Galaxy Digital Holdings (BRPHF) Q2 2023 Earnings Call Transcript

Galaxy Digital Holdings (OTCPK:BRPHF) Q2 2023 Earnings Conference Call August 8, 2023 8:30 AM ET

Company Participants

Jonathan Goldowsky – Head of IR

Mike Novogratz – CEO

Chris Ferraro – President and CEI

Alex Ioffe – CFO

Conference Call Participants

Michael Legg – Benchmark

Andrew Bond – Rosenblatt Securities

Joe Flynn – Compass Point

Bill Papanastasiou – Stifel

Kevin Dede – H.C. Wainwright

Operator

Good morning and welcome to Galaxy Digital’s Second Quarter 2023 Earnings Call. Today’s call is being recorded.

At this time, I would like to turn the conference over to Jonathan Goldowsky, Head of Investor Relations. Please go ahead.

Jonathan Goldowsky

Good morning and welcome to Galaxy Digital’s second 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 Authority 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 securities.

With that, I’ll turn it over to Mike Novogratz, Founder and CEO of Galaxy.

Mike Novogratz

Guys, good morning. Listen, the second quarter — the results are out, and they’re kind of what I expected in a quarter where crypto prices went down and back up, that’s not really the news I want to talk about.

I would tell you when I kind of leaving the first quarter, I jokingly said I went to bed every night and said prayers asking for four things, right, that the Fed would be closer to adding their tightening cycle and starting an easing cycle. That an ETF would be approved, that Ripple would win its case, and that Binance would settle with regulators. And three of those four dreams are wish list items, we’ve made great progress, right?

The Fed is closer. Maybe they raise one more time, I don’t think they do. China’s economy is slowing. Our economy is slowing. I think we’re probably in a rate cut cycle, early next year, which is very supportive of Bitcoin, but all at crypto.

The news of both BlackRock filing ETF and quite frankly, Invesco Plus Galaxy, we’re going to fight like cats and dogs to, to win market share there once it gets approved. It’s a big, big deal. It’s a big deal because both our contacts, from the Invesco side and from the BlackRock side, get you to think that this is a question of when, not if, that’s the outside window. This is probably six months and so you’re — four to six months, if you had to put a pin the tail on the donkey audit, that the SEC is going to prove a bit clean ETF.

It’s significant that Larry Finkel who runs the largest asset manager in the world, right? BlackRock runs $7 trillion is out having been orange pilled, talking, very positive about Bitcoin and the crypto universe, Bitcoin as the first global money. That’s a huge change of heart from where he was, five, six years ago, but where the institutional world was.

And I think once we get this ETF, and it just makes it very easy for people to make large allocations into the space. The ripple case is a big deal. It’s a big deal mostly because the SEC and Gary Gensler has been saying over and over, hey, the rules are clear. just come in and register. The rules are clear. A Federal Judge made it really clear, the rules aren’t clear. They’re nothing close to clear.

And what I think happens there is it forces — and I’m already seeing it. We’re seeing it in D.C., it pressures the Democrats to finally come to the table with the Republicans and try to put forward some legislation to give us clarity. And so if I had thought there was a 10% chance of legislation getting done pre-election before this triple case, I think it’s got to get up to at least 35%, 40%, with lots of momentum there.

And so it also emboldens the crypto community, right? Like, the one thing about our broad community, it includes our own employees, in the Galaxy world, is that this is a very, very resilient group of people. There was a jumbo lumber song, in the late 1990s, I get knocked down, but I get up again. And that really is, I think, the ethos of crypto, right? This was a revolution started by people who didn’t believe fully in in centralized systems and aren’t going to be pushed away easily.

And so I think what heartens me in the last year, because it’s been a tough year, is just seeing that resilience, seeing it with our employees, seeing it with our customers, and broadly seeing it with the crypto community.

And so what does that mean? It means that we went from having a headwind to at least not a headwind. I don’t say we have a tailwind yet, right? Retail has come back. You see it in US stock, performance of crypto stocks that are listed in the US, big volume numbers, nice price appreciation. You see it in volumes at some of the exchanges. You see the Bitcoin price, Ethereum price, and other tokens and so we certainly have seen retail come back.

Institutions have come back some in the immediate term. They’ve come back in futures, they’ve come back in some of these stocks. but, importantly, they’re coming back in structural ways, right? If it’s the announcement yesterday, of, of PayPal issuing a Stablecoin or Deutsche Bank getting into custody, we’re seeing all kinds of indications that institutions are getting ready and getting ready for the digital age or the crypto age. And so that is promising.

