Ramp, and leading zero-knowledge-based developer platform Aleo, which just raised at a nearly $1.5 billion valuation.
Galaxy has been a differentiated supporter and investor, taking lead or co-lead positions over the last year in other highly coveted and fast-growing companies, such as smart contract simulation and security tools provider Chaos Labs, compliance tool developer Sealance, and DeFi execution platform Skolem, as well as making notable later-stage strategic investments in platforms like Acorns, where we see significant opportunities for mass crypto adoption in which the broader Galaxy platform can play a meaningful role. Importantly, our primary focus on being largely early stage with our deployment and partnering to support the scaling of these businesses also means we're doing far less riding of the increasingly crowding investing waves in later-stage growth companies, which has led to private company valuations gapping out relative to now lower public market valuations. Turning to mining, where the team continues to build momentum in both prop mining and its miner finance offerings.
In proprietary mining, we have remained on track for previously disclosed orders that will bring us to nearly two exahash per second of delivered orders by year-end 2022. In December, we added another set of orders, which will put GDM's total purchase capacity at just over 2.5 exahash per second delivered by the year-end. We expect to use that capacity to fuel both proprietary and miner finance operations, and we'll apply hash rate opportunistically where it makes the most sense for the business. While cost to mine has increased across all miners, ourselves included, due to growing network hash rate and increased cost on machine orders amidst supply chain constraints, we continue to mine Bitcoin at an over 65% discount to fair market value using our full cycle cost to mine, including equipment costs.
Given Bitcoin is hovering around $47,000, that is pretty remarkable operational efficiency by the team throughout different Bitcoin price and hash rate regimes. Turning to our client-facing business, we achieved nearly $300 million in new mining-related originations. Our mining and lending teams continue to provide miners with a comprehensive suite of financial services and products, including asset-backed loans and leases, project and equipment financing, treasury management, capital optimization, hedging, and other trading solutions. We think these facilities and lending arrangements speak to the growing demand for the offerings across our business as institutions look to manage price volatility, improve their treasury management strategies, and shore up access to funding amidst turbulent capital markets.
All in all, Q4 was a very strong quarter that included some record results, continued positive signals for institutional adoption, and more examples of how our business mix of businesses can reinforce and hedge the value of one another. While year-to-date has undoubtedly included some volatility and tougher market macro conditions for crypto and for traditional markets, we don't run the business for any individual quarter, and we feel as optimistic as ever about our positioning within the sector and our ability to serve institutions in a differentiated way. 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 a remarkable $1.7 billion last year. We earned $521 million in the fourth quarter, a nice finish to the year. Due to market volatility, we give up approximately $110 million-$130 million in the first quarter of this year. Our equity capital was $2.6 billion at the end of the year. This was up from $800 million at the end of 2020. In addition, in December, we raised $500 million of convertible 5-year debt with a 3% coupon. This continues to position Galaxy to take advantage of abundant opportunities in this rapidly developing market. Our equity capital tripled in 2021.
This was driven by our long-term strategy of maintaining a long digital assets portfolio, our diversified principal investments in this sector, and our growing operating businesses, capital markets, investment banking, asset management, and mining. To elaborate, digital assets. Taking realized and unrealized gains together, digital assets gained $1.5 billion in the year. Excluding gains from non-controlling interest liability, which is money from outside investors in funds that we consolidate, our gain on digital assets was $1.3 billion for the year. Please note that we renamed non-controlling interests to non-controlling interests liability and moved the position of this line item on the balance sheet and the P&L statements. This did not change the nature of the line item or our earnings. It still represents money from outside investors in the funds that we consolidate for technical accounting reasons. Investments.
Private investments continue to be a great part of our story. We gained $780 million on investments this year. Our portfolio grew to include 86 companies and was valued at $1.1 billion at the end of the year. Please note that many of our investments are made at early stages and are not immediately liquid or trade publicly. We record investments at cost or at discount to market value. We have a rigorous internal process supplemented with third-party valuations to make sure that reported values are reasonable. Recurring revenue. We have seen rapid growth in our operating businesses, trading, advisory, mining, and asset management. We expect this growth to continue and for these segments to take over as key revenue streams for Galaxy over time.
