Andy Murphy

@Columbia_Biz '23, @WakeForest | former: @AQRCapital, @jpmorgan

[Mike Novogratz @novogratz]

I’ve been thinking a lot about where Galaxy is headed. We talked about it on Wednesday's X Spaces, but I wanted to share a few thoughts here too.

I've said it before and I'll say it again: we are just getting started. While our long-awaited Nasdaq listing marked the end of a chapter, it more significantly marked the beginning of a new one. Here's how I see it:

Galaxy is two businesses under one roof: a full-stack digital asset platform and a next-gen AI infrastructure company. Both are shaping the future. Most companies focus on one. We’re going after both.

Our crypto business was built for this moment. After years of saying the herd was coming, the herd is finally here. Every major financial institution is figuring out how to engage. ETFs were just the start. Tokenized assets, credit markets, stablecoins...they’re all on the horizon.

At the same time, we’re building one of the largest AI data center campuses in North America. Helios is already scaling fast. This is real infrastructure with real cash flow potential. We’re moving from a business tied to volatile asset cycles to one with stable, recurring revenue, and that changes everything.

@galaxyhq is where innovation meets execution. If you believe in the future of finance and the future of compute, pay attention to what we’re building.

$GLXY

[Kevin Devaney Jr. @KDJmedia1]

Final: Byram Hills 44, Pearl River 37 in the Section 1 Class A championship. Back to back titles for the Bobcats and fourth for head coach Ted Repa, an incredible feat.

[Galaxy @galaxyhq]

In 2018, Galaxy Ventures set out to back the visionaries building crypto’s future.

We’ve been investing in the cutting edge ever since—supporting formative founders and technologies that laid the groundwork for today’s digital economy.

Fast-forward to today, we’re still at it—doubling down on what comes next.

[Galaxy @galaxyhq]

$100,000 Bitcoin—more than a number.

[Kris Pursiainen @krispursiainen]

Some fun facts:

- Reggie Miller and the Pacers lost the series
- Miller was 26-41 vs NYK in his career
- Miller was 7-27 vs NYK at MSG

All this to say: my father always says to never let the truth get in the way of a good story. The legend of Reggie Miller at MSG will live on.

[Jerry Ferrara @jerryferrara]

Bigger the head the bigger the star!!! Jalen Brunson! Big big head!

[KnicksMuse @KnicksMuse]

THE CRAZIEST NBA PLAYOFFS SEQUENCE YOU WILL EVER SEE

[Alfy @TheTrueAlfy]

KNICKS WIN. 50 WINS FOR THE FIRST TIME IN A DECADE. MF’IN 2 SEED.
DONT MATTER WHO THIS TEAM SEES ROUND 1 THEYRE MAKING NOISE

[Mike Novogratz @novogratz]

Galaxy Asset Management has exceeded $10 billion in AUM for the first time ever, solidifying our position as a global leader in digital asset management. We are proud of our continuous progress in enabling investor access to the growing digital economy. Congrats @SteveKurz and the rest of the GAM team.

[Alex Thorn @intangiblecoins]

Why We Aren't (S)Topping

(for my first ever long X post, I'm releasing a note I sent early this this morning to Galaxy counterparties and clients)

The sun hasn’t yet risen in NYC, but I know it will. From Galaxy HQ north of Battery Park, the Hudson River looks like a sea of black but for the occasional glow of ferry lights appearing from or receding into the darkness. But Bitcoin is awake. If you want to sleep in this market, you better not wake up for a glass of water at 3am and look at the Bitcoin price, because you’re liable to be greeted with a fat green candle that makes returning to bed difficult. BTC is trading above $59k, and apparently traded as high as $59.5k in the early hours on the Eastern seaboard of the United States.