What it means for Galaxy is it gives us more confidence to continue to build. We’re building for 2025 in 2026 with the real understanding that this year and next year, we’re going to be scrappy. We’re going to hustle after lose balls. We’re going to try to win every fight we can. We definitely are seeing — the — we’re definitely seeing that that what we expected in the year that we would get a larger share of a smaller pie is happening, right? Like, we’re getting a call on almost every interesting opportunity around. That’s a lot because our partners failed, — I mean, I’m sorry, competitors failed, but we have a lot less competition.

It’s not that we have no competition, right? We’re up against Coinbase head-to-head the time and lots of others. But if you think about Genesis and BlockFi, and Celsius and lots of others have gone by the wayside. And so I’m optimistic, I’m realistic in the short-term and very optimistic in the medium term.

And with that, I’m going to let Chris kind of take you through how Galaxy did in the quarter and how each of our businesses is looking right now. So, thanks so much.

Chris Ferraro

Thanks Mike. As Mike noted in his remarks, we remain focused on driving growth in our three operating segments and are both proud of and encouraged by the resilience our firm and various teams demonstrated in the quarter.

Starting with the Global Markets team, our trading desk experienced lower volumes and counterparty activity during the second quarter as liquidity across digital asset markets remain challenged amidst the difficult macro and regulatory backdrop.

Despite the fact that volumes were lower broadly, the desk continued to onboard new trading counterparties, bringing the total count from just over 960 at the end of the first quarter to nearly 1,000 counterparties at the end of June.

Importantly, in recent weeks, the desk has witnessed an uptick in active client activity with both crypto native and traditional asset managers and hedge funds reengaging our desk to express their crypto investment views via spot and derivatives.

Public filings in the US for spot Bitcoin ETF has been a major catalyst with investors reinvigorated to seek upside potential in Bitcoin and the broader asset class. One trend we’ve seen amongst counterparties since the meltdown of several trading venues over the past year is an increase in demand for on chain OTC options.

To meet this demand in the second quarter, Galaxy completed the world’s first bilateral OTC option trade settled entirely on chain, making the expansion of the firm’s trading capabilities by leveraging the benefits of the centralized financial infrastructure. This is just one example of many of how we’re continuously innovating to meet the evolving needs of our clients.

The lending side of our business was not immune to the broader slowdown in capital markets activity. Our quarterly loan originations did decrease from $160 million to $115 million quarter-over-quarter.

However, despite the deceleration in new originations, our loan and yield portfolio increased by approximately 10%, growing to $550 million notional as of June 30th. Confirmation that will remain one of the largest collateral-backed lending counterparties in the digital asset space and are continuing to gain share in an otherwise fairly slow market.

We also continue to bolster our sales team in the second quarter and are excited to announce that we recently hired Leon Marshall as our Global Head of Sales. Leon joins Galaxy from Genesis where he spent more than four years as its Global Head of Sales. Leon brings a unique combination of digital asset expertise and institutional mindset and international experience, which will further position Galaxy to capture client flow and expand our strategic footprint.

On the last earnings call, we provided an update on the development of Galaxy 1 and the steps we are taking to establish the product as the leading institutional grade digital asset services platform.

In the second quarter, we continued to make strong progress and anticipate initial product launch by the end of this month with a diverse group of 10 initial clients. We have successfully onboarded three digital asset custodians as well as two fiat custodians onto the platform to support our multi-custodial model. We plan to continue onboarding additional custodians over time.

We also continue to pursue additional licenses to expand our jurisdictional presence and can now operate in 38 states and eight countries globally. Importantly, we have initiated the bit license and New York money transmitter application process, which will enable us to serve New York customers while adhering to the state’s regulatory requirements.

Our team is also working diligently to achieve SOC 1 and SOC 2 compliance to ensure the highest level of security and transparency for institutions transacting on the platform. We will continue to iterate and improve Galaxy 1 based on client feedback during this organic development phase.

Now, turning to Investment Banking. While the backdrop for deal execution broadly remains soft, our investment banking team successfully closed one transaction in the second quarter, a secondary sale of an equity interest in Bitcoin custodian and lender unchanged capital.

Additionally, in early July, post the end of the quarter, Galaxy advised on a primary financing round for Gamer Craft, a blockchain and AI-enabled competitive online gaming platform. This represents the team’s first transaction in the Web 3 gaming space and underscores our investment banking team’s broad and diversified expertise in deal sourcing funnel.

