When exploring various knowledge and elements in the blockchain and Web3 fields, the interplay between financial attributes and technological aspects often confuses many people. The blockchain industry as a whole exhibits a combination of underlying technology and financial models.

While this does not imply that the entire blockchain industry is essentially a purely financial sector, it is undeniable that many aspects, from prominent financial investments to the current mainstream cryptocurrency market, as well as various application-layer projects, revolve around the flow of capital. Naturally, practitioners and investors are more concerned with the circulation of funds. Among them, actions from leading investment institutions often serve as a barometer of market trends.

However, it was not until 2017 that companies representing various traditional capital started to enter the blockchain industry. During the period when the cryptocurrency market was booming, companies primarily focused on blockchain investments began to participate in the industry and continuously expand their related businesses.

Galaxy Digital emerged as one of the representative companies during that period.

What is Galaxy Digital?

Galaxy Digital is a technology-driven financial service provider and investment management company that provides a comprehensive range of financial solutions covering the digital asset ecosystem to institutions and direct clients. Galaxy Digital operates businesses in trading, asset management, investment banking, mining, and principal investments. Its CEO and founder is Michael Daffer.

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Galaxy Digital was established at the end of 2017, precisely when the cryptocurrency trading market was continuously expanding. In the middle of 2018, it went public on the Canadian Toronto Stock Exchange through a reverse merger. Since its inception, the company has primarily focused its business on the cryptocurrency domain.

Initially, Galaxy Digital had four major business lines, with the trading and investment sectors being the most profitable over the years. However, the consulting and asset management businesses have yet to fully develop throughout the company’s growth process.

As the core profit-generating segment, the trading business primarily provides over-the-counter spot trading for clients. However, its overall market performance is highly correlated with the trends in the cryptocurrency market. With the transition from a bull to bear market between 2018 and 2022, Galaxy Digital’s trading business experienced significant ups and downs.

Regarding the investment direction, it is well-known that due to entering the market early, Galaxy Digital had numerous options. However, perhaps because of its relatively short establishment period, the company’s foundation and strength in the investment field were insufficient to meet business demands. Therefore, in the early stages, Galaxy Digital entrusted certain investment activities, such as ICO investments, to experienced investment institutions such as Pantera and Blockchain Capital.

The market operations of these two investment institutions did not deliver the anticipated results to Galaxy Digital, at least in the early stages. After all, during 2018-2019, the true bull market had yet to arrive, and as a result, investments in many projects did not yield remarkable returns in the short term.

Especially, the ICO fund under Pantera experienced an 86% decline, leaving Galaxy Digital with only a little over 2 million USD from the initial 17 million USD investment. However, fortunately, this fund had previously invested in star projects like Filecoin and Polkadot, and the subsequent launch of their mainnet tokens helped offset a significant portion of the losses.

As for the consulting and asset management businesses, Galaxy Digital adjusted its business lines in subsequent developments. It dismantled the consulting services aimed at institutions and project parties, incorporating them into solution designs tailored to target clients’ needs.

However, the asset management business has been operational today, providing clients with active or passive risk investment tools. Based on this, Galaxy Digital offers target clients solutions for building digital infrastructure and addressing mining and network security.

Currently, Galaxy Digital’s client base includes institutional investors, project parties, banks, market makers, mining platforms, and various other types. It has also established itself as an intermediary bridge between traditional capital and blockchain investment. The company also engages in research and investment-related ancillary businesses, aligning with its founder’s earliest vision of being an investment bank in the crypto field.

The Origin of Galaxy Digital

The founder of Galaxy Digital, Michael Daffer, can be described as a Wall Street legend, having experienced numerous ups and downs in his business career. He worked at the renowned Goldman Sachs for 11 years, starting as a hedge fund manager and later becoming a partner. However, he left Goldman Sachs just one year after its listing in 1999.

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A year later, Michael Daffer became a partner at Fortress Investment Group, which eventually went public and boosted Novogratz’s net worth to $2.3 billion. However, due to investment mistakes, he left Fortress Investment Group in 2015. Later on, Fortress Investment Group was acquired by SoftBank and became its subsidiary.

During his time at Fortress, Michael Daffer was inspired by Peter Briger, a partner at the firm, to enter the world of cryptocurrencies. Peter Briger introduced Michael Daffer to Wences Casares, an Argentinean who was not only an early believer in cryptocurrencies but also an investor.

The interaction between the two exposed Michael Daffer to the potential of cryptocurrencies. In 2013, he personally invested $7 million in cryptocurrencies when a BTC was only around $100.

Interestingly, in the world of elite wealthy investors, their connections sometimes make the circle seem smaller. As mentioned earlier, SoftBank acquired Fortress Investment Group, and naturally, Masayoshi Son, following the suggestion of the Chairman of Fortress Investment Group, started paying attention to BTC.

