So I honestly, I think the ETFs have been a smash hit, like
much more and more activity than we expected. And the main, like I
said to sum it up, the main cohort we think is the net new
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in a description. Welcome to the Thinking Crypto podcast. You're home for cryptocurrency
news and interviews with me. Today's Alex Thorne, who's the head of firm
wide research at Galaxy. Alex is great to have you on, Yeah,
Tony, great to be here, Alex. I've of course followed Galaxy for
a long time. Mike novograts as well. I think Mike is well known,
and I've always been curious as to what Galaxy is doing behind the scenes.
So I'm very excited to talk to you about what you guys are seeing
in the market, what you're investing in it much more. But let's start
with your background. Where are you from and where'd you grow up. I'm
from Northern Massachusetts. I grew up there. I went to high school there.
I went to college at Vanderbilt University in Nashville, Tennessee. Worked at
Fidelity Investments for twelve years before joining Galaxy in twenty twenty one. In reverse
order. At Fidelity, I ran co ran Avon Ventures, which is Fidelity's
affiliated crypto venture capital arm which we started, and it was director of blockchain
research at Fidelity before that, and then had a whole prior career of legal
and compliance roles before that. But yeah, and you know, been at
galaxy now for over three years. It's been a pretty fun ride. What
was your first encounter with bitcoin and what was your aha moment? So in
one of my early roles, sort of at the relative top of one of
my first careers at Fidelity, effectively, I was basically a senior forensic investigator
at Fidelity Legal, which involves a lot of a lot of database management and
evidence collection, but we're talking about computer evidence, but also occasionally like rypt
decryption, right, finding stuff people don't want you to find. I was
a hobbyist in I'm not a computer scientist by trade. I mean I studied
political science, but I was a you know, a hacker by by hobby,
meaning that I learned on computers by breaking things basically, you know,
And so I was really interested in network kindetration and encryption technologies. I was
involved strutting a tour exit node in like two thousand and nine, and at
some point I was in some IRC chats about like the Hacker Collective anonymous or
uh tour running tour exit nodes and stuff, and in like twenty twelve or
so, and people were like, have you seen this bitcoin thing? And
I was like, I have no idea what that is, and then I
was like, wow, this is pretty cool. It's digital money, it's
encryption money. It's kind of how I thought of it. And then there
were activists during in the Euromy Dawn protest in Ukraine. I mean, things
of things really come full circle that were soliciting donations in bitcoin. I was
like, what is this thing? And so I got interested in it,
then kind of stopped caring, and then in twenty fifteen, really Fidelity started
getting interested in it, and I was sort of identified as one of the
people who knew about it, and so I started working with them, and
then I was like, I have to I have to really go down the
rabbit hole. Really became a true believer, probably in like twenty fifteen or
so. I've later learned that my now friend Alex Gladstein, the chief strategy
officer at the Human Rights Foundation, is the one who was helping euro Maydon
protesters use back, which is one of the first thing ways I learned about
it. So things are It's been a while, but I've been working on
it full time, probably since like sixteen seventeen in one capacity or another.
That's amazing. Let's talk a little bit about Fidelity, Because what's what fascinates
me is that fidel who is very early out of all the big institutions in
Wall Street. And I give him a lot of credit for that that they
were thinking outside the box. They were ahead of the curve. Now everybody's
here and ETFs and all these things are live. But what do you think
is it just their DNA, you know, as opposed to let's say a
Vanguard, which is like, we don't want to list any bitcoin etiaus.
But Fideliti's like, let's explore this, let's take a look at this.
Yeah it is, And I would say it's in the DNA of Fidelity leadership
and ownership. So I chuckle. Because they are commonly thought of a so
Wall Street firm, they would take umbrage at that. They're not on Wall
Street at all. They're on Summer Street in Boston. This is a Boston
headquartered company, not a New York headquarter company. And that actually goes back
to it, like if you think about the two cities, like Boston has
this really like sort of more old school Pilgrim, you know, sort of
New England. I mean New Englanders are different than New Yorkers, and they
have a more sort of buttoned up, kind of polite and not that anyone's
impolite, but sort of a more polite New Englander vibe, and that does
pervade I would say at Fidelity, it's it's not a Wall Street culture there
in the scheme of things. And by the way, they're mostly an asset
manager and brokerage firm, right, so they don't create like bespoke finding.