There are reasons – if you’re reading this you probably know a lot of them. The BTC ETFs took in a whopping net $576m of BTC yesterday (Tuesday Feb. 27), with BlackRock alone seeing $520m of inflows, its largest ever day. Saylor is still buying for MSTR; Reddit is going public and said it may continue to add BTC, ETH and MATIC to its balance sheet. Fidelity Canada (different from Fidelity Investments) is recommending a 1-3% allocation. Every day we see news that another RIA platform has added support for the ETFs. A wave of new demand is smashing against a programmatically scarce asset of which 75% is held by long-term holders, many of them diamond-handed zealots forged in the fire of several volatile market cycles.

One big question I’m hearing this week – where are we in the “cycle?” Notably, Bitcoin is trading just 12.16% below its prior all-time high. Bitcoin’s 4th halving will occur in about 52 days. At this point prior to the last two halvings, BTC was still down 60%+ from its previous all-time highs. Effectively, the bull runs of 2017 and 2020 hadn’t yet begun at this stage in Bitcoin’s supply schedule.

52 days before 2nd Halving (9-JUL-16)
BTCUSD $455.22 (-59.86% from ATH)

52 days before 3rd Halving (11-MAY-20)
BTCUSD $6,174 (-68.56% from ATH)

52 days before 4th Halving (20-APR-24)
BTCUSD $59,330 (-12.16% from ATH)

Although there have only been 3 halvings, and at 15 years old Bitcoin is still young by the standards of any asset class, some have raised worry that we may be speedrunning the “cycle” this time around. I suppose the notion is that the run we’ve seen over the last year might be the bull run, and that the normal course of post-halving bullish cycle may not occur. If we make a new ATH before the expected halving date of Apr. 20, 2024, that would further exacerbate this view, some say.

I’m here to say that I don’t believe that for a second. This time is different. The advent of Bitcoin ETFs in the United States is truly a monumental shift that will disrupt everything we know about Bitcoin price cycles, how to assess holder behavior, and intra-crypto rotational dynamics. But before I get into that, here’s a pile of data that suggests we are not yet topping.

Long & Short-Term Holders

Long-term holders are still mostly holding strong, currently possessing about 75% of all BTC supply. In just the last few days, we have seen a small decline – signifying a marginal transfer of coins from long to short term hands – the magnitude is nowhere near what we’ve seen in prior cycles.

MVRV Z-Score

Another way to visualize the cyclicality of Bitcoin price action is to examine the aggregate cost basis of the Bitcoin supply. While market value (market capitalization) is calculated by multiplying the current circulating supply by the last known price, realized value (realized capitalization) sums the value of coins at the time they last moved onchain. For example, if I bought a coin for $100 in 2012 and haven’t moved it since, that coin contributes $100 to the aggregate realized market cap. If we calculate a Z-score, the ratio between the difference of market cap and realized cap, and the standard deviation off market cap, we can evaluate whether Bitcoin is overvalued or undervalued.

Futures Open Interest

While BTC futures open interest is nearing all-time highs, so too is CME’s market share at more than 25% of all OI. Whereas prior peaks coincided with market tops, those futures markets were dominated by offshore crypto-collateralized exchanges, and market participants were much less institutional. They used volatile cryptoassets as collateral, sometimes an exchange’s native token (RIP FTT), and took on crazy amounts of leverage. Today, CME dominates and traders must post cash. And you have bigmarket players now – such as the authorized participants for the Bitcoin ETFs – that are using futures to hedge rather than for leverage.

Indeed, as @dylanleclair pointed out (https://t.co/7U8metYUXM), the futures complex is completely different to prior cycles. The percent of crypto-margined futures open interest is “down only.”