However, since Masayoshi Son’s interest in BTC came relatively late, he bought BTC during the bull market in 2017, and when the price plummeted, he sold it to cut his losses. This investment loss became one of his few investment blemishes.

Also in 2017, Michael Daffer stated that 20% of his assets were in BTC and ETH, and during those years, he earned over $250 million from investing in cryptocurrencies.

Perhaps this was the catalyst for Michael Daffer to establish an investment bank centered around cryptocurrencies. After all, looking at the development prospects of cryptocurrencies from a capital perspective would yield different conclusions than typical cryptocurrency enthusiasts. Michael Daffer’s extensive Wall Street background enabled him to seize opportunities in the cryptocurrency market.

Thus, on November 30, 2017, Galaxy Digital was officially registered in the Cayman Islands. A week later, the trading business was launched, coinciding with the largest bull market in the history of BTC (which was later surpassed in 2021). Less than a month after the establishment of Galaxy Digital, BTC reached its all-time high of around $20,000, and the market subsequently entered a long bear market phase.

However, market fluctuations were not the primary focus of Galaxy Digital in its early stages. Compared to chasing prices for immediate profits, Michael Daffer excelled at capital operations in the market game, aligning with Galaxy Digital’s founding vision as a cryptocurrency investment bank.

Therefore, going public became the initial goal for Galaxy Digital. With his experience of Goldman Sachs and Fortress going public, Michael Daffer naturally chose the fastest route - a reverse merger.

In May 2018, Galaxy Digital merged with Canadian company First Coin Capital Corp. to form a limited partnership company called Galaxy Digital Holdings LP, which became the main operating entity of Galaxy Digital.

Following that, Galaxy Digital acquired a pharmaceutical company named Bradmer Pharmaceuticals Inc., listed on the Toronto Venture Exchange, and renamed it Galaxy Digital Holdings Ltd., ultimately completing a reverse acquisition and going public in August 2018.

The most important asset of this publicly listed holding company is its ownership of Galaxy Digital Holdings LP, holding 23.3% of its shares. In other words, Galaxy Digital Holdings LP listed its own 23.3% equity. Additionally, Galaxy Group Investments LLC, owned by Michael Novogratz, is the sole general partner of Galaxy Digital Holdings LP.

Through these actions, Galaxy Digital ultimately achieved the listing of its corporate entity, followed by a series of IPOs and stock offerings. With ample funds, Michael Daffer began to focus the company’s investments on participating in the cryptocurrency market.

Galaxy Digital Business Overview

However, at that time, the overall market size of the crypto market was still in the stage of continuous development. In an emerging and immature field, relying solely on capital investment for returns would be difficult to sustain the company’s future growth. Galaxy Digital also recognized this in its early stages.

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Therefore, in the early stages, the business lines that supported the company’s revenue primarily served the over-the-counter (OTC) trading of cryptocurrencies for institutional investors. Of course, the initial investment activities also yielded certain returns.

As mentioned earlier, the initial business division and subsequent adjustments of Galaxy Digital have been appropriately explained. After adjusting business lines, the company’s core business lines have changed to global market trading, asset management, and digital infrastructure solutions.

Global Market Trading

Capital Liquidity

Electronic Trading: By connecting to Galaxy Digital’s platform via API or GUI, users can access cryptocurrencies and fiat currencies in the over-the-counter trading field. Users can utilize the platform-tools to reduce market impact and seek primary access points for trading counterparts.

OTC Trading: Galaxy Digital provides risk management solutions to facilitate bulk risk transfer while reducing market impact and offering customized solutions for a range of high-touch trading counterparties.

Derivatives

Galaxy Digital’s derivatives services offer physical or cash settlements, as well as futures delivery services. The platform enables competitive trading through Galaxy’s exchanges and market-making networks.

Galaxy Digital eliminates the need to manage multiple liquidity provider accounts, minimizing the risk of exposing users’ trading activities. Furthermore, the platform’s significant trading volume effectively meets users’ risk storage requirements.

Loans and Structured Products

Galaxy Digital offers a range of product services, including margin loans, miner financing, revolving credit financing, trust fund financing, application loans, and professional loans. It provides 24/7 round-the-clock service and has a dedicated team for reviewing and managing professional loan arrangements.

Strategic Opportunities

Galaxy Digital can build infrastructure to support the integrity of various protocols and ecosystem projects, while providing additional liquidity services to promote token liquidity in both CeFi and DeFi scenarios.

In conjunction with this, there is a special custody management solution that enhances risk management, liquidity, and returns for founders, foundations, and crypto users in projects. The extensive range of clients covered by Galaxy Digital’s business lines also constitutes potential customers for the platform.