On the cost side, compensation was $114 million for the year, up from $34 million in 2020. The large increase was driven by growth in headcount from 89 to 280 people in 2021, and higher cash bonuses per employee this year versus last because of outsized results. Similarly, equity compensation was $75 million for the year, up from $12 million in the prior year. This was also driven by a large increase in headcount and from roughly doubling of the 2021 grants from the time they were communicated to the employees in the beginning of the year to when the blackout period associated with our BitGo acquisition was lifted, and the grants could be made in the second quarter of 2021.
General and administrative fees were $35 million, up from $15 million in the prior year, driven by increased spending for technology, marketing, higher depreciation from mining equipment, and we wrote off our old lease in New York City, having moved to a larger and nicer space in New York. Professional fees were $53 million for the year, driven by expenses from BitGo and Vision Hill acquisitions, U.S. listing and convertible notes. We expect continued elevated legal and audit costs related to the U.S. listing in 2022, but a drop off in 2023 and additional reductions in future years. Balance sheet. We held $800 million in cash at the end of the year. This included $500 million in convertible notes raised at the end of last year. Equity stood at $2.6 billion at the end of the year.
Digital assets are a large part of our balance sheet. Digital assets, including digital assets receivable and excluding non-controlling interests liability, other people's money, were $2.3 billion at the end of the year. Further, removing digital assets borrowed and collateral received from counterparties, net of digital assets lent and collateral posted, net digital assets were $1.1 billion. Removing stablecoins takes us down to $900 million. We use this measure to assess our net exposure to digital assets. We remove stablecoins from the mix because they typically maintain a one-to-one correlation to fiat currencies. We use stablecoins to facilitate operations because they can be settled 24/7 on digital asset market centers which trade 24/7. Private investments were $1.1 billion at the end of the year. Accounting changes.
As part of moving our public listing to the U.S., we retained KPMG as our auditor starting in the third quarter of 2021. As I mentioned earlier, in consultation with our new auditor, we renamed non-controlling interests to non-controlling interests liability. This is money from outside investors in funds that we have to consolidate in our financials. We now display non-controlling interests in current liabilities section of the balance sheet, and we display gains and losses attributable to non-controlling interests in the expense section of our P&L. The earnings and equity that belong to the company remain the same. With that, I will turn it back to the moderator for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question comes to the line of Mark Palmer with BTIG. You may proceed with your question.
Yes, thank you and good morning. Could you provide an update on BitGo's recent performance, including assets under custody? Tell us a bit about the integration activity. You know, what is feasible in terms of integration ahead of the deal close?
Good morning, Mark. Thanks for the question. We're not gonna provide with this earnings release an update on BitGo, AUC or other operating metrics. You can look forward to those in coming months. I would tell you the way we're thinking about navigating what is clearly a prolonged closing of the transaction is to really focus on making sure that both companies are delivering on the products that we're building for our customers in a way that has the least amount of distraction possible. We have an integration plan that we architected very clearly in the back end of last year. That plan exists.
We continue to refine and optimize it, but we wanna make sure that we're continuing to deliver, particularly on the BitGo custody support and downstream services on all of the different products that we're hearing from our customers that they need from us. The simple way to think about it is we're gonna continue to build, maintain our integration plan, and as soon as we get through the process with the SEC and close the transaction, we'll be really well positioned to swiftly integrate both firms. Along the way, we're really gonna operate as best we can as a combined unit for our customers, and we already started that in the third quarter of last year, where we will provide the front-end liquidity, derivatives, lending, and other services to lots of customers from our Galaxy entities, downstream custody solutions customers need from BitGo.
We have a process for onboarding that minimizes any disruption or friction as best we can on that approach.
Thank you. One more question. Obviously, you had a very strong performance in the current quarter with regard to derivatives. What are you seeing in terms of client flows onto the platform? You know, a lot of the figures that we see have to do with trading volumes and the like. You know, what can you tell us about the adoption of digital asset by institutions as reflected by client flows?
