Galaxy Digital (GLXY) Q2 2024 Earnings Report, Transcript and Summary

Good morning, and welcome to the Galaxy Second Quarter 2024 Earnings Call. Today's call is being recorded [Operator Instructions] At this time, I would like to turn the conference over to Jonathan Goldowsky, Head of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Galaxy's Second Quarter 2024 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 or its affiliates to buy or sell any securities, including Galaxy Securities. With that, I'll turn it over to Chris Ferraro, President and CIO of Galaxy.

Thanks, Jonathan, and good morning, everyone. Before I turn it over to Alex and Mike, I'll first review our operating results for the second quarter of 2024, key trends within our businesses and the momentum we have heading into the back half of the year. Let's start with Global Markets. Spot and Derivatives trading volumes across the industry decreased in the second quarter as activity fueled by the launch of the Bitcoin ETFs in January returned to more normalized levels. As a result, in Q2, our counterparty trading revenue and volumes decreased compared to the prior quarter, largely in line with the decline seen in the broader crypto market. Despite the quarter-over-quarter decrease in trading volumes and revenues, our counterparty facing trading business has generated approximately $90 million in revenue year-to-date, an 80% increase relative to the first half of 2023 and nearly the same amount that we earned all of last year. As a reminder, earlier this year, we crossed $8 billion in trailing 12-month notional OTC derivatives traded requiring us to register as a swap dealer in the U.S. and comply with a new set of regulatory requirements. As anticipated, this transition has empowered us to offer larger U.S. institutional clients the chance to participate in a well-established and regulated trading environment. Through the first half of the year, we have traded approximately $13 billion in notional OTC derivatives, which is already $5 billion more than we traded in all of 2023. Further, we have continued to onboard new clients across our trading offerings and ended the quarter with over 1,200 Global Markets counterparties. Notably, in recent months, we have seen increased engagement with protocols and crypto-native clients who are leveraging our full product suite to engage with the broader ecosystem. We've seen an uptick in OnChain opportunities such as providing liquidity for protocols and facilitating hedging derivatives and lending for clients with lock token positions. We continue to originate new loans to meet increased borrowing demand from both new and existing clients with our average loan book size growing to just under $700 million. Despite the overall crypto market being down 12% in the second quarter, our ability to increase our lending book by 5% quarter-over-quarter signals that we are continuing to win market share and organically scaling our business. We are seeing tangible growth in the build and client adoption of GalaxyOne, our unified technology platform offering institutions all the tools to trade, finance, store and manage digital assets efficiently. We ended the second quarter with over 100 clients and over $1.1 billion of fair market value assets being serviced by the platform. And I'm also excited to share that we continue to facilitate client purchases of lock tokens and subsequent to quarter end, we closed on yet another sizable syndication deal. This deal will add approximately $250 million of additional fair market value assets to GalaxyOne. These assets will build on the already strong base of recurring service fee revenues on the platform. And finally, in conjunction with this deal, I'm also pleased to share that our digital infrastructure solutions arm will be providing staking services for these new assets as well, continuing to build on that group's quickly growing base of reoccurring client franchise revenues. This deal, along with a number of deals like it both closed and in the pipeline further showcases the strength of Galaxy's diversified platform, the differentiated institutional service offerings we're able to provide our clients and importantly, the flywheel that we set out to build here at Galaxy across the firm's operating units. Moving to the other segment of our Global Markets business, Investment Banking. Our team successfully closed 2 deals in the second quarter, serving as the exclusive financial adviser to Toposware in its sale to Polygon and to another client on its strategic financing. Additionally, in the quarter, we announced that Galaxy served as the exclusive financial adviser to Bitstamp in its pending sale to Robinhood, which is expected to close in Q1 2025. This quarter, the team also tokenized a 1,708 [indiscernible] filing, utilizing GK8 technology, a tangible example of our ability to monetize illiquid assets as part of our broader tokenization strategy. Since the announcement, we have received numerous inbounds from both new and existing clients who have shown interest in fractionalizing and lending against high-value traditionally illiquid assets. Broadly, while capital markets continue to face headwinds, we expect to see more issuers launch capital raises as well as additional M&A opportunities in the second half of the year and into 2025. Turning to our Asset Management business. We ended the second quarter with $4.6 billion of AUM. While this represents a 42% decrease quarter-over-quarter, the decrease was anticipated and overwhelmingly driven by our continued successful execution in monetizing the FTX Estates digital asset holdings for creditors. As of quarter end, the value of the assets tied to the various FTX mandates remaining that we are managing was $520 million. While the AUM and fees associated with the mandates will continue to decrease over the coming months, we have successfully returned over $8 billion to creditors, making Galaxy the only player in the space with a proven track record in executing a complex multibillion-dollar bankruptcy mandate. And we're incredibly proud to have been instrumental in rectifying the aftermath of the 2022 crypto cycle, aiding creditors in reclaiming their funds and supporting the industry in rebuilding trust and credibility. Building on our existing partnership footprint in Canada, the U.S., Brazil and Europe, on June 26, Galaxy Asset Management announced we have joined forces with State Street Global Advisors to develop a suite of manager directed digital asset ETFs that will offer investors exposure to companies involved in the digital asset space going beyond crypto and bitcoin. Since its inception, Galaxy has been a leader in active digital asset management. This collaboration with State Street leverages our combined expertise in creating and managing investment grade products and ETFs globally, positioning us to make the over $2 trillion digital asset ecosystem more accessible to a broader investment community. We are aiming to go to market with 3 ETFs in our initial product launch and we'll keep you updated on progress here. The team has also remained focused on the U.S. ETF landscape and subsequent to quarter end announced the launch of the Invesco Galaxy Ethereum ETF, QEs in partnership with Invesco. This offering builds on Galaxy and Invesco's existing product suite following the launch of the Invesco Galaxy Bitcoin ETF (BTCO) earlier this year. Finally, on the venture side of our business, we conducted a $113 million initial close for Galaxy Venture Fund I, our inaugural crypto venture fund focused on investing in early-stage companies across crypto protocols, software infrastructure and financialized applications. Given that this fund has garnered stronger-than-expected interest and that opportunities to deploy capital have expanded meaningfully in recent months, we expect to continue fundraising into next year to reach, if not exceed, our $150 million target aiming to build a targeted portfolio