They're not an investment bank. They're not a bank at all, right,
so there's some distinction. But Fidelity also another thing people don't know is that
it's a privately owned company. It is not a publicly traded company. It
is owned majority by current chairman and CEO Abigail Johnson, who is the granddaughter
of the founder Edward Johnson right and his son Ned. Her dad ran the
company for thirty plus years and he was, among other many things, famous
for technology innovation. I forget all of the lauda Tory benchmarks here, but
like Fidelity was the first company to have check writing on a brokerage account,
they were the first person to have first asset manager in brokerage firm to have
a website, and they were the first ones to have a one eight hundred
number, etc. Right, and they devote a significant portion of annual spend
into technology innovation. When I was director of blockchain research there, that was
specifically in a centralized innovation department called the Fidelity Center for Applied Technology, which
I used to joke was Ned Johnson's bat cave. Like it's literally the other
teams there when I was working on it in seventeen and eighteen, there were
like AI, machine learning, like VR, right, like that that's what
people were working on in that group, and blockchain and so you know,
so the story goes Abby again, the granddaughter of the founder of Fidelity and
the current CEO and chairman of the board. And I think, as far
as i'm aware of, the majority owner of the company, so like I
said, it's a family owned company. Still, she became specifically interested in
bitcoin herself, right, And so unlike many places where in particularly in traditional
finance or in big companies, where bitcoin was pitched up by a junior employee
or a middle level employee saying, oh my god, like you go check
this thing out, and it's like hard to twist the arms of the higher
ups or the older folks there to get them to do it. This is
actually the exact opposite. This came down from Abby and some people were assigned
to look into it, and some of those people found me as a resource
when I was in the legal group at Fidelity, right, and so like
this is a whole different way and that I mean frankly, that's why they're
so far ahead. And then when we when I was working on it there,
you know, we were looking at all different types of use cases for
blockchain literally like the most vanilla private blockchain ideas as well like can we use
this to share like trade reporting with with FINRA, the right the securities self
regulatory organization, Can we like I don't know, like do like a private
blockchain with the other brokerage firms, to like do like KYC with things or
something who knows? Right? Like all that we did enterprise use cases that
were relevant for our business, not like you know, we weren't trying to
put tomatoes on the blockchain like IBM and some others, because that has totally
irrelevant to Fidelities business. But we looked at so many of these and and
I won't do the whole rant on why, but ultimately we were like,
no, really the market need is bitcoin institutional custody like And of course we
liked bitcoin a lot. I mean, it wasn't like we went only into
into enterprise blockchain, but that was one of the sort of paths we went
down, was like, can we use it for anything else? And we
were like not maybe one day, but actually the real opportunity is in bitcoin.
And so that's why the efforts were put forth to build what is now
Fidelity Digital Assets, which was really a bitcoin custody product that was built and
initially in the blockchain incubator inside Fidelity Center for Plid Technology. And obviously they've
come a long way since then. So it is, as a long answer
to your question, Tony, it is in their DNA. But it's not
just the company culture. That culture pervades down from the top, and the
fact that it's private means they have a lot more leeway to do things like
spend a ton of money on innovation, right and like get these these you
know, almost like a SpaceX. Like SpaceX people are like, oh my
god, they blew up so many rockets. Well, it's like, yeah,
they're a private company. They weren't afraid to blow up all those prockets.
That's why they're up in space first, you know, same thing.
Yeah, No, that's great insight, man. And to your point,
coming from the top down from Abigail, that's amazing and just shows the mindset
and that they are for thinkers that that's pretty awesome. Yeah. Now,
tell us about Galaxy for those who don't know about Galaxy, tell us about
Galaxy and the services and all the different things you guys do. Yeah.
So Galaxy is i'd venture to say, one of the biggest multi service financial
companies in all of crypto. A lot has changed over the last few years,
but we're calling and I don't just mean a galaxy, I mean in
the market and in the market infrastructure. But given some of what's going on
going what has gone on over the last two years or so, I would
venture to guess that now we're probably the biggest in OTC spot and derivatives trading.
We're one of the biggest asset managers in all of crypto, I think
I technically I think second behind Gray Skill in AUM. Wow. So we
have an asset management business that manages private funds, active strategies like venture and
hedge fund type strategies. Literally that take and manage money for external clients,
also passive vehicles. Obviously, we're a sub advisor to the Invesco Galaxy Bitcoin
ETF so and we are similarly have ETFs like that in both Canada and Brazil.
And that business has also announced a big partnership with DWUS, which is
Deutsge Wealth Services in Europe, which I think is the largest, if not
it's one of the largest, of not the largest asset manager in Europe.
So asset management. Then obviously, like I said, trading, so we
run a big OTC trading business that's spot, derivatives lending, electronic trading,
a variety of services like that, right. So this is again both of
these that I would say are the sort of two bigggest businesses at Galaxy are
This is institutional only like right, we don't retail traders can't interact with us
directly, right, But we also have a big venture operation which is part
of that asset manager. We have an advisory business so I think like investment
banking, right, they advise companies and startups, right, So that could
include on raising capital or transactions, acquisitions, mergers, even going on public
And then of course we have a pretty big, big coined mining team.
So and business so both proprietary mining, hosting, a variety of other things,
financing for miners. So it's a it's a it's a multi it's a
multi services company. And you know, I mean, obviously Mike Novogratz is
our founder and CEO. He's been in the market for a long time and
and you know, provides a really long history of knowing how crypto works.
And he himself is a long time you know trader and and macro trader,
well known macro trader. So it's it's in general, it's an exciting thing.