Yeah. So on the derivatives side specifically, I would say it is broad-based growth. Some key themes we've seen there. We've seen a pretty significant uptick in activity in the Bitcoin mining sector in using derivatives to hedge treasury positions, which we think is actually natural, and we were pretty far ahead of in terms of making sure we had a mining business and relationship managing group to make sure that we were able to see those flows. The mining sector has exploded in terms of big, large public companies who have raised money, and those companies naturally build net long Bitcoin treasuries as part of their core business.
Using our derivative desk or using derivatives in general, but our derivative desk specifically as a way to either get liquidity or hedge those positions or color them up the way sort of a lot of other analogous businesses outside of crypto in the commodity space would do has been a pretty big driver. We've also seen a fair bit of activity from institutions who had begun their digital asset adoption in 2021 now either hold core long positions and wanna hedge those positions, want to sell call overwriting strategies to enhance yield on when they have a view that there's a trading range for a period of time. That's a pretty specific update in terms of market color that we've seen on the derivative side.
In general, in terms of spot trading, we have seen just general uptick in traditional hedge funds. 2021 was a big adoption year for crossover funds taking their first position in spot coins, Bitcoin and Ethereum, to start with. Yeah, I'd say that's pretty much the landscape we're seeing.
Thank you. I'll get back in the queue.
Yep.
Our next question comes from the line of Deepak Kaushal with BMO. You may proceed with your question.
Oh, hey, good morning, guys. Just a quick question on regulations for whoever wants to take it. You know, Mike, I think you said last quarter that you're gonna be spending more time in Washington. When you look at the activity levels of regulators, how big of an effort is responding to Biden's executive order, you know, in terms of, you know, how distracting it is to other efforts that the regulators need to do in general?
I think that there's a bigger story, and it's a combination of. It really started with the infrastructure bill when Washington woke up to a barrage of phone calls from you know crypto-loving voters from powerful you know wealthy contributors to the lines of senators and congressmen. You know, I've made it a you know personal mission as well as lots of our competitors to start reaching out and talking to politicians more often. I really do think there's a change in mindset on both parties that you can't be anti-crypto, and you've got to figure out you know we can't kill innovation. If you're a Democrat, you can't kill innovation. This really does. It is a technology that can really help the little guy, right? The retail investor, the.
In the long run, when you think about, you know, one in five dollars now in remittance payments are happening over crypto rails. That's a huge increase from, you know, where it had been. I think on the Democratic side, there's a shift, and that got through to the president's, you know, directive. You saw that with Janet Yellen when she came out. She had always been anti-crypto, and she came out very balanced last time. She said, "Hey, I'm still worried about some things, but, you know, crypto has a role to play, and it's now an asset class." I thought that was the single most important thing that came out of any. I won't call Janet Yellen a regulator 'cause she runs Treasury, but someone with lots of, you know, influence in what's gonna be the landscape.
How that flows into actual regulation will be seen. There's still some tension between the CFTC and the SEC, and, you know, the SEC continues to march to their beat. I have to think, as the political landscape shifts, regulators pick those cues up. You know, regulators are politically led, just like everyone else. I'm more optimistic today than I was two months ago. You know, these efforts are really just getting started, and you're gonna see. I've had three Democratic congressmen come through the office within the week or on Zoom, and it was shocking how well-versed a few of them were in our space. I would have told you six months ago, there was almost no one who was well-versed in our space.
Again, there's nothing specific to point to in a regulation that makes me excited, but the whole tone in D.C. has shifted.
Yeah, no, it's pretty clear with the order. Good color. Thank you. Just keep sticking with regulations. You know, we didn't get any immediate clarity, and you mentioned SEC marching to their beat and kind of in contrast with CFTC. How does that impact Galaxy's business, you know, in the interim while we don't have that clarity? Is it a benefit or a hindrance, you know, as compared to some other players that perhaps offshore?