of approximately 30 exciting new digital asset companies. The official launch of this fund marks an over year-long process of moving Galaxy's core venture investing team off the balance sheet and into Galaxy Asset Management, which we believe will provide long-term sticky management fee revenues. Galaxy Asset Management's strong track record and global product reach has laid the groundwork for us to continue to attract institutional capital throughout the second half of 2024 and beyond. With nearly $2.4 billion in passive AUM, over $630 million in active AUM and $1.5 billion in venture AUM, Galaxy is one of the largest and most trusted digital asset managers globally. Turning to our Digital Infrastructure Solutions business. Let's start with blockchain infrastructure. This team had an exceptional quarter with our assets under stake reaching $2.1 billion, representing an over 340% increase quarter-over-quarter. This significant growth has not only bolstered our staking operations meaningfully, but also established Galaxy as currently the largest validator globally on the Solana network. We are also excited to share that in July, Galaxy announced the acquisition of crypto manufacturer, a leading blockchain note operator that provides trusted secured services to decentralized protocols across the digital asset ecosystem. In addition to enhancing our position as a leading technical partner to protocols and builders, this strategic acquisition expands our staking capabilities even further, increasing our Ethereum assets under stake by approximately $1 billion, which brings our total assets under stake to over $3.3 billion as of today. By integrating CMS' engineering expertise and resources, Galaxy is positioned as a more prominent player in the Ethereum ecosystem, providing enterprise-grade support and innovative solutions to every corner of the digital asset space. Now turning to mining. Our Mining business continued to be positioned as a leading bitcoin miner globally, reporting revenue of $24 million for the second quarter. Our net power purchase costs and external hosting expenses were approximately $10.5 million, resulting in a 56% direct mining profit margin. In the second quarter, we operated at 5.6 exahash per second of combined hash rate under management, down 3% quarter-over-quarter despite network difficulty declining almost 10% during the quarter. And despite the Bitcoin having event in April, which reduced block rewards by 50% for all miners, we maintained a low marginal average cost to mine of less than $22,500 per bitcoin in the second quarter. As Q3 will be the first full quarter post halving, and we expect network hash rate to increase significantly in the second half of the year, we do anticipate our marginal cost to mine will increase next quarter. We have been very discerning in when and towards when in, we direct our capital investments with our focus on securing long lead time electrical infrastructure that is portable across mining and other computing applications. We have also opportunistically upgraded our ASIC fleet when marketing conditions have been attractive, which is what we did in the first quarter of 2024 when we purchased 3,000 new Bitmain 21 machines. These machines are online today, and we expect to be able to scale to 6 exahash of hash rate under management by the beginning of the fourth quarter without any further material capital expenditures. Now I want to take a step back and talk a little more detail about our flagship Helios campus located in Dickens County in West Texas. Currently, Helios has 200 megawatts of energized mining capacity. We have firm capacity approval from both ERCOT and the Wind Energy transmission of Texas to scale up to 800 megawatts of power from the existing interconnect. Today, the majority of our site is cooled using liquid cooled infrastructure with our main data center representing one of the largest liquid cool data centers in the world. For a smaller portion of our site, we use newly developed and engineered evaporative cooling units for which we now own the IP. And earlier this year, Galaxy built a freshwater pond with storage capacity of nearly 10 million gallons to expand our cooling capabilities in the most efficient way. We have 6 main power transformers installed at our existing project substation, 2 of which are currently energized and powering our Bitcoin mining operations. We plan to energize the next 2 transformers by this time next year, which will add an additional 300 megawatts to the site's current capacity, bringing our total capacity to 500 megawatts. And the final 2 power transformers are expected to be energized in early 2027, which will enable us to deliver the full 800 megawatts of high voltage capacity for which we are already fully approved. Helios is also strategically positioned adjacent to the Cottonwood switching station, one of the largest electrical switches in Texas. Several gigawatts of electricity generated by wind and solar energy are delivered through ERCOT's transmission system here, providing us with an incredible amount of reliable power right next door. Our positioning in Texas also allows us to benefit from the competitive deregulated market structure employed by the ERCOT grid and the relatively high degree of renewables in the region, given the feasibility of wind and solar gen. Last quarter, we expanded our campus by purchasing an additional 160 acres adjacent to Helios. We now have a total 320 acres of contiguous land, and we've submitted additional load studies and new interconnect requests that are pending approval to service our expanded footprint and expected future growth at Helios. Additionally, the Helios campus has the opportunity to enhance our network presence by connecting to existing long-haul dark fiber routes that provide scalable bandwidth, low latency and redundancy between the Helios campus and the Dallas area. We have done the work to define the engineering requirements, receive quotes on the components required and reviewed proposals to construct scalable fiber for the Helios campus. When we acquired Helios back in December of 2022, our thesis was simple. To be a leader in the bitcoin mining industry over time, you need one to own your own infrastructure; and two, to have access to low-cost power at scale. Our Helios acquisition checked these boxes, and we've seen that in the ongoing success of our mining operations. However, as we've scaled, we've also seen the opportunity set in front of us rapidly evolve. Advancements in both AI and HPC industries are driving what appear to be the early innings of an insatiable demand for data center capacity with access to low-cost power and with the ability to scale on an expedited time line. We have been evaluating this sector and the possibility of utilizing Helios beyond the scope of just bitcoin mining for the past several months. With land to scale and improved interconnection of 800 megawatts, long lead time components already acquired and scheduled to be energized, access to water and a low-cost power, Helios is positioned to be one of the most optimal sites to build and operate large-scale data centers for a variety of different computing applications. We recognize the value of the asset that we have, and we do not need to make a quick or reactive commitment, but rather are going to take a long-term measured approach to scaling this facility. Our primary goal is to monetize our electric capacity and existing infrastructure in the most profitable way possible, and I am unbelievably excited for what is to come. The strong performance of each of our 3 operating businesses in the first half of this year underscores the strength of our diversified business model and our ability to both support and capitalize on the influx of institutional capital into the digital asset ecosystem. I'm more confident than ever in Galaxy's strategic vision and our team's ability to drive continued growth and success. Alex, over to you.

