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Galaxy Digital Stock: Traditional Finance Meets Digital Finance (OTCMKTS:BRPHF)

Bitcoin cryptocurrency stock market exchange chart. Bank market and virtual crypto currency value 3D graph
Written by publisher team

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Founded by former hedge fund manager Mike Novogratz, Galaxy Digital (OTCPK: BRPHF) It is a bridge between traditional finance and digital finance. Galaxy Digital’s operations are more complex and diverse when compared to many crypto-based companies. Galaxy Digital’s operations can be divided into five business lines: asset management, investment banking, mining, principal investments, and trading. Galaxy Digital offers lower risks compared to most crypto companies, while still reaping the benefits of the growing crypto market. I value the Galaxy Digital at $32.62.

running business line

Income Segmentation in Galaxy Digital Q3

Galaxy Digital Q3

trade

The trading segment includes core long positions, as well as being a market maker for spot, derivative and lending activities. The main revenue driver for any liquidity provider is volume and spreads. Spreads should be expected to diminish over time as the market matures and volatility decreases. As of the third quarter earnings call, market-making activities constitute the “teens” of the revenue market mix. With the underlying long positions being the majority of the market mix and just under half of the third-quarter income, you should expect this segment to drop in the event of a drop in cryptocurrency prices.

Major Investments

Early investing major investments can be summed up in anything compelling in crypto. More than 110 investments have been made. The wide range of investments shows how Galaxy Digital is more diversified than most crypto companies. For example, Galaxy Digital funded Bitgo in 2018, and later announced its acquisition in May 2021, its first billion-dollar deal in crypto. Assuming Bitgo shuts down advertising it could be a market catalyst.

Bitgo will increase the general scope of the services, and have synergistic qualities with existing offerings.

Galaxy Digital Q3 investor offer

Expand the geographical scope of the two companies’ offerings. Increase product innovation by increasing the number of already knowledgeable employees.

The main synergy is Bitgo which is the second largest crypto-custodian provider in the world. Crypto custody is the equivalent of a digital banking vault, customers young and old want to know that their assets are safe. Bitgo custody specializes in institutional players, so institutional adoption of digital assets increases the need for custody as well.

As of November 15, Bitgo has more than $64 billion in assets in custody, nearly 4 times the value of the previous year. If you have traded Bitcoin rolled on the Ethereum chain, you are indirectly a Bitgo customer because all the WBTC core Bitcoin is owned by Bitgo. In addition, Bitgo processes 20% of the total in chain Bitcoin transactions.

The Ethereum signal chain (ETH-USD) and the mainnet are set to merge in June 2022, heralding the era of staking for the second largest cryptocurrency by market cap. Organizations will want to take advantage of this opportunity, so they will need a guard to share with. Bitgo is a step ahead of potential competition that is already offering collateral for several currencies including Ethereum in the beacon chain.

asset Management

Assets managed over time

Author using data from Galaxy Digital playback update

Assets under management have seen a steady increase over the past year. AUMs grew 255% year over year, from 807 million to 2873 million. Third-quarter net inflows were $49 million, which means the growth isn’t just due to performance growth. The US crypto ETF market may open in 2022, if Galaxy Digital can gain a foothold from the initial listings, it will be a huge boom in the sector.

Investment Banking

Galaxy Digital has carved a niche in the investment banking space, which will help create long-term relationships with clients. The investment banking sector is also a great factor for business diversification, due to sales being driven by non-crypto markets. Recently raised $50 million plus advising CoreWeave; A cloud computing company that specializes in graphics processing units.

Mining

Galaxy Digital’s mining operations are small compared to professional miners like Bitfarms (NASDAQ: BITF)Digital Marathon (NASDAQ: MARA), and Riot Blockchain (NASDAQ: RIOT). Galaxy Digital is expected to reach around 2 EH/s by the end of 2022, which is in the same ballpark that RIOT and BITF are currently in at the end of 2021. If you’re looking for exposure to mining, look elsewhere because this part will do that. It remains a small contributor to current forecasts. Galaxy has a vision of becoming a one-stop-shop for mining financial services, and currently provides financing and resale for miners.

evaluation

As with most crypto companies, Galaxy Digital has seen significant changes in operating and capitalization over the past year, so it has used adjusted Bitcoin (BTC-USD) values ​​as a proxy when it comes to growth estimates, and beta. Since it is primarily a financial service, the free cash flow will be used to equity.