Furthermore, and quite notably, just last week, Galaxy was selected to represent Prime Trust in Nevada receivership in its first restructuring mandate, one for which the team has worked very hard over the past year to build the necessary credentials.

Our investment banking pipeline remains strong with 15-plus active mandates being pursued by the team right now, and we remain committed to seizing emerging opportunities in the space and strategically positioning ourselves for future growth.

Now, moving on to our asset management business. We ended the second quarter with $2.5 billion of AUM, up 2% quarter-over-quarter. The increase in AUM was driven by market appreciation, but also $67 million of net new inflows, driven primarily by institutional demand for our passive strategies.

As we noted in the last earnings call, in April, we announced a partnership with DWS Group to develop digital asset management exchange traded products in Europe. Our teams have been working diligently together on product development since the announcement, and we expect to launch our first products in the region by year-end.

Our asset management team has also been very focused on the US ETF landscape. As a reminder, we have a partnership with Invesco to develop a comprehensive suite of US-listed digital asset ETFs, including a spot bitcoin ETF.

Invesco manages $1.5 trillion in assets, including nearly $500 billion in index-based ETFs and other passive mandates, making it the fourth largest ETF issuer in the United States.

Galaxy Asset Management has years of experience building and launching spot crypto ETFs in jurisdictions across the world, which gives us confidence that we are very well-positioned to capture the market opportunity in the US when the SEC approves such an investment vehicle.

On the active adventure side of our business, we’ve been spending a significant amount of time analyzing and underwriting opportunistic investments, including secondaries, bankruptcies and other idiosyncratic events.

While these opportunities generally take more time and effort on average to come to fruition, we believe strongly that this is an area where Galaxy specifically can provide the most alpha relative to all other market participants, and that having a clear focus on this is critical for the future franchise build.

Galaxy’s central positioning in the ecosystem, coupled with our expertise in underwriting digital asset tokens and companies provides us with a robust sourcing funnel and a unique ability to correctly price digital assets and portfolios.

Our third operating segment, Digital Infrastructure Solutions made strides in the quarter in supporting the build-out of the industry at the base blockchain level. Let’s start with mining.

Our total mining revenue, which includes both our proprietary mining as well as our hosting operations was $15.4 million in the second quarter relative to hosting fees and purchase power costs, net of curtailment credits of $5.5 million, resulting in approximately $10 million of quarterly mining direct margin, a 64% direct margin.

We continue to execute an effective power management strategy and kept our cost of power extremely competitive with our average marginal cost to mine between $9,000 and $10,000 per mine coin in the quarter. We reached approximately 3.7 exahash of hash rate under management across our proprietary and mining and hosting footprint, keeping us on track to achieve our goal of four exahashes by year-end.

Our proprietary mining operations represents roughly 45% of our hash rate under management, while our hosted mining business represents the other 55%. We continue to make strong progress on the next phase of the build at Helios, our flagship mining site in West Texas, which we anticipate will bring an additional 1.3 exahash online beyond our 4 exahash end of year target by early next year.

I’m continually impressed by our team’s wealth of knowledge in managing power and mining infrastructure, which, coupled with our proficiency in navigating capital markets, bolsters our competitive edge among the industry peers.

Quickly turning to GK8. Since the close of the acquisition earlier this year, GK8 has added seven net new clients to reach 14 total clients as of Q2 quarter end and has played a growing role in support of our own internal infrastructure and ambitions to be a technology provider to key industry partners. We’re excited about the pipeline of potential enterprise clients the team is engaged with and are encouraged by the growth we’ve seen to date.

Moving to Validator Solutions. In the second quarter, our team achieved a significant milestone by successfully deploying its first set of Eth validators, which reflects our continuous commitment to support blockchain networks in fostering the growth of the ecosystem and Galaxy’s aim of becoming one of the most trusted nodes of the decentralized future.

We’re also pleased to announce the team earned a sizable delegation through operating in the genesis set of validators supporting the SWE network, a new decentralized layer 1 blockchain. This is a huge win for Galaxy and demonstrates the strength of our business development efforts and engineering support.

We have an exciting path ahead with the go live of our Eth staking capabilities and infrastructure and have a number of additional select layer 1 and layer 2 deployments in the pipeline. We will continue to update you on progress here as we execute against our commitment in building the future of decentralized networks.

I’ll now turn the call over to Alex to cover financial results and then we’ll jump into questions. Alex?