Thank you, Chris. Good morning. In the second quarter, we reported a net loss of $177 million, primarily driven by reduced value of digital assets after a steep run-up of prices in the first quarter. This affected our digital assets and investment line items on the P&L. As a point of reference, at the end of this quarter, we held more than $900 million of net long digital assets and Spot Bitcoin ETFs. Our equity capital was $2.1 billion as of June 30. We opportunistically completed a capital raise of $120 million net of fees during the second quarter. For the first half of the year, we generated $245 million in net income, driven by positive digital asset price movements and strong operating business performance described by Chris, with strong momentum heading into the second half of this year. Our operating expenses increased by approximately 16% quarter-over-quarter, primarily driven by an accounting measure that requires Galaxy to capture staking rewards that Galaxy generates from staking for others on a gross basis. In lending and staking revenue with rewards passed through to the customers that delegate to us shown as an expense this business grew sufficiently to have a new line item on the P&L named staking costs. Excluding gross staking costs, we decreased our operating expenses by approximately 5% quarter-over-quarter. Our liquidity remains strong. Our total liquid assets were $1.3 billion at the end of this quarter, consisting of $409 million of cash and stable coins, $501 million of net digital assets, excluding stable coins and $418 million in Spot Bitcoin ETFs. We continue to make progress on our U.S. listing. Last Friday, we filed an amendment to our registration statement responding to the seventh round of SEC comments. We feel encouraged by the progress we have made and by the last set of comments from the SEC staff. We will keep you updated as we continue to advance through this process. Now I will turn the call over to Mike, and then we will take questions.