9 months ending September 30, 2021

In thousands of US dollars

Net cash provided by (used in) operating activities

$206,244

Loans receivable, net of repayments

– 102,103 dollars

Payable loans, net repayment

7185 USD

Purchase of property and equipment

– $6,046

Free cash flow to equity

$105,280

Annual free cash flow to equity

$140,373

The third-quarter financial statements are used to derive the prefix FCFE. Standard rules apply starting with the OCF, deducting capital expenditures and changes in debt. This resulted in an annual amount of US$140 million.

growth rate forecast

Created by author using data from Yahoo

As mentioned above, Bitcoin is used as a proxy for growth, which uses the same methodology described in my Bitfarms article. Using the historical growth rate, plus the decay of the historical growth rate. For Galaxy Digital, higher decay values ​​(lowest growth) are used, since they are less exposed to crypto risks than Bitcoin itself, and therefore may not experience the same level of growth as the asset. The year-to-year growth rate is then applied to the FCFE, ending with a final growth rate of 3%.

Risk Free Ratio

1.50%

market price

8.00%

raw beta

1.43

modified beta

1.29

Discount rate

11.79%

Initial growth rate

91.95%

Final growth rate

3%

fair value of equity

$11,392,885,027

Share the price

$32.62 USD

CAD stock price (0.79)

$41.30

Source: Created by the author

For the discount rate CAPM is used. An initial beta is derived from 1.43 monthly Bitcoin data against the 5-year SP500. Interest rates are due to rise in 2022, so a rate higher than the current 1.50% risk-free rate is used. Galaxy Digital is more diverse, and therefore should be heading towards the beta 1 market, so a smooth adjustment is made: Modified beta = 1.43 (0.67) + 0.33 = 1.29. This modified trial results in 1.29 and the discount rate is 11.79%.

Once the FCFE is deducted, the fair value of the stock is calculated against the total of the diluted shares, resulting in a fair value of $32.62 and for Canadian TSX traders the fair value is CAD 41.30.

Just as a quick check, let’s compare the price to profitability of cryptocurrency finance and traditional finance companies; Queen Piece (NASDAQ: currency) and Goldman Sachs (NYSE: GS).

P/E.

Rating P/E

Market value (billion dollars)

Galaxy Digital

4.74

9.35

5.75

Goldman Sachs

6.51

132.60

Queen Piece

17.48

50.00

Created by the author

At the current price, Galaxy Digital’s P/E multiple of 4.74 tracks both companies, despite being smaller than both, and in a higher growth market compared to Goldman Sachs. Using the fair value of the valuation instead of the price, a P/E of 9.35 is the result, still significantly under Coinbase, and via Goldman Sachs, showing that the valuation is within reason.

Risks

Galaxy Digital is less risky than many other crypto assets, but it is not without its risks. Anything inside crypto is speculative, so don’t expect a similar low risk to traditional financial stocks anytime soon. Some of the main risks after general price swings in the near future are: regulations and a prolonged decline in cryptocurrency.

Legal regulations and procedures have emerged or at least been considered in many parts of the world. China has blacklisted both mining and transactions, the Securities and Exchange Commission (SEC) has taken legal action against Ripple (XRP-USD), and the UK has introduced crypto KYC to name a few. Legal developments around the world need to be monitored specifically for Galaxy Digital any procedures related to cryptocurrency transactions.

Crypto extended into bear markets after bull market parabolic. Unlike many crypto assets, it is reasonable to assume that Galaxy Digital can weather the ‘crypto winter’, but it will still stifle growth significantly. However, I don’t think this bull market is over and will continue until 2022.

wrapping

Galaxy Digital offers a greater range of services and diversity that is second to none in the industry. Trading at the current big discount for a traditional financial services company would be the opportunity of a lifetime, with Galaxy Digital becoming the de facto provider of cryptocurrency financial services, bolstered by the acquisition of Bitgo. The high growth in the size of the cryptocurrency market and the increase in institutional interest is increasing the need for the services offered by Galaxy Digital. If you want any crypto stock, Galaxy Digital should be at the top of your list.

About the author

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