Alex Ioffe

Thank you, Chris. Good morning. In the second quarter, Galaxy performed well against the backdrop of muted trading volumes and regulatory uncertainty. We reported a loss of $46 million compared to income of $134 million for the first quarter. The decrease was primarily attributable to lower gains on digital assets and net unrealized losses on investments.

Total operating expenses were down 6% quarter-over-quarter and 34% from the same quarter last year. For the first half of this year, total operating expenses were $176 million or 27% lower than the first half of last year. Our equity capital remains strong with $1.5 billion at the end of this quarter, a 3% decrease from the prior quarter.

We were pleased to see operating leverage continuing to build from mining in this quarter, with 51% increase in revenue quarter-over-quarter and a larger increase in profit.

In the second quarter, we opportunistically divested two private investments at what we consider to be attractive valuations, maintaining discipline of only keeping investments with the highest upside potential. You can see this in our financials in realized gains and investments, offset by unrealized losses on investments.

We ended the quarter with more than $600 million in investments on our balance sheet. Total liquid assets were $696 million at the end of this quarter, consisting of $300 million in cash and cash equivalents, $167 million of non-algorithmic Stablecoins, predominantly USBC or Circle Coin and $228 million of net digital assets, excluding Stablecoins.

Our liquidity position was $118 million lower from the period — from the prior quarter, primarily due to a larger balance of fully secured loans to our customers. We did not repurchase shares in this quarter.

Now, back to the operator. Thank you.

Question-and-Answer Session

Operator

We will now begin the question and answer session. [Operator Instructions]

The first question comes from Michael Legg with Benchmark. Please go ahead.

Michael Legg

Good morning. Thanks. I wanted to kind of understand a little bit about Galaxy One, DWS, and ETF. What type of timeframe you have for revenues on that? I know you mentioned the Galaxy 1 is going to have the initial launch next month. DWS obviously is on its way, and we’re obviously waiting on the approval. But can you just comment a little bit about what type of revenue expectations, timeline you expect?

Mike Novogratz

Sure. I’ll take this one. And thanks for joining us, Mike. I really appreciate it. So a couple of different products. Galaxy One is a new product. It’s a new product. It’s a new product. It’s a new product. It’s a new product. And thanks for joining us, Mike. Really appreciate it. So a couple of different products. Galaxy One is the client-facing platform largely focused on prime brokerage services to begin with in the markets business. That product we’ve been in development for the better half of the past year. That will be launching officially with external clients this month in August. It’s currently finishing up final pen testing.

That’s a long build product. So when we think about Prime Brokerage Services, it’s a pretty wide array of services meant to work with the biggest, sort of most needy institutions from a regulatory compliance risk standpoint before we even get to the actual execution services. The product over the long term is meant to be a product where institutions can bring in their assets, both fiat and digital assets, custody through the platform, trade, get best-in-class trade execution, reporting, and get other services, including margin-based financing and other capital-efficient ways to express positions, all held within the four perimeters of the Galaxy product.

We’re going to launch the product this month with simple functionality. It’s going to be trade execution, custody, and report. That’s sort of always been the initial phase. And we’re going to start with an initial small client list. Because what we want to do is we want to make sure what we’ve built works well for clients. We want to take feedback and get the right product development feedback loop with those clients so that we can fast follow and continue to roll out and build the product.

So it will start off relatively slow this year, but as we get towards the end of this year and we add on additional functionality, ultimately ending with margin-based financing, that’s when we really expect the opportunity set from a revenue perspective on the Galaxy side to take off. That’s Galaxy One.

On the exchange-traded product side in the asset management business, we’ve got two lanes there. One, the partnership with DWS, which covers Europe that is, as we said, is so that partnership’s already inked. The products are in development, and the jurisdictions in Europe have been targeted that either already have exchange-traded products that are in existence today, and therefore approval is not a concern, or we’re breaking into new markets where there’s a clear lane to be able to launch new products in Europe. Those products we expect to be in market before the end of the year.

Again, those are co-branded exchange-traded products with Galaxy and DWS. And those are going to look like a lot of the passive products you see in the marketplace across all asset classes from a fee perspective. And those are shared fees between the two institutions. So you should think about whatever we think adoption of those exchange traded products are going to be by European institutions, times a market probably better than market rate given the asset class and a fee share on the Galaxy side.