We are trying to build a company that is an institutional crypto company, and that's our commitment, and that means working within a regulatory framework. The faster we get regulatory clarity, the better it is for us. We probably take less risk than our offshore competitors in lots of aspects of this business, which, you know, you can either let it frustrate you or you can see it as, "Hey, this is our superpower. We're gonna figure out how to operate." Because in the long run to deal with institutions, to get institutions into this space, which the space needs, that's essential. I stopped letting it frustrate me and say, "Okay, how do we actually become part of the solution?
Got it. You know, I've been struggling to try and get a sense of, you know, what kind of percentage of the industry is kind of on the closer to the compliance side of regulation versus, you know, the Wild West side of the market. Pretty hard to gauge, but do you have a kind of a gut feel of, you know, if I could call it the cleanup factor here? You know, is it something that you guys kind of gauge or kind of get a sense of it? You know-
Listen, I think that.
If X% of the market is kind of in excess, how much have to clean up before things kind of move back to a growth phase?
It's a slippery slope because all this stuff is very judgmental, right? I mean, if you think of trading on DeFi, you know, what KYC and AML platforms should do it versus is it retail? One thing we have going for us that makes our decisions easier is we don't deal directly with retail. If you're in retail, there's a separate set of decisions you've gotta make. Some people are making their own risk judgment on where they're gonna see that balance, and we'll see how the cards fall in time. I don't think of the players that you read about, there are people taking wildly, you know, stupid risks.
You know, you're gonna see this breakdown of our industry because they're gonna haul people off in paddy wagons by any stretch. These are very subtle decisions, and it would help a lot to get clarity around some of them.
Okay, that's helpful. You know, regulation is a big topic, so I'll leave it at that, and I'll give some airtime to the other guys in line, and gals. Thanks again for your time, and I hope to catch up.
Thanks so much.
Our next question comes from the line of Owen Lau with Oppenheimer. You may proceed with your question.
Morning, and thank you for taking my questions. I have a broader question in 2022. Looking ahead, this year, which business lines Galaxy is most excited about? Where you will invest more money into, and you think can expand materially this year compared to last year? How do you approach these opportunities in 2022?
Yeah, I'll start. Maybe I'll let my colleagues chime in. Listen, I think our biggest investment this year is gonna be in and around engineering, building out product for our customers, and that's both in BitGo and in Galaxy. Right. I said at the beginning of the year to our firm, it's like, this is more challenging macro headwinds. We're not exactly sure, you know, where markets end up. I'm more optimistic, like I said, now than I was at the beginning of the year. I know one thing, we need to build and build. Most of that investment is engineering. The second place I think there's opportunity for great growth is in the asset management business.
We've developed a platform, a very institutional platform, that we now are going to put different investment strategies on top of. Damien talked a little bit about that, with some of the new hires and some of the new strategies. I think, you know, 2022 for us, you're gonna see our asset management business really grow, and I'm optimistic about that. I guess the last piece I'd say is, and credit to Michael Ashe and his team in investment banking, they are way ahead of my mental schedule of where they would've been at this point in terms of establishing a real credible voice in that advisory side of crypto. We have great domain expertise.
We are doing far more deals than, you know, we had budgeted in our minds, and that business seems to have a great tailwind to it. I do think you're gonna see consolidation in this space. You're gonna see lots of needs for capital raising. That business as well feels really excellent. It's kind of funny. It's the platform businesses that we thought we'd be investing in, really, I see lots of optimism in. I'm still, like I said, bullish crypto, but there's certainly more uncertainty around the balance sheet.
Got it. More on your partnership with Goldman. Could you please dive a little bit deeper into how Galaxy is providing value in the OTC trade? Also your competition within Goldman and Morgan Stanley to do similar trade with key profile, and how that plays in this market.
Yeah, I can take that. I couldn't quite get the back end of your question, but I get-
How complex.
Oh, got it.
Morgan Stanley, Goldman.
Gotcha. You know, we've spoken for the past three earnings calls about our expectations of how the banks would start to participate in our sector, you know, obviously with a close eye on what they're allowed to do given their regulatory status. You may recall one of the things we guided early was an expectation that the banks with large wealth platforms would probably be the place that they first dip their toe into the water to offer their customers access into the sector, and that's certainly what we ended up seeing and hence the product partnerships that are public with both Goldman and Morgan Stanley from our asset management business into their wealth platforms.