Guys, good morning. It's a beautiful day here in New York. And let me want to mark this moment. I know we're supposed to talk about our quarter, but we're at a spectacular place for this industry. I have literally never been more bullish on Galaxy and never been more bullish on our whole industry. And so when I think about 2 years ago, even, we were often seen as pariah, like what's up with this industry? Do we trust them? And literally 24 months later, we have a presidential candidate who made a Bitcoin speech, our crypto speech at the Nashville Bitcoin Conference, which if I had written, it would have been a dream. He left everything in that our industry wants. And how do we go from here to there? Listen, even on the Democratic side, which had been really not helpful to our industry over the last 4 years, we had already seen a big shift towards Pro-innovation and Pro-crypto. And I am fairly certain and hopeful that nominee Kamala Harris, the Vice President, is going to soon make comments that show that she's from San Francisco, the land of innovation and that she wants to be a Pro-innovation Pro-crypto President. And so hats off to everybody at Galaxy that has worked so hard to build this acceptance to everyone in the community. We are now a political voice. I said over and over there are, 80 million crypto owners, that's more people that own dogs in America, and I think people are finally listening. Crypto is here to stay. Bitcoin is here to stay. Our industry is here to stay. And that beyond anything is widely important for how I look at this business, how Chris looks at this business and how Galaxy is prosecuting this business. We come at this with a whole new renewed sense of confidence. You never get the timing perfect on when this happens. But I am fairly certain we will get a market infrastructure bill in the next 6 to 12 months. We will get a stable coin bill. And maybe more importantly, we'll get direction to the Fed and the OCC to allow the trade by companies to participate in our industry. And that will bring in a wave of capital. And so what does capital do? It drives prices up, but more importantly, it drives innovation. It drives people into the space. And so I literally want to just start by saying I couldn't be more bullish and quite frankly, thankful to everybody because Galaxy has done our part 100%, but it's taken an entire movement to really orange pill the majority of skeptics out there who now see bitcoin as an asset class, see crypto as an asset class and who believe in the transformative power of this decentralized technology. And so starting there, like what does that mean? It means that in time, we're going to have a lot more competition. And so I think that's a great thing. Competition makes you sharper. One way we've approached that is we're already in great partnerships with lots of powerful trade by companies. And I think our evolving role will probably include a lot of those, helping people access on chain, helping people access our acumen. The partnership with State Street comes to mind. And so you're going to see more of that in the future, I think, from us and probably from other crypto companies. We're already seeing the changes. You might not have noticed, but Steven Fulop, who's the mayor of Jersey City and as a friend of mine, their pension fund is invested in Bitcoin. The State of Michigan's pension fund has invested. And so I think you're going to see more and more institutions. In 2015, I started talking about the herd is coming, and I meant the institutions would come to Bitcoin. And I was way early and probably looked a little silly for a long time. Let me tell you the heart is now here. We get calls every day from new clients who want to either understand or participate in this ecosystem. And so I would guess that our business grows quarter-on-quarter for the foreseeable future. I'd say, I guess, I see it. I see our sales force being more stressed as people went on board, I see our bankers doing more pitches, ICR Asset Management group coming up with more products. And so could it be more bullish. Listen, the macro backdrop is also helping. The global economy is slowing, period. And the Fed will be cutting rates in September, unless something dramatic happens. Lowering rates adds to the narrative of crypto. The other thing I would say is we have 2 candidates running for President in America. And neither of them have talked about cutting the deficit. Neither of them talked about reducing spending on entitlements, reforming Social Security and Medicare over then. And they're very politically unpopular things to talk about. We're at $35 trillion of debt. We are adding $1 trillion of debt every 100 days. And until that paradigm shifts, and it's hard to see it shifting bitcoin as a store of value, bitcoin's digital gold is going to have an amazing appeal to investors around the world. And Bitcoin has traditionally driven our whole industry. Money comes in a bitcoin, then it finds its way into the rest of the industry. And so I think we've got a macro backdrop. Now we have a political backdrop. That's all bullish. And listen, Galaxy, I couldn't be more proud of what's happening here. Chris did a nice job of going through the quarter and through some of the really exciting things. But when I think about digital infrastructure, one of our 3 businesses, this mining stuff is real. AI is not going away. The big companies, Google, Meta, Microsoft, OpenAI, their CapEx budget on data centers is supposed to be $300 billion a year as far as the eye can see. We are going to participate in that. We have gotten very focused on the Helios asset. Chris was just down there yesterday. And so stay tuned, but that's very exciting. And then the staking business, out of nowhere, 6 months ago, we're now over $3 billion of asset stake and growing. And I think that's going to be a bigger and bigger business for us. And so like digital infrastructure feels pretty good for me. Our asset management business, Steve Kurz and his team are hustling new products. We launched our first in-house venture fund. We've always done a venture on the balance sheet. Now we're bringing clients into that expertise, and that's exciting. And so asset management is working. And our flagship, our markets business, Jason Urban and his team, new clients, record derivative exposure, our lending business continues to grow. And so could it be more bullish there. And so when I wrap it all up, I'm bullish and I couldn't be more excited for the future. Operator, I think we're ready to open it up for questions.