Investment Banking

In its core investment business direction, Galaxy Digital provides financing, mergers, acquisitions, and customized strategic services for target clients, effectively covering the investment needs of companies in the crypto field.

Since 2019, Galaxy Digital has played advisory, agency, and management roles in several investment cases, including some well-known entities in the crypto field.

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Asset Management

Galaxy Digital provides insights into market dynamics, market structure, product roadmaps, and competitive landscapes.

To implement the asset management business, Galaxy Digital offers three asset management products: Galaxy Funds, Galaxy Ventures, and Galaxy Interactive.

Among them, Galaxy Funds include passive and active funds. Passive funds mainly focus on managing investments in BTC and ETH, while also providing specialized index funds to offer users more diversified asset custody solutions.

The active funds include Galaxy Liquid Alpha Fund, GVH Multi-Strategy Fund, and GVH Risk Fund. Compared to passive funds, active funds adopt more aggressive strategies, with higher risks and potential returns.

Galaxy Ventures is a dedicated branch of Galaxy Digital for asset investment and custody services, catering to all types of projects in the blockchain industry at the current stage.

Galaxy Interactive focuses more on the cross-section of content, technology, and social commerce in which Galaxy Digital invests, with a focus on video games and infrastructure that powers immersive virtual worlds. This not only supports industry development but also generates long-term investment returns.

Digital Infrastructure Solutions

As mentioned earlier, Galaxy Digital’s business in this area focuses on BTC mining, network validation, and security.

In terms of BTC mining, Galaxy Digital provides hosting services and acquired Helios from Argo Blockchain in December 2022, giving Galaxy Digital access to a large-scale BTC mining facility capable of operating at a power capacity of up to 180 megawatts, providing hosting services to miners worldwide.

At the same time, Galaxy Digital is also engaged in BTC mining itself. Although mining is no longer as lucrative as before due to the decreasing supply and output of BTC, it still remains a viable option for mainstream cryptocurrency mining.

Based on its resources, Galaxy Digital adopts a MiFi model. It integrates a system network that includes BTC miners, trading, hedging, and financing through comprehensive platform services, providing corresponding solutions to clients.

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In terms of network security and validation, Galaxy Digital has partnered with GK8, a company specializing in enterprise-level custody platforms. This partnership enables financial institutions to drive new revenue streams through digital assets while protecting them from network attacks.

The collaboration with GK8 complements Galaxy Digital’s business in blockchain infrastructure and provides underlying security technology support for the company’s various business lines.

The above is a rough introduction to Galaxy Digital’s current business lines, demonstrating the development trajectory followed by the company, which originally established itself as a crypto investment bank. Whether investment, asset management, or investment in the mining industry, Galaxy Digital has mostly played the role of industry advocate and supporter, as evidenced by its cases over the years.

Galaxy Digital and a16z

If Galaxy Digital aims to become the Goldman Sachs of the cryptocurrency market, people will inevitably compare it to similar companies in the industry. Among them, a16z can be said to be one of the most renowned and influential investment firms in recent years, especially in blockchain and cryptocurrencies. Whether it is practitioners or crypto users, they have generally heard of its name.

Unlike Galaxy Digital, which entered the blockchain industry by seizing market opportunities, a16z was established much earlier. a16z was co-founded by Andreessen and Ben Horowitz in 2009. Andreessen is the founder of the early internet company Netscape, while Ben Horowitz founded the software company Opsware. After its establishment in 2009, a16z invested in companies such as Facebook and Twitter in the early stages.

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As an investment firm that has been around for over 10 years, a16z was initially known as an emerging company dedicated to the Internet industry. Although it had already invested in well-known companies such as Lyft, Airbnb, Pinterest, Coinbase, Slack, Okta, Stripe, and Robinhood in 2016, its investment returns were not on par with renowned industry players like Sequoia Capital and Benchmark Capital, mainly due to its long-term investment strategy.

After entering the blockchain industry, a16z began investing in some companies in the early stages of blockchain development, with Coinbase being the most notable example. When many investors did not favor cryptocurrency exchanges during the early days of blockchain technology, a16z was early to recognize and support them. It became the largest institutional investor in Coinbase before its direct listing, and so far, a16z has gained billions of dollars in investment profits from Coinbase. Starting from 2013, a16z invested $25 million in Coinbase during its Series B funding, and until 2020, a16z made eight additional investments in the company.

However, it was in 2021 that a16z gained significant industry recognition. During that year, its investment portfolio saw 43 companies go public or be acquired, three times more than any previous year on record for a16z. This accelerated the pace of their subsequent investments, and the platform saw a doubling of its trading volume compared to 2020. The main focus of their investments shifted towards blockchain-related areas.