The continuation of the banks moving into the sector has really culminated with the news recently of the OTC business that we conducted with Goldman Sachs. Really the way to think about that is, you know, while the banks, certainly in the case of the larger firms like Goldman, Morgan Stanley, JP Morgan, et cetera, while they're not able to handle coins directly, they will serve the needs of their customers, whether that's in the alternative asset management space all the way through to their structured products businesses by creating exposures to our sector through OTC derivatives that Galaxy is well positioned to serve them with and hedge on our side. We will provide synthetic exposure to the banks in their markets businesses as they develop products suitable for their customers on the other side.
Really it's a phrase that you might wanna think about coopetition, where, you know, the banks are really leveraging our connectivity in the crypto sector, our expertise, certainly in warehousing large derivatives risk to provide them with the exposures that they need. Their advisory businesses are also active in our space. The one to look for, I think, in the back end of this year, is going to be the opening up of different forms of wholesale lending by the banks into our sector, which we're tremendously excited about because it will obviously reduce our cost of capital, not just for Galaxy, but for the sector. There are some really thoughtful, innovative ways that are being manufactured to do that safely for the banks.
Got it. Any pushback from other banks? Can you comment on a little bit as well? Thank you.
Any pushbacks from banks? No, I don't think so. I mean, if anything, I can tell you from our banking onboarding process since the news of the Goldman transaction, the news that hit the tape about Cowen's entry into a digital service platform in the sector, if anything, we have had acceleration requests for the onboarding of ISDAs and trading documentation with a broader range of banks that we were working with to make sure that they are up and running quickly. To me, it feels very much like the top of house at lots of Goldman and Morgan's competitors have accelerated the teams that they have focused on digital assets to get moving, and they do not wanna be left behind.
Got it. Thank you very much.
Our next question comes from the line of Jamie Friedman with Susquehanna. You may proceed with your question.
Hi. Good morning. Just curious what you might make of the BlockFi and Voyager regulatory developments, at least on a high level. Some perspective there would be helpful.
Sure, Jamie. Thanks for the question. This is Chris taking it. First off, I would say, you know, we have had and still have tremendous respect for Zac and Flori and the BlockFi team and the Voyager team. I think that they. You know, they're doing the hard work in their version of the crypto sector to create product and meet client demand and customer and retail client demand where it's there. They've done great jobs in building big businesses. As you guys know, we were seed investors in BlockFi and supported Zac and Flori and the whole team all the way through that journey. Voyager is also a big client customer of ours on the trading liquidity. The...
They chose to go down the retail route because they saw a strong opportunity to grow a platform, and there were strong retail demand, particularly across a background of zero interest rates, which we all know sort of what's been driving that. Retail individuals didn't want that, and they wanted to find yield on their money, and so they provided for them. I think that the end state now where they are coming into regulatory pressure was kind of inevitable based on their business model. I think the BlockFi settlement is encouraging. The more recent news with Voyager should have been expected based on the news with BlockFi.
I think that the challenge for them and we hope for the industry and back them in figuring out is how do they evolve the business model to serve retail clients in a new asset class in a business model that sort of looks like a bank but isn't regulated like a bank? Or do they evolve? We've chosen a different path, as you know. We don't run that business model. We have invested in some of those companies, and we partner with those clients as back-end liquidity and financing partners, but we don't face retail directly. I think that was just, you know, whether it was pressure or not, that was an early decision on our part, which differed from theirs.
You know, the net result is regulators are. We're inevitably gonna be more worried first about business models around retail clients.
Thanks for that, Chris. I was just curious. I'll drop back in the queue.
Our next question comes from the line of Rich Repetto with Piper Sandler. You may proceed with your question.
Yeah. Good morning. First, congrats, Mike, on the progress you made in 2021. My question, I don't know whether you can answer this, but you did allude to sort of the filing to be a U.S. listing and the negotiations, and again, I don't know whether you're able to disclose, but in broad strokes, can you tell us, you know, what are the other issues that you're dealing with in these negotiations just in general terms, I guess?