[Operator Instructions] And we'll take our first question from Joseph Vafi from Canaccord.

I was wondering, I know, Chris, you mentioned that your loan book was up while volumes were down. I think that's a sign of gaining share. Are there any other metrics to point to in the markets business on potential share gains and how you look at your position there? And then I have a quick follow-up.

So loan book was one big metric that we looked at. That's been part of our bread and butter at the firm from a generating good risk-adjusted returns with our capital from the very beginning. So we're excited about that growing. And we're actually looking to the future of that. That business today is still a largely bilateral relationship with our clients on a one-off basis. The GalaxyOne's development focus on the go-forward is really tying it into trade opportunities with clients, we're actually directly financing trade and holding those trades in a prime brokerage-like fashion. That margin-based financing product, we're already in testing on and are pretty excited to launch and is the focus for the back half of the year. And so on a go-forward basis, that lending business, we think, has the opportunity to scale even a lot faster than we've done one-off hand-to-hand combat is historically growing the book. And to add a little more color on the lending business alone, that book generated approximately $11 million in net profit so far. The other metrics in the business we look at are -- there's a bunch going on. The Crypto Spot exchange volumes were down 18% quarter-over-quarter in the second quarter. And so while our businesses volumes and revenue declines were similarly in line, the same token is the other thing we pointed to was we have been growing our derivative volume fast and much faster in a declining market than we see on the screens, than we see with our competitors. And so that business, having crossed through $8 billion of TTM notional volume and then jumping to 13 now just year-to-date alone, I think is both a pretty tangible data point in where we obviously have edge and where we're gaining share. And it's also a business that has a moat around it because it's complicated to manage risk there, requires capital, requires pretty heavy regulatory infrastructure around it, which we now have and are 1 of 1 or 1 of 2 in the market who even have that. And it provides us an opportunity to really have a base of profitability as opposed to the base Spot business, which generally in crypto and across all [indiscernible] assets is really a scratch at best kind of business. And so that's where I would point to.

And then on Helios, it's still early days on maybe monetizing the asset other than bitcoin, but in a sense, maybe it's not that early if you've got, I think it's over 200 megawatts that are going to be energized next year. So just wanted to drill down there on how -- I know you're going to try to monetize it the best way possible. But any other additional color, especially on this next phase of energization since it's coming, what you're looking at, potential timing on any deals, et cetera?

So let me start by being a little more specific and clarifying what we see as the electrical road map. So the capacity for electricity. So today, we have 200 megawatts energized and operating consistently every day dedicated towards the Helios. The big electrical infrastructure that we have installed and is going to be energized this time next year adds another 300 megawatts of electrical capacity that currently does not have a tie in to an existing data center that exists there today. And so that additional 300 megawatts is available for either us to develop an additional data center capacity that would be 1.5x our current size for bitcoin mining or to greenfield data center dedicated towards other uses. This time next year from a base electrical capacity, which is really the most important notation for anything we're going to do next, would it gets us to 500 megawatts, and we can increase that further to 800 megawatts by 2027, which is what we're currently approved for. Now I think you've probably seen other people in the market share out like big numbers on their electrical capacity and how big they could be. The fact for us is in addition to our 800 megawatts that we already have approved and we have the long lead time infrastructure purchased and installed already, we have 2 other work streams that can more than triple that capacity over the long, long term. One is an additional 800 megawatts that we've done on the load studies for that we've submitted, which relate to our existing tie-in at the existing substation. So that would be capacity going 800 already approved to 1.6 gigawatts. And then we have also submitted for an additional interconnect with ERCOT or with the new land we purchased, which is for another 900. And so 1.6 would go to 2.5 gigawatts total on our existing land footprint at Helios, assuming over time, we get that approved. And that is a massive scale of electricity relative to any other asset in the country in terms of potential for unlocking opportunity. In terms of what we do next, we feel like it's a little premature to land on anything specifically. But what I would say is we have been relentlessly investigating and having higher and higher level conversations with the biggest companies in and around HPC and AI data centers around a number of different potential models as that industry opportunity develops. And those models range anywhere from partnerships on greenfielding new dedicated data centers for specific AI HPC end uses with partners for our electricity capacity growth that we have there to potentially retrofitting existing data center capacity, which the bar is higher for us because there's an opportunity cost because we have a great claim mining business already today. Two, partnering and joint ventures with those operators or chip manufacturers to operate AI as a service, for example, in certain megawatt, like small megawatt clusters within our existing data center or in the data center growth that we're going to pursue. So there's actually a pretty wide pallet of opportunity sets, all of which are partner-dependent, end-use dependent capital need and economics dependent, but all of which are super exciting economically, we think, relative to just our base existing business that we built today.