More on leverage – shout out to Hannah Burgess who flagged this chart from @cryptoquant_com for me. The leverage ratio across exchanges is lower than it was just 2 months ago, let alone last summer. By dividing futures exchanges’ open interest by their total BTC reserves (i.e., custodied assets), you can get an idea of what user leverage. Increasing values indicate more investors taking leverage risk, while decreasing values suggest lower risk. (Image omitted due to 4-image max on X, see subsequent tweet)

Retail Interest

There’s definitely some retail interest, as exhibited by ETF inflows (more on ETFs below), but some of the toppy metrics haven’t yet rebounded. Google Trend data shows still minimal search interest, app store rankings show the retail crypto apps are not peaking as they have during prior runs, Twitter mentions are well below prior peaks, etc. (Image omitted due to 4-image max on X, see subsequent tweet)

Bitcoin ETFs

The ETFs have added assets on a net-basis over 21 of the last 22 days – and incredible feat. Yesterday was the third largest day of net inflows, and Monday was the 4th largest day. Flows appear to be accelerating, not stagnating or subsiding.

Bloomberg Intelligence (@JSeyff)

Despite incredible volumes and flows, there’s plenty of reason to believe that the Bitcoin ETF story is still just getting started. As we wrote in our October 2023 report “Sizing the Market for the Bitcoin ETF,” (https://t.co/oLkKyhHiJ1) the primary net new accessible market for these vehicles are wealth managers and financial advisors, who have not had a real way to allocate client capital to Bitcoin exposure. While we are periodically seeing headlines of this or that RIA adding support for the ETFs, there is $40tn of AUM at banks and broker/dealers that has not yet turned on access. We are likely to see a constant drip of headlines over the next 3-18 months about these platforms adding access – and these won’t just be catalyzing headlines, they come with the chance of new inflows too!

US Wealth Management - By Platform Type
Broker-Dealer = $27.1tn
Bank = $11.9tn
Registered Investment Advisors = $9.3tn
Total US Wealth Management AUM = $48.3tn
Source: Galaxy Research; Data: Dakota (Oct. 2023)

In April, we will also get the first round of post-ETF-launch 13F filings, and (I’m just guessing here…) we are likely to see some huge names have allocated to Bitcoin. New platforms, new investments, and higher prices compound on each other, creating a feedback loop.

Declining Volatility

Over time, BTC’s volatility has declined, and it is likely to continue declining over time. ETF buyers, especially advisor-managed accounts, are much less likely to day trade than cryptocurrency exchange users. Said another way, if a large portion of BTC ends up inside ETFs, these assets will likely be stickier than BTC held on a crypto exchange. (Image omitted due to 4-image max on X, see subsequent tweet).

Intra-Crypto Cyclicality

That stickiness is also likely to dampen intra-crypto cyclicality. Long time crypto traders and observers will know that, historically, in bull runs BTC typically leads, then when it stagnates or tops money rotates further out the risk scale, culminating in an “altseason.” Bitcoin held on a crypto exchange can be easily swapped for Ether, and then for altcoins. But Bitcoin held in ETFs cannot be so easily swapped, nor are ETF holders – again if they are heavily comprised of advisor-managed accounts – likely to swap even if they could. The ascendancy of the Bitcoin ETFs will lower the likelihood of major intra-crypto capital rotations. And if Ether ETFs get approved, it will become increasingly difficult for other altcoins to see capital inflows relative to those two because, after all, BTC and ETH together comprise most of the capital and offer exposure to nearly all of the market narratives.

Bitcoin’s 4th Halving

Just a quick word on this. We all know that, historically, Bitcoin halvings have preceded major bull runs (usually by a few months). While the reduction from ~900 new coins to ~450 new coins per day is small in absolute terms (and relative to BTC’s daily float of $10-25bn over the past few months), nonetheless prices are set on the margin and there really aren’t many coins for sale at these prices. But beyond any supply impact – which again I believe is marginal– this will be the first halving in which major US asset managers have a marketing machine working to educate on Bitcoin, and there is no better Bitcoin education than learning about the halving. So it’s a narrative event first (a quadrennial marketing moment) and a supply event second, though I think both aspects will be impactful.

