Novogratz’s Galaxy Digital Crypto Fund Lost $272.7 Million in 2018

Galaxy Digital Holdings, the crypto merchant bank founded by former hedge fund manager Michael Novogratz, lost $97 million in the fourth quarter, according to financials disclosed Monday.

The net loss widened from $76.7 million in the third quarter and from about $100,000 a year earlier, according to the filing with Canadian securities regulators. (Last February, New York-based Galaxy bought a Canadian publicly traded company in a reverse takeover.)

For all of 2018, its first full year of operation, the company lost $272.7 million.

The majority of the red ink in 2018, $101.4 million, came from selling digital assets at a loss.

Galaxy also recorded $75.5 million in paper losses on crypto it held that declined in price, $8.5 million in unrealized losses on investments in companies and $88.4 million in operating expenses.

Which coins lost

At the end of 2018, Galaxy held 9,724 bitcoin ($36.4 million), 92,545 ether ($12.3 million), 2.4 million EOS ($6 million) and 60,227 of monero ($2.8 million). The firm increased its investment in bitcoin and ether from the beginning of the year when it held 5,902 BTC and 57,000 ETH.

Galaxy also used to hold large amounts of Wax ($50.2 million) and BlockV tokens ($17.4 million), which disappeared from the top ranks of the firm’s investments at the end of the year.

According to the report, Galaxy lost money selling bitcoin ($70.3 million) and ether ($64.4 million), which was partially offset by $54.3 million earned selling some cryptocurrencies short (it’s not specified which ones).

bitcoin was the biggest source of losses at the beginning of 2018, while ether caused the most damage during the rest of the year.

Interestingly, Galaxy lost as much as $47 million on the depreciation of the Wax token, an asset created to power a platform for trading virtual goods like items in video games.

Several other altcoins also lost in price before Galaxy could profitably sell them during 2018: Kin ($10.9 million in losses), BlockV ($17.2 million) and Aion ($8.6 million). Some $5 million was also lost on EOS.

Protocols, mining and ICOs

A number of companies and investment funds in Galaxy’s portfolio declined in value.

For example, the Pantera ICO Fund LP shares’ depreciation caused the loss of $14.1 million (Galaxy currently has $17,4 million invested in the fund). The firm also took a haircut of $11.3 million on its shares of Canada-based Hut 8 Mining Corp, and $11.1 million on crypto wallet firm Xapo.

As of the end of 2018, Galaxy held $41.9 million in the stock of Block.One’s, the creator of EOS, plus some $5 million more in Galaxy EOS VC Fund focused on developing the EOS.IO ecosystem.

Meanwhile, payments startup Ripple Labs received $23.8 million, including “an indirect investment through a special purpose vehicle,” the report says.

Galaxy also invested $26 million in mining businesses, including Hut 8 Mining and Bitfury; $7.5 million in custodian and multi-signature wallet provider BitGo; and $5 million in Bakkt, the bitcoin futures exchange yet-to-be-launched by New York Stock Exchange parent ICE.

Other investments include Silvergate Capital Corporation, parent of the crypto friendly Silvergate Bank; tokenization startups AlphaPoint and Templum; investment vehicles Cryptology Asset and Pantera Venture Fund; and Mercantile Global Holdings, a Puerto Rico-based entity operating the recently founded San Juan Mercantile Exchange. The firm also provided $3.8 millions of loans for the crypto lending platform BlockFi.

Risk factors

Talking about the risks Galaxy may face in the future, the report pays special attention to the concentration of power in the hands of the CEO and major stakeholder Mike Novogratz, who owns more than 71 percent of Galaxy.

Among the regulatory and market risks, Galaxy is “highly dependent on Michael Novogratz, exposing shareholders to material and unpredictable ‘key man’ risk,” the document says, adding that the CEO’s “interests may be different from those of shareholders,” and there is a danger he “could engage in activities outside of GDH LP or could quit GDH LP in favor of other pursuits.”

No less notable, the report adds: “Mr. Novogratz’s public profile makes it more likely that GDH LP will attract material regulatory scrutiny, which would be costly and distracting regardless of whether GDH LP has engaged in any unlawful conduct.”

Image of Mike Novogratz via CoinDesk archives

Published at Mon, 29 Apr 2019 18:35:24 +0000

April 8, 2017

Bitcoin Bites Back: Wells Fargo in Court After Halting Exchange Transfers

The parent company of cryptocurrency exchange Bitfinex, iFinex, is suing Wells Fargo over disruption to wire transfers.

Bitfinex: Court Move To ‘Prevent Precedence’

Court documents filed by the company, along with fellow conversion service Tether.to in San Francisco, relate to the global bank allegedly blocking outgoing wire transfers to the banks servicing them.

“Wells Fargo has suspended U.S. dollar wire transfer operations needed to remit to plaintiffs’ customers U.S. dollars that the customers deposited with plaintiffs to purchase digital currency,” the complaint reads.

It adds that the bank’s actions were “causing imminent and irreparable harm to plaintiffs.”

In additional comments on Reddit, Bitfinex spokesman commented that the lawsuit was to “prevent precedence” and that if nothing was done, the phenomenon could repeat itself with other cryptocurrency businesses.

He said:

“We’re not going to rollover for action like this. It’s precisely why we have increased our legal department.

“The decision to initiate legal action is because we cannot allow precedence in this industry where clearing houses can disrupt businesses that are by all metrics complying with the rules in place.

“If we allow them to simply flip a switch and disrupt business, then there becomes a precedence in the bitcoin industry beyond just Bitfinex, so we believe it is the appropriate time to take action to prevent precedence.”

Fickle Banks Meet Their Match At Last

The decision to disrupt liquidity flow for the two services could well represent the most severe instance of a bank declining service to cryptocurrency businesses.

Previous instances include Venezuelan exchange Surbitcoin’s temporary shutdown due to a banking refusal, while flagship New Zealand exchange bitNZ disappeared for good after operating for six years due to its bank’s sudden decision to cut ties.

Not just exchanges, but entities from across cryptocurrency have felt the effects of banks’ changing whims. UK news resource Coinjournal had its bank account frozen by Barclays in September last year, allegedly over connections with bitcoin.

Regulations Bite Poloniex in Washington State

Meanwhile further up the West Coast, Washington State is to lose services from another bitcoin exchange, this time Poloniex.

In a circular to customers, “careful consideration of the Washington State Department of Financial Institutions’ interpretation of its financial services regulations” had resulted in the suspension of service for residents “until further notice.”

Customers affected have two weeks from April 6 to remove funds from their accounts. Before the deadline, they are also prohibited from “opening new margin positions, adding to existing ones, and lending funds.”

Bitfinex itself exited Washington State for the same reasons back at the beginning of March. Unlike Poloniex, however, the exchange hinted there would be no return, and its users had markedly less time to react.

What do you think about the Wells Fargo case? Let us know in the comments below!

Images courtesy of Shutterstock, poloniex.com

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