Wondering about your latest addition to the growth portfolio. Curious as to this selection as the fundamentals are awful, with negative cash and operating flow and negative EPS. I assume this is a mock portfolio but do any of the contributors of 5i have any skin in the game especially in a high risk name such as GLXY?
I assume a 1.5% holding would be $1500 in a $100,000 portfolio.
Thanks
Jeff
GLXY is a high-risk, volatile name, and we feel that a 1.5% position is quite small relative to other positions in the portfolio, but large enough that the model portfolio can benefit from any potential upside in the name. Galaxy Digital Holdings Ltd. (GLXY) holds a 33.1% interest in Galaxy Digital Holdings LP (GDH LP). GDH LP, the parent company, has three main operating segments, Global Markets, Asset Management, and its Infrastructure Solutions. A large majority of its revenue comes from its global markets segment, where much depends on realized gains on digital assets and investments. Thus, an active, volatile, and positively trending crypto market will be the most beneficial to the company. Its asset management segment has an AUM of ~$2.5B, spread out between ~$0.9B in passive strategies, $0.1B in active strategies and ~$1.4B in venture strategies. Its infrastructure segment consists of mining Bitcoin, with an average marginal cost to mine of ~$9K to ~$10K, whereas the price of Bitcoin is currently ~$26K.
The company is currently unprofitable and does not generate positive free cash flow, but its equity position has more than doubled over the past five years, nearly quadrupled at the height of the crypto market in 2021, and despite concerns in the crypto environment, its asset management segments AUM has increased from $2.1B in July of 2022 to $2.4B in July 2023. The company continues to see increasing interest in its trading segments, onboarding more than 30 new counterparties in the previous quarter, and increasing its counterparty loan book size by 31% over the prior year-end. Its asset management segment has entered into a strategic alliance with DWS, one of the world's leading asset managers, with the aim of developing a suite of exchange-traded products on certain digital assets in Europe. Simply put, the company's operating segments are well-diversified across the digital asset space, and the company is seeing increasing interest for digital assets locally and globally, despite the brutal decline in digital asset prices.
The company holds and trades a significant amount of digital assets, and if the crypto markets see an increase in interest alongside the interest from traditional finance firms such as Blackrock, GLXY is well-positioned to benefit from this. The global digital assets space is a growing secular trend, despite its significant declines that occur every few years, since the technology's inception ~14 years ago, the asset class has grown from nothing to a $1T market cap, with significant booms and busts in between. One of these booms and busts occurred between 2020 and 2022, and we have now seen the markets stabilize, alongside new interest from the world's largest asset manager, Blackrock. The potential for a Bitcoin ETF from Blackrock would open up significant on-ramps into the digital asset space from retail investors looking for a 'safe' option, thus creating more interest from institutional investors and firms. 10 years ago, the only interest in Bitcoin was from individuals on their personal laptops in their homes, today there's a global race to set up commercial-grade mining infrastructure, global asset management, and a race by top institutional firms for the first-ever US spot Bitcoin ETF. We feel that GLXY's fundamentals are well-positioned to benefit from the rising interest in digital assets.