And we'll take our next question from Martin Toner from ATB Capital Markets.

I want to circle back to Mike's comments about Trump speech and regulation. Mike, can you talk a little bit about what some of the regulation you mentioned would do for your business?

Listen, one of the great overhangs that our whole industry has had is the fear of the SEC Wells Notice, the fear of Department of Justice saying, "Hey, you're trading assets that we think are securities and you think are not securities.†And so just the clarity around a market infrastructure bill, which tells you what is what, who regulates what, we'll unleash people's confidence to invest in this business from the players here. But more meaningfully, we'll unleash asset managers willingness to hold these assets. And so it's been the uncertainty. And quite frankly, the cost, our legal costs, our accounting costs are significantly higher than they would be if we are trade-by company, partly because of this uncertainty. And in some ways, I was arguing in D.C. 12 months ago, it doesn't even matter how perfect the bill is I now think we're going to get a very good bill. But even back that out, they just give us a bill because it takes the uncertainty down. And so that's the first thing. The second thing, I guess, is around what we call operations show point 2.0. There was a determined and methodical move amongst the government to really stifle crypto innovation. Banks were told, “Don't lend to crypto people.†Plenty of cases where clients of ours, friends of ours had their accounts shut down at major institutions because they were involved in this industry. That's changing. It will change really fast when it gets direction from the top. And I think, certainly, the Republican side has said that's coming. I believe the Democrat side will as well. They haven't done it yet. And so it's early. Vice President Harris has only been in the seat for less than 10 days. But all my intel and all my instinct tells me. And I think what is best for crypto is that this is bipartisan. I'm working really hard on the Democratic side now, mostly because we don't want to be a one-party industry. We're a technology and a movement and it should be bipartisan. And if we get the Democrats to go where I think they're going, and plenty of them already were already there -- Hakeem Jefferies was very open-minded as a crypto, Richie Torres, there's a litany of Democrats that we're supporting. Then it's like [indiscernible] and now we got both sides and we can be less worried about who wins in Washington and more worried about prosecuting our business. Listen, when Joe Biden stepped down [indiscernible] power was diminished immensely. And she was the one who really was slowing down the growth of crypto. I chat a banner ad, like join my anti-crypto army. And so not a real good look if you're a crypto voter. And I think her influence is waiting. We will see. But I think that really will be the big shift. If Republicans win, he laid out a plan that is unbelievably bullish for our industry. I'm hoping and thinking that Democrats are going to be something similar.

So we had a bumpy quarter for digital asset prices in Q2, can you talk a little bit to Galaxy specifically global GGM strategy to make money, not lose money? And what you did with leverage over the quarter.

Listen, so our franchise businesses, the businesses that buy and sell with clients that lend the clients, the derives clients, as Chris said, volumes there were down roughly in line with the volumes in the overall industry. And profits came down accordingly. But still a profitable business. Our balance sheet, I'll call it, treasury, we were long, call it, $1 billion crypto and crypto went down 14%, and there's $140 million. I mean that's simplifying it. With hindsight, I guess I was long less crypto and sold more on the high and bought more on the low. In general, we try to outperform the overall market, but we have a very long bias to this firm. I believe bitcoin will be a lot higher a year from now. I believe digital assets as a total market cap will be a lot higher a year from now. And so again, we try to stay long assets that we think are core foundational assets, and we trade around others that we think are overvalued in the short run. But this was mostly just a bigger move.

And a couple of things I'll add. One, in my comments earlier, I highlighted a strategy that we saw as a market opportunity pretty early on late last year, and we've been executing on, which is this is of syndicating lock token deals to clients. And that is an example of things that, that business has done to evolve to turn what is a largely transactional revenue-driven business into something that has a base of reoccurring revenue. And so when we bring clients on platform by facilitating purchases of assets that have long-term lockups that are going to sit on our platform and be clients on our platform by definition for years that also generate annual management fees and provide captive clients to then add trading services. Those are the kinds of things that we are doing to build ballast in the business that don't necessarily lax and win with the price of crypto directly every day. And the cool thing about that whole platform in GGM now is it's starting to reach across and connect to other parts of the business like our blockchain infrastructure group, where those assets and the clients of that group then have an opportunity to take their assets in our own blockchain nodes, which also creates a recurring revenue line item. Also have some level of correlation to the price of crypto like that is something that is impossible to eliminate solely in our industry today, but create sticky revenue streams that while they have some correlation are there quarter in quarter out. And the more we layer those on top of one another, the more the quarter-to-quarter movements in the underlying price are going to be a lot less impactful on revenues and earnings.

Last one for me. Your curtailer revenue in the quarter, $10 million on 5.6 exahash, looks like you punched above your weight. Can anyone just talk to what was that work there?