This is the long-term investment strategy advocated by a16z, which started its investment activities in the early stages of the blockchain industry and achieved remarkable returns over the years.

Currently, a16z has also invested in blockchain-related projects such as Uniswap, Solana, MakerDAO, Dfinity, and Chia, covering Web3, stablecoins, exchanges, infrastructure, NFTs, DeFi, GameFi, and more. It has become a benchmark for cryptocurrency investments.

From the clear conclusion, it can be seen that compared to Galaxy Digital, a16z has achieved much more impressive investment results in the blockchain field. This is due to the differences in the time of their entry into the blockchain industry and the target customer base they focus on.

a16z entered the industry when it was flourishing, and most of the future renowned projects were still in the early stages of accumulation. When another bull market arrived in 2021, the resources accumulated by both parties naturally differed significantly.

Furthermore, as a well-established investment firm with a longer development history, a16z’s funding in the blockchain industry cannot be compared to emerging investment firms like Galaxy Digital, which heavily rely on the personal funds of their founders. Due to its long-term cultivation, a16z has transformed itself from a pure investment firm into a startup service economy company. Alongside their previous successful investment cases, they have directly influenced public opinion, with many investors even considering a16z as an industry thought leader.

Galaxy Digital, on the other hand, clearly lacks such conditions. Since its establishment, the company’s main supporting business line remains its trading operations, and although it has successful investment cases, its long-term equity investment activities are lacking. This is also one of the reasons why Galaxy Digital is expanding its businesses in mining and research.

However, although Galaxy Digital cannot compare to the soaring reputation of a16z, the two companies have significant differences in their target customers and business development directions. In the future, Galaxy Digital may focus on asset custody and make efforts in that area, provided that the platform offers sufficiently robust products and services.

The Development and Market Performance of Galaxy Digital

Due to its initial focus on over-the-counter spot trading and a concentration of mainstream cryptocurrencies in its trading offerings, Galaxy Digital’s market performance is closely linked to the overall cryptocurrency market.

The main counterparties in its trading business include cryptocurrency mining-related companies, cryptocurrency funds and venture capital firms, family offices and high-net-worth individuals, financial institutions involved in payments and custody, hedge funds, asset management, and pension funds. Galaxy Digital trades assets such as BTC, ETH, BCH, LTC, XMR, DASH, ETC, and ZEC, among other popular cryptocurrencies.

This makes Galaxy Digital vulnerable to market fluctuations and its revenue status follows the overall market trends.

Since Galaxy Digital went public in 2018, its market performance in several consecutive quarters could have been more satisfactory. Coupled with its dependence on trading business, the company had to adjust its business lines. However, in terms of investment business, Galaxy Digital’s performance has been somewhat mixed.

In the early stages, Galaxy Digital engaged in a series of proprietary investments, aiming to achieve high returns outside the traditional fund format. This business focused on providing strategic and long-term capital to companies within the ecosystem, including large or small cryptocurrency projects, ICOs, Pre-ICOs, early or late-stage venture capital, growth equity, private equity, and various secured, unsecured, and structured loans.

Additionally, investments were made in other funds and institutions to cover different types of ecosystems and projects within the industry.

Galaxy Digital invested in several limited partnership funds and investment institutions. This was mostly due to the differences in investment project stages and niche areas. However, this choice did not bring reasonable returns to the company. The volatility of the cryptocurrency market is more pronounced compared to traditional financial markets, as seen in the losses mentioned earlier with Pantera, resulting in Galaxy Digital’s losses in 2019.

However, the investment in Cryptology brought Galaxy Digital decent returns due to the strong performance of Block.one. During subsequent selling and business divestment processes, Galaxy Digital held EOS tokens with a market value of around $16 million. Coupled with the sale of equity, Galaxy Digital obtained tens of millions of dollars in profit.

Afterward, Galaxy Digital began directly investing in certain cryptocurrencies, with notable examples being WAX and FTX, including stablecoins like Monero.

The details of FTX’s fraud incident are not discussed here. In summary, Galaxy Digital, constrained by its business direction, shifted its focus to early-stage and mid-stage project investments after experiencing poor performance in its initial investment business. This strategy yielded significant profits during the bull market of 2021.

Conclusion

In general, Galaxy Digital, as a blockchain-focused investment company, demonstrates its characteristics through the diversity of its business and comprehensive coverage of various fields. Its investment direction primarily focuses on cryptocurrencies, with fewer investments in emerging assets such as NFTs and contract staking. This has contributed to its relatively low-profile presence in the past few years.

However, Galaxy Digital’s contributions to infrastructure development and asset management are evident. In the current market downturn, the company has been diligently accumulating resources behind the scenes, perhaps making a wise choice to await the arrival of the bull market.