Galaxy Digital Slides 16% on Weak Earnings, FTT Exposure
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Galaxy Digital Slides 16% on Weak Earnings, FTT Exposure

Galaxy Digital's stock fell sharply on news of FTT exposure and weak earnings in Q3,
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

FTX going down marks the biggest FUD event since Terra’s collapse. Will there be another wave of contagion hitting crypto shores? Galaxy Digital, a prolific venture capital (VC) investor, has reported a $76.8 million FTX exposure, of which $47.5 million is in the process of withdrawal. The firm’s stock has dropped significantly on the news.

Galaxy Digital Q3 Earnings Reveal FTT Exposure

If one looks under the funding hood of any blockchain project, it is very likely that Galaxy Digital will be listed as the investor. From Polygon and Terra to BlockFi and Voyager Digital, GD has been a staple for crypto ICOs and blockchain ecosystem growth.

Headed by 57-year-old Michael Novogratz, Galaxy Digital has $2 billion in assets under management (AuM), as of October 31st. During the bull-heavy Q3 of 2021, the company made $517.9 million in profits. This Q3, Galaxy Digital entered the negative territory, suffering a $68.1 million net loss.

Nearly half of that loss comes from Galaxy Mining (GM), at $34.9 million, due to rising energy costs and lowered mining Bitcoin mining profits. Updated yesterday, GD reported $76.8 million tied with FTX, with $47.5 million pending to be withdrawn. 

Galaxy Digital Still Holds Ample Liquidity

Notwithstanding FTX exposure, GD significantly decreased its total liability, from $2.5 billion in December 2021 to $1.5 billion this quarter.

Galaxy Digital liabilities for Q3 2022 (left column) vs. Q3 2021 (right column). Image credit: Galaxy Digital

Overall, GD’s total equity decreased by -46% this quarter compared to Q3 last year, now remaining at $1.77 billion, out of which $1 billion is in cash.

“Retaining $1.5 billion in liquidity, including over $1.0 billion in cash, the Company continues to be in a position of strength for both organic and inorganic growth, as we focus on building for the future.”

Michael Novogratz, Founder and CEO of Galaxy Digital

In building that future, at least 20% of the workforce will not participate going forward. Moreover, Damien Vanderwilt, Co-President and Head of Global Markets, will step down into the role of Senior Advisor and Board Director by mid-January 2023.

Galaxy Digital Stock Yet to be Listed in the US

Due to the fact that Galaxy Digital suffered another net loss, after Q2’s net loss of $554.7 million, the stock went down -35% over the week. Since yesterday, GD stock plunged by -16.49%. Still trading over-the-counter (OTC), Galaxy Digital’s ticker is BRPHF.

Year-to-date, Galaxy Digital shares lost -84% value. At their all-time-high in November 2021 Galaxy Digital shares were valued at $32.56. Image credit: Trading View

For 2023, Novogratz plans to lead the company over the Nasdaq listing threshold. To accomplish this, Galaxy Digital should become a Delaware-incorporated company, following the SEC review and approval. 

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FTX FUD Results in Crypto Flash Crash

As the head of the world’s largest exchange Binance, Changpeng Zhao (CZ) forced SBF’s hand after it was revealed that the competitive FTX exchange was possibly using its native token FTT to leverage its many positions. In other words, the third largest exchange was likely taking advantage of user funds for the purpose they didn’t sign up for.

One of those purposes may have been bailing out Alameda Research, Sam Bankman-Fried’s VC firm with hedge fund fingers in many crypto pies, just like Galaxy Digital.

When CZ announced FTT liquidation, to his over 7 million Twitter followers, he created enormous selling pressure. Predictably, FTT’s price completely collapsed, much like in the days of Terra (LUNA), by -87% over the week. With retailers induced into extreme fear, Bitcoin also received its share of the selling pressure, dropping by -20% over the week.

Image credit: Trading View

As the domino effect unfolded, people began to withdraw their funds en masse, collapsing FTX liquidity. In the middle of this chaos, Sam Bankman-Fried (SBF) approached CZ to make an FTX-saving deal. By the latest accounts, CZ is likely to leave the non-binding FTX purchase agreement, after seeing the exchange’s abysmal balance sheet, according to a CoinDesk source.

Consequently, as once $16 billion-valued FTX turned into an under $1 billion company practically overnight, it casts a dark shadow over the entire crypto space. FTX-joint-venture firm Alameda Research is equally in peril, replicating the crypto contagion we’ve seen after Terra’s meltdown in May.

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Do you think the double-whammy of recession+FTX will bring down Bitcoin under $14k? Let us know in the comments below.