Can’t (s)top Won’t (s)top

All this is to say, my answer to that burning question – where are we in the cycle? – is that we haven’t even begun to reach the heights this is likely to go. The ETFs are genuinely a game changer and they are still just getting started. Given the flows we are seeing, both in the ETF complex and through our desk, I think it’s reasonable to see a new all-time high within a matter of weeks. We’re starting to hear Bitcoin spoken about alongside gold and treasuries as macro hedge assets – just this morning I heard a traditional finance research analyst suggesting Bitcoin is becoming a genuine “hedge to fiat debasement” on national television. Bitcoin is prime time now, and while it might be hard to believe, things are just starting to get exciting.

Alex Thorn
Head of Firmwide Research, Galaxy
New York City

[Mike Novogratz @novogratz]

Galaxy continues to make progress on its mission of helping investors access digital assets. Our Asset Management unit reported a record $8B+ in AUM, up more than 4x from last year. Congrats @SteveKurz and the rest of the asset management team.

[Omid Malekan @malekanoms]

I have a piece in Fortune Magazine explaining how one way to view crypto is as intergenerational revenge. Here's the TLDR:

For decades, older generations have been rigging the economy in their favor. They've piled on debt they won't be around to repay, drained the social security trust fund, and prevented asset prices from resetting.

Younger generations are on the losing end of all of this. People under the age of 35 own only 2% of stocks and the average home buyer is now 50. Rules like accredited investor laws further discriminate against those starting out.

Crypto has been the exception, the rare asset that has materially appreciated while being disproportionately owned by young people. It's also complicated and jargony in ways your typical boomer is turned off by. That's the point.

For further proof of this theory, consider the ages of the biggest skeptics. @SenWarren is 74 and her new BFF (bitcoin-foe friend) Jamie Dimon is 67. Charlie Munger was 99 when he wanted crypto banned and Paul Krugman 70 when called for its demise. Fed Chair Powell is 70 and Janet Yellen is 77.

The kids are not alright, and they are finally doing something about it.

Full essay here: https://t.co/lv9TMfUHzK

[Kevin O'Connor @KevinOConnor]

Damian Lillard over Jalen Brunson is a crime.

[Eric Balchunas @EricBalchunas]

Invesco/Galaxy is in and here's a whopper: it will be waiving fee for first six months AND for first $5b in assets, APs named as well, Virtu and JPMorgan (again lol). Another horse in. Are we having fun yet?

[Austin Campbell @austincampbell]

My friend Adam, CEO of @inca_digital, testified in front of Congress today on the exact topic of the controversy currently raging with the false reporting of crypto money laundering and Senator Warren seizing upon this in her unceasing crusade to ensure America cannot benefit from upgrades to the financial system, high paying jobs, or technological progress.

I will include a link to his testimony at the bottom of this post, but I want to highlight a couple of the key points that he raises:

1 - While crypto has definitely been used for illicit activities, the amount of terrorist financing via crypto is a rounding error on the total amount of financing in the world.

2 - Criminals are beginning to realize that the public part of a blockchain is a huge boon to law enforcement and prosecutors, as it leaves an indelible stamp of their misdeeds for all time. Ooops! Many criminal and terrorist organizations are moving away from crypto because of this, including Hamas, despite their usage of crypto being widely discussed, actually telling users not to send it because people were getting interdicted/attracting too much attention.

3 - Blockchain technology in general is just a tool. If a terrorist uses a car bomb, we don't see members of the US senate go on a fact-free crusade to completely ban cars without bothering to fact check their sources. Someone using a technology to do something bad is not a reason to ban the technology (apologies to the Amish)

4 - The best way to go about interdicting this bad activity is actually to regulate it properly, onshore, in the United States. We don't have jurisdiction over foreign exchanges, and you can't shut down blockchains anymore than you can just turn off the internet. What you can do is pull activity into a well-regulated, safe, relatively transparent perimeter inside of the US to the greatest extent possible, thereby marginalizing the bad actors and allowing them to be isolated, interdicted, and disrupted more easily. Forcing the entire space offshore just gives them far more open space to hide.