So the $10 million you're referencing, I believe, is actually our total cost to produce. So that's electricity cost plus give up to -- I can address a couple of things what I think you're getting at there, which is ultimately, in the quarter, we mined a marginal cost at approximately $22,500 per bitcoin, which I don't think all the numbers have come out, but I'm pretty confident it puts us in a pretty high quartile or decile in the whole industry in terms of cost. What we're doing there today, in addition to just the fact that we operate in an area where we correctly selected that, on average, is going to have pretty low cost of electricity, we've taken the view that riding index in those markets is the right strategy. And index has closed significantly lower than where we otherwise or market participants otherwise would be paying had they hedged out exposure. And so all that is to say that just paying market prices for electricity has been the smart decision to make for the entirety of this year so far, and that's what we've done. In addition to that, the flexibility of our load there allows us to add some shape to when we mine and when we don't. And therefore, the costs that we incur or don't incur per unit of production. And so just to add a little bit more clarity to that, like in Q2, on average, we mined 22 out of 24 hours per day. And that produced 56% gross margins. Based on where Q2 power prices were, as an example, just deciding to not mine on average, those 2 hours a day, although it's concentrated when we make those decisions, we reduced cost by 38% in the quarter. And so by taking less than 10% of your time offline, you're reducing cost by almost 40%. That trade-off is a very smart one economically. I think decisions like that and how we operate is what we think have driven our performance to be pretty best-in-class.

And we'll take our next question from Joe Flynn from Compass Point Research.

A question on the Helios asset, it looks like there's significant expansion potential there. But just with regard to the customers at early stages of any LOI signed or anything you could comment on regarding the structure, whether that be more of a cost-plus type deal for the land or a colocation where you actually build the data center delivered to suit --

We don't have anything to report tangibly yet on any specific deals or what the structure will look like. I think it's a little early, but the progress we've made over the last quarter in understanding what we have, understanding what we would need to invest in to service various potential partners and clients and structures has gone from very early exploratory stage to us having specked out how we're going to lay dark fiber, what it's going to cost us, all that kind of stuff. And so we've made a ton of progress in understanding what we're going to need to do, what it's going to cost and what the opportunity set is. And we're at the stage now where we are sorting through a number of conversations, very specific conversations on different opportunities that -- by the way, are not mutually exclusive, so the good thing about what we have is we have a campus both in terms of geographical footprint and electrical footprint that would allow us to do a number of different things with the site. Like we don't have a single data center that provides constraints around what kind of deal we could do. What we have is a large campus with an incredibly talented team, access to more talent in our way, in the City of Lubbock with Texas Tech and flexibility to sort of pick and choose how we want to develop the whole footprint in a number of different ways. So that's the way we're thinking about it today. And we're pretty bullish and pretty excited about what it could be. We're just literally to be able to announce anything or guide one towards anything specific.

And then piggybacking a question earlier on with lending being up quarter-over-quarter, can you give a sense of just like what the overall environment looks like where crypto credit conditions, whether they're improving or we're still relatively early, what it would take to rejuvenize the space?

Listen, the crypto credit conditions often track crypto enthusiasm and crypto pricing. And so certainly are improving. And when people are more optimistic, they want to use more leverage. And so I see that business going up, not down. We have plenty of people that have created a bunch of crypto wells that don't want to lose their crypto and we'll borrow dollars against crypto. And so you can take collateral. We are pretty conservative lenders still. I think that DNA comes from Chris' background as a credit guy, not my background as a macro guy. And we're also lending on chain. And so we're looking at where do we borrow and where do we lend? And that business is growing for us. We injected more talent into it. We're looking at it more systematically. And as Chris said, once we add prime, if these are going to hopefully going to turbocharge it. And so I would hope that 12 months from now, 24 months from now, it's one of our biggest businesses. It's one of our most steady revenue generators.

And the only thing I would add is an important part in addition to risk managing of building a good financing business is having good consistent access to capital. And so on our end, since the beginning of the year, you've seen our own book value increase, which is part from performance, part from also raising a small bit of equity, which we did. But you've also seen our balance sheet expand. And so if you just look at debt to equity, for example, to give you an order of magnitude, we went from roughly 1.05x to 1.4x as a business. from the end of the year to June 30. And a big part of that is our access to be able to borrow capital from clients and from market participants has opened up again after a pretty long wave of everyone being pretty constrained in terms of their willingness to provide credit. And so I think it's an important point just to note like Galaxy's brand reputation, balance sheet, creditworthiness and the counterparties expect that view of our creditworthiness is paramount to our success, and we're proving it by being able to show that we can expand our balance sheet, which would then allow us to use that balance sheet to help clients finance their trade more efficiently. I think I'd point to that is like there's clearly some thumb because as that thought occurs, capital flows to the most trusted market participants, and we're seeing that. And we're seeing that we think we're the beneficiary of that early on.