And then in the US, we have the partnership with Invesco that’s meant to also cover a wide range of exchange traded products, one of which we expect to be the Bitcoin spot Bitcoin ETF. Timing on that, I probably don’t have to comment on, is unknown at the moment and sits with the SEC.

Michael Legg

Great, now congrats on all that progress. I want to also, hear a little bit about if you could anything from NASDAQ, if there’s any new news there, which is still just waiting, and then, relatedly, any key points on the regulatory environment, you’re seeing anything change there? Thanks.

Chris Ferraro

Maybe I’ll answer that. Listen, I do think, like I said, this SEC loss to Ripple sends some shockwaves through the SEC that they need to respond to, right? Their story of being everything is clear was undermined pretty dramatically. And even though they got a small win in the Terra Luna case, that just even more, I think, highlights how unclear the rules are.

And so it wouldn’t surprise me, if we see moves their way to kind of shore up their credentials saying we’re not an obstructionist. I think that’s where the potential ETF approval comes in saying, hey, you can’t call us anti-crypto, we just approved an ETF. And so we’re hoping that that’s the same for — our filing. But that’s just a hope.

What I would point out is, it is costing us and it’s costing our shareholders. Right. If I look at the volumes and the and the — the turnover and the valuations of crypto stocks that trade on the NASDAQ versus any other market, including Canada, it’s night and day.

And so I’d be lying if I didn’t tell you I was wildly frustrated and very focused on trying to get through the gauntlet here because, access to the US capital markets is why we started this whole process. It remains a real goal of ours. It has been an unbelievably frustrating 24 months. I kind of think that the process has been un-American at its core, but I’m hoping we’re coming to the end of that.

Michael Legg

Great. Thanks, guys. And congratulations on continuing to build out the platform during tough times. Doing a great job. Congrats.

Chris Ferraro

Thanks.

Operator

The next question comes from Andrew Bond with Rosenblatt Securities. Please go ahead.

Andrew Bond

Hey, thanks. Good morning, Chris. Mike, I wanted to get some additional thoughts on the long overdue potential approval of the first spot, the Coin ETF. As you guys noted in the prepared remarks, it seems we’re getting closer, but just in terms of, adoption and thoughtful rulemaking from congressional leaders, you think it serves more of a catalyst. And in terms of Galaxy specifically, you have the partnership with Invesco, but how would an ETF approval benefit some of the other businesses like trading and maybe the opportunity to create more novel exchange traded products?

Mike Novogratz

Yes, listen, I think what the ETF does in lots of ways is it gives a strong signal that at least for Bitcoin, and that’s where they would start, that the government is behind it, right? And that’s a real shift of attitude. And allows every institution, if you’re a pension fund, remember, pre-Sam Bankman Fried blow up, lots and lots of institutions got to the starting line. A few creped over it, a few got to the starting line, and then they all backed away.

And when I’m saying those institutions, I’m talking college endowments, pension funds, big asset managers. It just got scary for them. And I think this pushes them back. And this is an easy first product. It drives price. That allows us to a, create other products that the broad community can buy in the ETF space, and we would do that with our partners.

But it also allows people then to start looking into crypto deeper. And so I just think, I constantly talk about crypto adoption and it got stunted by the bad actors of 2021. And it’s not just Sandbag Debris, there were plenty of them, but it certainly stunted the overall growth of the space. And this gives us a kind of a jolt of adrenaline in the rear end, pushing us in the right direction.

Andrew Bond

Just to follow up on volumes broadly, volumes remain soft but options volumes haven’t really seen the same decline. So given your strength here in options, can you talk about why this market’s held up a bit better and how Galaxy’s overall share is trending?

Mike Novogratz

Yes, sure. So, I agree with you on those points. Derivatives broadly and options specifically is where one of the strong locus of our talent sits in the company. It’s where the trading business has focused in terms of building out capabilities, in terms of risk pricing, in terms of client development, in terms of automation on the back end to be able to quote. And we think it’s the future.

And so it has held up broadly, I think, for a few reasons. One, dealing in derivatives tends to be a little more capital efficient, particularly in this market, than dealing in a fully funded spot. So, any institution’s buying power tends to be higher on the derivative side than it is on the spot side, generally.

And that’s sort of seen in the broader asset class markets as well, where the derivative markets sort of dwarf the size of the spot market in other assets. And while that’s not actually the case today in crypto, we do have a thesis that over time it’s going to develop that way, which is why us having the expertise in-house and sort of having that as one of our core legs of the franchise is super critical for us to stay on top of.