In closing, everyone who cares about this issue (on either side of the aisle) should give this a read. Adam is not a crypto yahoo, and has thought pretty deeply about these problems and comes with a wealth of experience in dealing with criminal activity that informs what he is saying.

https://t.co/PjMwerIOCa

[Austin Campbell @austincampbell]

Yesterday, I was fortunate enough to attend the @galaxyhq solstice event with a number of excellent folks from the industry.

I wanted to share a few of the key takeaways:

1 - Despite another crypto winter, there remains incredible conviction by the folks in this space. The grifters, the scammers, and the opportunists all appear to have moved on (to AI?); everyone left is hardcore. I met friends who run some of the best, smartest, and most environmentally aware miners out there (@rftylerpage), some of the VCs in the space who are truly responsible actors and are using their market power not just to invest, but to shape a future where the long-term space is healthy and not filled with pump-and-dump behaviors (@riabhutoria @MattWalshInBos @perkinscr97), builders who are working on real-world connections for these assets and products that increase financial inclusion or ability to own and invest safely (@ramahluwalia), data ownership, and sovereignty, and lastly, a ton of motivated regulatory and legal folks trying to fight the battle so we walk the middle road of fostering both innovation and consumer protection. The good people are still here.

2 - Custody remains a very confusing issue. I think the requirements around it remain a point of both contention and misunderstanding. I'm going to write something longer-form about this after the discussion yesterday, but just planting a flag here that I think all sides have a lot of work to do (customers, custodians, and government) in order to make this work. There's no silver bullet for this problem. It's going to take a lot of lead bullets.

3 - Huge amounts of activity are leaving the US. Most of the people who remain are in spaces where there is no nexus to securities (e.g. mining); overall, I would say that the economic boon for the rest of the world is even bigger than I thought, and I already thought it was pretty damned big.

4 - Mining is absolutely fascinating. You're combining a high-tech business with a very infrastructure picks & shovels dudes running giant electric grid operations & financial modeling. It's a multi-disciplinary thing and the implications of how to do it well are incredible. Had two insanely great discussions about this, and just learning some of the ins and outs of how much work it is to set up mining machines to wind up and wind down in response to power grid utilization to make sure the operation is stabilizing vs. draining the grid is mind-blowing. Much respect to the industrial-scale mining crowd.

5 - A huge amount of mindshare in the United States is currently being consumed by our regulatory quagmire. This relates to point 3, but what it means is that the core innovation of streamlining financial services, eliminating counterparty credit risk, and building more resilient systems is falling by the wayside in favor of just burning money with lawyers. No insult to the lawyers, but this is not long-term productive for the economy. A lot of misallocated capital as we fight ourselves.

6 - There's a lot of grappling with the core questions of the space now as opposed to narratives flying past without questioning the underpinning (@malekanoms was early on some of this). I would describe crypto as having moved from the teenage years into adulthood in this regard; it's not all dreams and hopes and pretending tradeoffs or bad behavior can't or don't exist now. It's grappling with hard questions about decentralization in a more mature way and just having lower tolerance for idealistic or, bluntly, ignorant answers.

7 - There's still a lot of work to be done understanding where things fit. I think the single most important skill anyone in crypto can have is understanding how it fits onto the real world. We've missed a lot of (to me, at least) obvious things to build or built them in totally backwards ways because people over-solved the tech and under-solved the actual business and user concerns. I think this ship is also turning.

Overall great event, and thanks to all my friends at Galaxy for hosting. This space is still alive and we still have faith.

@intangiblecoins

[Gemini @Gemini]

One piece of advice for #Crypto newcomers? ⤵️

[Andy Murphy @andy_murph]

@alexisohanian gm

[Andy Murphy @andy_murph]

@image_origins @jason_vdl_