And finally, let me put an emphatic point on this. We have been trying and continue to try and are more optimistic of redomiciling to the U.S. and listing in the U.S. That access to capital markets, which the U.S. really is the dominant platform of is wildly important to us. And I think once we make that shift, once SEC opens the gates again, allows crypto companies to tap the U.S. capital markets, you'll see our cost of funding go down and our businesses grow accordingly.

And we'll take our final question from Bill Papanastasiou from Stifel.

For the first one, I'm wondering whether you can provide your outlook on bitcoin mining economics over the near to medium term. In this quarter, Galaxy achieved a marginal cost of mine, as mentioned, of less than $23,000 per bitcoin, which is not only attractive, but yes, the lowest we've seen thus far. And maybe you can draw some parallels or contrast to the margin profiles in the HPC verticals that Galaxy is considering here.

So let me give an attempt to this. We have a perspective, and I think this is generally held that hash rate is likely to increase over the near term. And that is largely because there have been backlogs of both older machines that have been on the sidelines for a long time as well as new production of new and more efficient machines from the ASIC manufacturers that are in the channel and that are making their way into the market. There is still reasonable dearth of good reliable data center capacity to house all that. And so I would temper it a little bit, but our expectation is that hash rate over the near term is going to go up. And so absent price going up, which I'll leave to Mike to predict, the all us being equal, hash rate going up, it's going to impact all miners. For our business, and I think we've started to prove it, which is the most important part, than me just saying it in Q2 is a good example of where we sit and our power management strategy and the flexibility of our asset is such that we can make small changes in our decisions of when to produce and when not, that can have a big impact positively on ultimately bottom line. And so our positioning to be able to manage through a flatter declining price environment, while hash rate near term is going up, we think is a real competitive advantage and a real moat around the way we operate our business, and we tend to operate it profitably month-over-month, over month, over month going forward. Now there is a bigger macro dynamic, which is hard to predict, which we're not factoring in yet. But I do think over the longer run we think is going to have a big impact, which is -- and you alluded to this, the value per megawatt of infrastructure that's installed now looking like it's -- and I'll directionally make up a number, but in order of magnitude, larger per unit of megawatt in other computing environments like AI HPC versus Bitcoin mining, suggests that hash rate may not perform the way everyone thinks over the medium to longer term because the economics suggests that electric capacity will be deferred towards other uses, which could put a ceiling on hash rate and actually could be beneficial to bitcoin miners over the medium to longer term. And so we're looking at that dynamic. We're obviously at play in that old dynamic as well, and it's going to be a factor in what we decide to do. But I do think you have to zoom out a little bit and look at those dynamics and think about what that means for the economics of bitcoin mining, specifically going forward. And so I think within that, I hit a lot of what you were trying to get to, the replacement. The opportunity cost for other compute now appears to be significantly higher per unit than bitcoin mining. And I think that's going to have like a related impact for what bitcoin miners decide to do, which is going to then have a natural impact on hash rate, too.

Shifting gears to the final question, I want to ask one that's more bigger picture. So understanding that Galaxy has built a solid institutional focused digital asset business. Mike has previously mentioned that one of the next stages of evolution will be for the firm to have a higher OnChain presence. Mike, perhaps you can speak to some of the infrastructure gaps that need to be solved before we teleport to this new Galaxy for lack of better terms.

We are actually there now. We've got a great OnChain lending team. We've got OnChain we're providing validator service for lots of different protocols. We've got OnChain trading team. And so stay tuned, but we've hired the teams. We're participating in the markets. We're building our confidence and couldn't be more excited. Took us a while to get there. And the delay was part of our DNA. We were very cautious about making sure we weren't going to violate KYC, know your customer, anti-money laundering levels like when you're trading in pools, how do you make sure there are ocean pools. And now we've gotten comfortable and the gas pedal is fully pressed.

I also think in addition to the regulatory side, security is a pretty big component of it. And all the protocols and everything on chain -- they're all still very nascent. Time shows whether there are security gaps are not in any one given protocol, security audits happen and that happened on top of each other and continue to prove which protocols and which on chain menus have gaps or don't have gaps. And so from our perspective, seeing that develop is critical to us deciding whether we would put any capital risk, let alone open up windows to allow clients with capital risk. And so time is actually a necessary component to solving the adoption curve on chain activity, I think, large broadly from our participants.

And with no further questions in the queue. I will turn the program back over to Mike Novogratz for any additional or closing remarks.

Guys, I think I was relatively clear, bullish for the industry and for Galaxy. Really appreciate your time. Look forward to getting back to you in a few months. Take care.

And this concludes today's conference. We thank you for your participation. You may now disconnect.