Andrew Bond

Great. Thanks.

Operator

The next question comes from Joe Flynn with Compass Point. Please go ahead.

Joe Flynn

Hi. We were just wondering if you could provide some more color on the kind of deterioration of the liquidity environment and declining volatility levels seen through the third quarter. And as it relates to that, maybe talk about the on-ramps that centralized exchanges and most recently it’s kind of the imbalances seen on Stablecoin pools across the DeFi space? Thanks.

Mike Novogratz

Yes I’ll take a crack at that. Listen, we’re still in some transition growing pains I’d say. There’s a lot of tether FUD out there. I would argue that tether most likely, and of course we never have a 100% certainty on these things, but with high confidence certainly has enough assets to pay for any liabilities they have and then some. It’s run by very savvy guys.

Of course it’s been offshore the whole time. Their approach to KYC offshore is very different than ours onshore. And so I’m sure there will be some skirmishes around the sidelines, but I don’t think there is any significant risk or any real risk of a big run on tether, which sometimes just scares the market. The curve exploit was a big run on tether, which sometimes just scares the market. The curve exploit was a big deal. We are not used to DeFi projects that have been around the market for two, three, four years to be exploited.

Usually, these things once they are battle tested are really robust and so even though it was like an upgrade to the protocol that certainly rattled people. And so it’s a good reminder that I always say Bitcoin is a finished product. The Ethereum network is really strong and stuff’s going to get built on it. But we’re still in the building phase in the Web 3 revolution. And there’s going to be fits and starts.

Liquidity in the broader markets, it’s interesting if I look at, I said the stocks that trade from the mining stocks to Coinbase, monster liquidity in some of these stocks, right? Retail liquidity right now. So there’s certainly showing lots of interest in crypto. In the trading altcoins, trading on centralizing exchanges, less so. And that is the regulatory onslaught still. It’s them getting their house in order. It’s not having the big profits to then plow into marketing to bring more people in. And so the process of kind of rebuilding momentum for a bull market happens slowly, right?

You first got to wash out the bad, then you stabilize, and then you build momentum. But we’re not at that point where momentum is building on itself yet, right? You just look around, hop on the subways, you don’t see as many crypto ads, or you don’t see as many stadiums being named crypto.com. And so I do think that’s going to come again. It’s not coming in the next few months, but we’re just in that in-between process or in-between phase, I should say.

Joe Flynn

All right, thanks, that’s helpful.

Mike Novogratz

And yes, last thing I’d say is I was more cautious four months ago, even at the same price. These things I talked about, right? The ripple, — the ripple win, the ETF coming, the Fed finishing, just give me more confidence that we’re going to get the tailwind at one point. And at that point, you start seeing the kind of robustness of those markets you’re talking about.

Operator

The next question comes from Bill Papanastasiou with Stifel. Please go ahead.

Bill Papanastasiou

Good morning. Thanks, guys, for taking my questions. The first one is related to that digital asset regulation. We saw the Fit for 21st Century Act passed in the House Committee for Financial Services, which was obviously a positive. Legislators are finally tackling contentious issues and are doing so in a bipartisan manner. However, taking a step back and being a little bit realistic, financial services regulation typically takes years from being introduced to actually cementing itself into law. Galaxy is obviously well-positioned.

I’m just wondering, what your thoughts are on a potential shift by the rest of the industry, allocating more resources and capital towards the Bitcoin ecosystem. We recently heard Coinbase also announced the integration of the Lightning Network and just wondering what your thoughts are on that.

Mike Novogratz

Listen, we’ve always loved Bitcoin, right? We’re a Bitcoin miner, we always hold a bunch of Bitcoin. We own Mt. Gox claims. And so you’re never going to hear me say a bad word about Bitcoin. I do think that’s the easiest first step right now with this uncertainty. And there is more and more clarity around Bitcoin. And so it’s going to continue to, I think, be a stalwart performer. But the rest of the crypto revolution is — is equally important. And, Stablecoins, you saw what PayPal did yesterday. Stablecoins are going to grow globally. There’s complexity around regulation. I mean, you think about what PayPal did, which was just a Stablecoin like the Stablecoins we see.

If they could end up creating a Stablecoin that that gives interest, which right now would be a security that really destabilizes the banks, right? Why would you leave your money in a bank if you could put it in a Stablecoin and get 5% interest on it and, have it have it linked into all the payment the payment networks. And so it’s a radically transformative technology and there’s lots of people including ourselves working on how that’s going to be implemented.