I would just say that the SEC is being very thorough, and, you know, that's their right to do. It can frustrate the industry at times, but, you know, there's nothing unfriendly about the interactions. It's just they're very thorough, and thoroughness takes a lot longer than, you know, people were used to. I mean, I think that's the best way to categorize this whole thing.
I'd jump in. I would say for a little more specific color, but general as it relates to our conversations, one of the biggest focuses not just for us but everybody migrating from private markets or non-US exchanges to the SEC processes is accounting. As you look at the whole landscape, I think looking at U.S. GAAP and its ability to how it treats digital assets on which line items of the balance sheet and which piece of the P&L is something that. It's not adversarial, it's literally we're not sure how this treatment should be flow through yet.
It's an iterative process in trying to get to the underlying of how the new technology devices work, and therefore, how is the SEC and the PCAOB and the Big Four comfortable representing financial statements from a US GAAP perspective? Because it's new territory. That would be. That's really the biggest focus for the industry broadly.
In the long run, what's gonna have to happen is, you know, GAAP's gonna have to get revised. The way GAAP is being applied just intuitively makes no sense to anyone who looks at it. They're in this weird box of, well, these are the rules, and so you'll see balance sheets and income statements that don't reflect what you'd hope they'd reflect, and that's frustrating.
Got it. That's helpful. My one follow-up, and we've talked or you've talked a lot about regulation on the call. You know, pretty much I at least pretty much agree with everything you said. I guess what you alluded to, Mike, was, you know, the issues of the CFTC and the SEC. It just seems like, you know, now at least you got an executive order. I hear you about the politicians, about Yellen, but now we go back into sort of the black hole of who does what. I guess, the question is, where do you see the next progress being made now that the executive order is out there?
You know, you sort of alluded that there's still some, you know, debate, but they're iffy. At least that's what it implied to me on the regulatory front in the U.S.
Listen, I don't think you're gonna see anything coming from Congress right away, given the midterms coming up and how Democrats don't have the stroke of the pen in Congress to pass any legislation that's going to radically change how crypto gets done. This has to be bipartisan at one point. What's interesting is you're starting to see those bipartisan links show up a little bit, right? Again, no one wants to lose the crypto vote. The crypto vote is becoming powerful at a speed no one expected it to be. I don't think we're gonna see any real progress in the next few months. The whole tone is shifting, and I think that's really positive.
Like, we all sat here always in fear of the tail risk that really something stupid was gonna happen, and I don't think anything stupid.
Yeah.
It's gonna happen. That's a big plus. I don't think we're gonna get clarity the way we'd like to, certainly with the setup we have right now. You know, the effort to educate both the crypto community educating D.C. but the D.C. community educating themselves literally kicked off three months ago. I am impressed at, you know, how fast it's happening. You know, kudos to some of our colleagues and competitors for the efforts they're putting in. Kudos to the people in D.C. for the intellectual curiosity that they've taken. You know, it's usually not intellectual curiosity. It's, "Oh, damn, I better come up the learning curve because this is important." But we're seeing it, and so that's, that leaves me much more optimistic.
I don't think there's anything in the short run that we can look to.
Michael, you addressed, I think, the political sort of divisions or debates. Maybe they're connected, but the agency, at least I sort of view that there's some agency debates on territory as well. Maybe that's how you straighten them out through the political side. You got the SEC, like you mentioned, the SEC and the CFTC sort of viewing things a little bit differently as well.
Yeah. I'm not smart enough on that chess board to understand how that plays out. I do think it becomes a political decision in the long run.
Yeah. I do think the only thing I'll add to Mike's comments is there is work happening in the industry, which I think stands a chance of making some decent progress, which could see the CFTC take a broader role than they are currently in regulating some of the products. I would keep an eye on that.
Got it. That's helpful. Thank you very much.
Our last question comes from the line of Chris Allen from Compass Point. You may proceed with your question.
