Galaxy Digital results for Q1 highlights struggles

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It has been a tough first quarter of 2020 for Galaxy Digital Holdings, the digital currency merchant bank reported in the latest press release.

At the close of Q1 on the March 31, Galaxy Digital Holdings posted a net comprehensive loss of US$27.7 million. This is largely due to a result of realized loss on digital assets that they trade in the market and operating expenses.

The partnership’s net book value per unit was valued at approximately US$1.16, a reduction from the valuation of US$1.24 at December 31, 2019.

The losses are on the back of having to lay off 15% of their staff in February 2020.

Mike Novogratz, CEO of Galaxy Digital Holdings, is a former hedge fund manager and Goldman Sachs partner, founded Galaxy Digital in 2018. He said:

“2020 has been a challenging period for the global economy, as well as a strong validation of bitcoin’s store of value thesis in a world of unprecedented and potentially inflationary monetary stimulus program.”

Since their inception in 2018, Galaxy has been struggling to turn a profit on a consistent basis.

With further increased economic uncertainty and the BTC halving proving to be a non-event that has resulted in miners losing 50% of their revenue overnight, Galaxy Digital Holdings continues to back themselves taking advantage of its share repurchase program by repurchasing an addition of 2.77 million shares for a totalling a cost of approximately US$2.3 million.

With fairness to Galaxy, the unforeseen negative economic impacts that the coronavirus calamity has caused that nobody could have seen has not discriminated against any industry in particular. However, the pandemic has also brought to light the companies that have poorly run business models and investment philosophies. Several of those poorly run businesses have overblown the pandemic as the reason for their woes, when in reality it was their faulty business model.

The majority of Galaxy’s digital currency holdings sit in BTC, currently listed at approximately 13,338 BTC (US$90 million).

Outside of investing in digital currencies, Galaxy invests in various companies in the digital currency industry like start-ups and other companies seeking to boost the value of the industry. In return, they will end up providing an increase in the value of their overall assets. The additional risk is these types of investments into entities that carry similar flawed philosophies for a digital currency like BTC that is crippled and cannot scale actually are double down bets that will lose in the end. Once the BTC smoke screen vanishes and its flawed model becomes more apparent, Galaxy’s investment losses will rapidly accelerate and self-perpetuate a downward spiral of losses for all parties if all companies are simply hoping for the same miracle for the BTC token value to continue to magically increase on the foundations of technology that is already broken.

Novagratz has recently engaged in conversations on Twitter around Bitcoin SV (BSV), in an indirect acknowledgement that he is well aware of the other version of Bitcoin that stakes its claim as the original, as it has succeeded in scaling on-chain and has proven to be technically and economically superior in every way by adhering to the protocol as described in the whitepaper.

Says who? Who made you the decider of my truth? I would say BTC can be valuable because there are only 21mm of them and there is a social construct that is agreeing btc has value. A giant community growing everyday. There are close to 100,000,000 people who agree.

— Mike Novogratz (@novogratz) May 29, 2020

Based off of this public commentary, it appears Novogratz is fully subscribed to the premise of the greater fool theory of there being enough people out there willing to buy a digital asset only based off its limited supply, irrespective of whether there is any intrinsic value or utility for the users buying to use it.

This fallacy has most certainly not proved to be successful so far. Without a scalable protocol the BTC network has already exhausted its capacity of how much the network can handle and in any such cases will not be able to handle any new users.