And so I this is not going to be a Bitcoin only world. Web3 and the decentralized system it’s got a steeper hill to climb than Bitcoin that that’s both regulatory wise but also in product wise right. We haven’t had great product market fit in a lot of apps or a lot of applications that the broad consumer would get engaged with. And that’s imperative for the crypto community.

In some period of time to have stuff on your iPhone, you look up and you’re like, oh, that’s a decentralized app. That’s a Web3 app. And so we continue to invest. We think a lot about this stuff. But I’m just trying to be realistic. Crypto isn’t one thing. It’s a bunch of different things. And like I said, Bitcoin is an easy one right now because it kind of it’s in my mind a finished product and it kind of now it’s just about adoption. And when you have the largest asset manager saying, hey, we like this. And I’ve got $7 trillion of assets under management. You can just bet on which way adoption is going.

Bill Papanastasiou

Great. I appreciate that color, Mike. And if I can just fit in one more question, I want to shift gears towards the infrastructure solution segment of the business. For the majority of the year, hash price has remained somewhat flat or range bound. And it’s been a headwind for operators that don’t have access to the same cheap power that Galaxy has. And we’ve seen them diversify into other data center offerings, such as high performance and cloud computing. While again, the company saw a very impressive direct cost to mine in Q2, has the team considered diversifying data center operations at all?

Mike Novogratz

Yes, thanks, Bill. Yes, so, our first — our primary focus after having acquired Helios was to make sure that we stabilize the asset and then reinvest it in it purely from a Bitcoin mining perspective. It’s a highly strategic asset within that segment. We think it sits in a super attractive energy zone. And the team on the ground and the bones that Argo previously built there are excellent and are going to be long-lived and really strategic for us. So that’s been the primary focus.

In terms of expanding beyond that, we are looking at it. It was not part of the primary underwriting, but it is something that is impossible for us to ignore. So we’re looking at it. We’re seeing how it could fit in. We’re doing our work. But that will be — if that becomes an opportunity for that particular site, it’s going to be something that we’re going to do pragmatically and we’re going to underwrite it and we’re going to invest in properly over a long period of time. So, it’s not an actionable thing for us in the near term, for sure.

Bill Papanastasiou

Great. Thanks, Mike and Chris. Really appreciate it.

Operator

The next question comes from Kevin Dede with H.C. Wainwright. Please go ahead.

Kevin Dede

Thank you. Good morning, gents. Curious how you guys see crypto development within this world of regulation by enforcement. Anecdote suggests that lots of development is leaving U.S. shores. And I’m wondering if you recognize that and how Galaxy can position itself to take advantage of it.

Mike Novogratz

Chris, would you like to take that?

Chris Ferraro

Okay. Yes, sure. Yes. So, look, I think the good thing is that Galaxy historically has built the platform with a global presence, not just here in the U.S. And so we have had operations in Hong Kong, a pretty sizable office there. We’ve had a pretty sizable office in London historically. And today we have over 20% of Galaxy’s employees who operate and sit fully outside of U.S. already as a starting place.

The company was founded here in the U.S. Some of the senior management team are born and bred Americans and live and reside in New York. And we want to see the United States push forward and regain competitiveness globally, generally as a matter of national security, but also in our industry. And so we don’t want that to be the outcome, but we are positioned to watch where the ball is going and watch which jurisdictions are proactively moving forward sandbox opportunities and full-bore regulation to allow the asset class to persist.

And where that’s happening is where we will, at first on the margin and then with some aggression move headcount, either existing headcount or grow into that opportunity, because it is truly a global asset class. We are building a global business and we’re going to move our resources where opportunity presents itself.

And so I think it is a keen focus for us. You will see you will see additional jobs, recs, and headcount coming out if not already out in some of the jurisdictions non-U.S. that I’ve mentioned and we will be expanding there, because the opportunities truly on the ground for capital formation and for client activity are growing there outside the U.S.

Kevin Dede

So Chris, just sort of reading between the lines, it seems as though you sort of agree with the anecdotes that I suggest in that you’re positioning, you feel the company’s well-positioned to address the shift and exploit it. I guess, I’m wondering if you’ve really sort of seen it manifest itself in the way that Galaxy’s had to make development investments.

Mike Novogratz

Well yes, let me jump in. Yes, is the answer. Right, we’ve increased our Hong Kong office pretty intensely in the last four months. We are moving people to London. We have people in the Bahamas. And so we’re going to do what we can offshore to A, take advantage of opportunities there, but also take advantage of opportunities we can there that we can’t in the U.S. until the regulatory environment is more clear.