Morning, guys. Thanks for taking the questions. I guess first I just wanna start with a follow-up. There's a comment before about different forms of wholesale lending coming into the sector, 'cause I've understood that it's been held up by the lack of regulatory clarity. What's the catalyst for wholesale lending to come into the sector? But what do you think the impact's gonna be? 'Cause I know there's a lot of players out there that are kinda waiting for improved financing, which I would think is gonna help drive spreads down over time.
Yeah. I think I'll take the first crack at it and then Damien can jump in too. A couple points, things I would point out from my perspective. I think one, market volatility declining and sort of safer and more institutional custody and back-end operations and processes to be able to hold, store, track, and recognize digital assets is kind of a core piece for wholesale funding to come in because that you know, as a financier, you need to be able to understand your collateral, get to it, and believe that you can sell it to get your money back or else you wouldn't provide wholesale financing.
I think reduced volatility so that the risk of losing money and all the core guts of being able to recognize and hold digital assets has to sort of get there, and it's getting there very fast. I think regulatory capital treatment is gonna be another one that we haven't got there yet. But you know, a wholesale financier's ability to provide capital against collateral that gets treated one way or not, from a capital treatment standpoint, is probably a pretty big hurdle from the cost of capital and the provision. I think those are probably one and two on my list of additional dominoes and sort of maturation you have to see happen for in big ways, wholesale financing to come in.
Look, as a business in the interim, our role has been to create structures, be the wholesale financing provider for the industry, as a bedrock to cementing ourselves as a key player in the industry before that happens. That's been a big opportunity and will be a big opportunity for us, as we see it come in. As we see the money come in, our expectation is that that wholesale financing, if we do our jobs right, should flow into us as one of the key nodes or gateways into the industry to then provide additional financial solutions to the industry. That's how we've positioned it, and that's how I think about it.
Yeah. The only thing I would add, I think Chris summarized it perfectly. The cost of capital in the sector is increasingly looking very attractive to lenders in the traditional financial world. I would say there's a lot of innovation taking place on their part to figure out how they can be comfortable lending into a sector where the predominant collateral, which is Bitcoin and Ethereum, can be utilized effectively in a scenario where they can't touch those coins physically if collateral gets called. Liquidation agents and such, and innovation around that are providing a mechanism for people who have evolved a credit view that seeks to take advantage of where spreads are to be able to participate, and that will continue.
Understood. Just wanted to ask on trading. You noted, for the full year 2021, the client-facing trading lending was 10%. That was mid-teens, as of the September quarter. I'm just kinda. I'd love some color just in terms of what happened in the fourth quarter to bring that down, what could be a pretty material amount. Any way you could actually give us any dollar amounts around that.
Sure. Yeah. So, to answer the first question more specifically. The percentage is kinda... Because our entire sort of digital asset holdings and treasury is all kind of together and our trading around the treasury is kind of together, the more we outperform just in our holdings or the market outperforms, by definition, the lower the percentage. But the actual notional dollar amount of revenues and net revenues in the counterparty-facing business is continuing to grow and has grown quarter-over-quarter. It's a function of the total number growing faster than the actual gross dollars. But that's not to suggest there isn't growth in both, because there is.
Got it. Any color just in terms of what the actual dollar amounts from the client-facing business is?
Yeah. I mean, to get there, we report segments, right? This is meant to, if you go to the Trading segment and you look at the net revenue results minus the direct costs that we incur, times our guidance.
Got it.
You'll get there.
All right. Cool. Appreciate it, guys. Thank you.
Yep.
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Mike Novogratz for closing remarks.
Guys, you know, thanks for your time today. Listen, I think the takeaway message is we are optimistic on our prospects. We are growing. We continue to grow. We are ready for a volatile year, if that's what we get, given the headwinds in macro. But we're certainly excited about getting through the SEC process and getting BitGo integrated with us as fast as we can. We really think, you know, the combined entity is gonna be a powerhouse in this field. Our real focus is talent, and we're gonna continue to build our culture and cultivate our people. We think this is a long-term battle, a long-term revolution that we're part of, and so that's it. We're taking that, you know, long-term view. Thanks for your time.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.