Kevin Dede

Maybe this one’s best for Alex, but how would you expect we’d be able to recognize your international business versus, say, North American business in financial reporting?

Alex Ioffe

Well, it’s not — we don’t really separate our businesses by region, except some supplementary reporting. It’s really done by product line, and that’s going to be driven by regulation so that’s going to be fairly clear from what’s allowed in the U.S. versus not.

Kevin Dede

Fair enough. A question on crypto infrastructure. Congrats on the nice mining results. I guess I’m wondering how you’re positioning yourself given power costs, changes in the efficiency of mining machines, and where you think cash price might go?

Chris Ferraro

Yep, so a couple things on that front. From a mining machine efficiency standpoint, it’s one of the reasons why the model we run and we intend to run is a mixed strategy with regards to our own owned ASICs as well as our hosting business, right.

And so for our own ASICs that are on our balance sheet, those are more directly exposed to useful life depreciation because of efficiency gains in new equipment. Now anecdotally, while new equipment is coming out and does have some efficiency gains, we really do believe that the curve has dampened quite dramatically in terms of new efficiency of new gen machines coming out.

And so the impact on legacy ASICs has been and we think is going to be much more muted than it has been in the past.

But that being said, what we did with the Helios acquisition was we purchased a data center and the full infrastructure to be able to host ASICs, whether ours or clients. And so as new ASICs efficiency, new efficient ASICs come out, like that’s an opportunity for us as other folks re-up or build or grow their fleet to offer rack space for those newly efficient machines in a profitable manner. It sort of takes the exposure away from us and makes it an opportunity.

So what’s really important there is that we have an asset that we run, we run efficiently, that we are able to acquire power cheaply and consistently. And so we think we have that in the location we have. We’ve also employed a pretty aggressive hedging strategy in terms of hedging out our forward power price, which is different from the way this particular site was operated historically. And we’ve done that throughout the forward curve past the end of this year.

And so from a power perspective, we’ve got visibility on efficient power that allows our site to operate profitably either with our chips or external clients’ chips, which is really the core of the business strategy. So that’s how we think about it. Going into the having, the last thing I’ll say there is that there’s obviously some profitability risk to anybody in Bitcoin mining leading into the having.

And so post-having, all else being equal, right, hash price will decline by 50%. What happens next is actually the more interesting piece, because you’ll have both Bitcoin price going one direction or another, and you’ll have hash rate either coming in or going offline as a result of who’s operating efficiently and who’s not. And so the best thing we can do is make sure that our thesis is correct and our asset and our team is operating efficiently so that we are on the cheap side of the cost curve and can be the beneficiary of the trend going the other way post-having.

Kevin Dede

Thanks, Chris. Just a quick follow-up. You mentioned 1.3 exahash additionally early next year. I’m wondering if that’s just an expansion within the current facility that you’re running at Helios? Or if you think you’ll need to make more facility investment to exploit I think you have access to what 800 megawatts there

Chris Ferraro

Yes, so the additional the additional 1.4 capacity is a small expansion of the existing footprint, which has a capital cost associated with it, which we’ve already approved and we’ve already is being recognized and being invested in. And so that’s a roughly $20 million or less capital item to expand the existing actual building and footprint. And that’s already in motion and we’re already receiving equipment on the ground and have pretty clear visibility on that up and running towards the back half of the year.

That will take us to just over 200 megawatts of nameplate capacity in operation there at Helios. The other 600-plus megawatts of availability is the growth opportunity we have above and beyond the 1.4 additional I referenced. And that $600 million megawatts plus of capacity is the thing that we’re looking towards the longer-term future on in terms of how we grow the site and what the opportunity is. So that would be a separate, distinct and larger capital investment for which we are spending a lot of our time thinking about what’s the most efficient way to finance that for the opportunity set.

Kevin Dede

Wonderful. Thank you so much, gentlemen. I appreciate the attention and color.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Michael Novogratz, Founder and CEO, for any closing remarks.

Mike Novogratz

Yes, guys, I just appreciate all you guys taking the time to be on the call. We’re working our tails off. We do feel a little bit lighter than we did in the last couple quarters, but certainly it’s not full sunshine. And so like I said it before, this is a year of picking up loose balls, hopefully, next call, we’ll talk about a few of those. And until then we’re just going to keep building. So take care.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.