Just briefly, on the research side, Like so, we have all
these businesses, so there's internal needs for insights and research into the markets,
the competition, the opportunities, the new technologies. We provide plenty of that
internally. We also obviously publish publicly and can read all of that at Galaxy
dot com slash slash Research. We also publish privately to counters and counterparties and
clients right notes, alerts, ideas is so. And I've actually recently I
didn't do it today on Wednesday, but the last several wednesdays, I've actually
tweeted the private notes that we've sent, sort of like open source that tweeted
them publicly. So yeah, we write and produce insights for internal and external
clients a sort of the way of saying it. But it's it's reports,
it's podcasts, it's alerts and white papers and stuff like that. So wow,
I mean you're running a full gambit here as far as all services that
are needed in crypto from an investment standpoint, that's a lot of business services
and farms that you have question for you From the OTC side, you know,
with these bitcoin ETFs getting approved, have you seen a surge in demand
for bitcoin? Uh, maybe some of the issuers looking to grab up as
much bitcoin from you guys. Yeah, So we we do provide liquidity for
like market participants across the gamut, including you know, market access vehicles,
but also hedge funds, traditional or crypto focused high net worth individuals, and
other types of institutional traders. So and I would say, like on the
on the ETF side, in general, there is huge demand for bitcoin.
It's very visible in many ways. You don't have to rely on me telling
you about our desk flows. You can see it in the Bloomberg's you know
data, it's very obvious, like something like over a billion dollar net inflow
yesterday on UH I guess which March twelfth, which is the largest day ever
in bitcoin ETF history, almost double the prior margest day, which is crazy.
I would say broadly, in terms of flows that we see on our
desk, there absolutely has been a heightened interest. But it's not just in
the last couple of months. Like a lot of the rally that we saw
from say early October to present was also driven by smart traders and at institutional
traders becoming long bitcoin and coming back into the cold like last year. I
said, at one point I was on Bloomberg TV and they said, like,
what's I think we were getting to twenty five k. It's like maybe
like right around the Silicon Valley bank collapse or right before that, which was
you know, a nice rally off of the sixteen to five bitcoin price to
start last year. I mean, twenty five k from sixteen five is a
you know, it's like almost a fifty percent increase, so, or it
is a fifty percent increase basically. So, And I said at that point
they asked me the same question, like you know, what's the level of
institutional interest. I'm like, well, we're seeing you know, some of
the early you know diehards that our institutional were coming back, but you know,
some are starting they've already been back. But the most we're seeing sum
are starting to pick up the phone. Right, They're starting to be like,
wait, so I got fifty percent, maybe I should like check in
with Galaxy, you know, after they went dark for like a year and
then and I said at the time, at thirty K, they're going to
be, you know, knocking on the door, and at thirty five K,
they're going to be banging the door down. Like that's exactly what ended
up happening last fall. Like once we crossed like thirty K, it started
to be like wait a second, like we really should be do we still
have the trading agreement live with Galaxy? Like questions like that right, and
we're like, yeah, you do. You should be buying bitcoin right now.
Like, by the way, we've been saying that for a year,
so like, you know, we're trying to help you, you know,
I mean, we don't give financial advice, but it's you know, I
write content that's like at sixteen five, this could be like a generational buying
opportunities what I'm selling the public even so, and it's it's really just remained
consistent and accelerated I would say since pretty much since October. And yeah,
so we see plenty of interest. I mean, it's it's not this is
not some people missed it still, which is just crazy to me because I
don't know, They're like, well, you should have just said to buy.
I'm like, do you follow any people that work in bitcoin? Like,
first of all, maybe that's the problem. We tell you to buy
all the time. I'm you know, Michael Saylor says he'll be forever buying
the top Like, so maybe it's not like signal then if he's always buying.
But yeah, we are seeing strong interest. The ETFs are seeing strong
interest, like the flows, I mean the frankly, the whole market's infrastructure
and structure is going to evolve like this. This ETF complex in the US
is smashing against the traditional architecture and it's going to change both. It is
going to You're going to see increasing volumes on US exchanges and from increasing share
of bitcoin trading volume on US exchanges and in US OTC VERSUS S a like
Binance, which has had been the leader for so long. You're already seeing
like CME futures are like the dominant, the biggest venue now for bitcoin futures
trading, and you're going to see probably, I mean, these ETFs suck
up like maybe like twenty percent of the bitcoin over time. I mean,
I don't think like all of it, but like it's they're going to be
massive parts of bitcoin. And we're just just at the beginning of that.
So there's I think more change to come. Yeah, to your point,
just at the beginning. And we know there's a campaign right now to educate
the ri as wealth managers, get all these folks familiar. How does this
work? What is bitcoin? You know? Because in the past they couldn't
touch it even if they were interested in it. So do you expect like
the flows to ramp up into the end of the year or maybe to the
peak of this cycle, maybe then it slows down a bit. Yeah,
I don't know. Yes, I think the simple answer is yes. But
I think it is true that the we've argued for all we had a paper
in October where we made predictions about like the amount of inflows, which,
by the way, We only looked at the wealth management and financial advisor market
in the US, which is a forty eight trillion dollar AUM market, so
it's huge, and we said fourteen point five billion net inflows from that cohort
in year one. Well, I mean we're basically at that without that core
or having even really turned on yet, so our prediction, of course will
become in low. We said it was conservative, and we didn't even bother
accounting for retail, like for non advisor money, which we think basically all
of this is because really none of the major platforms have turned on yet.
You've seen some independent RaaS that have said they're allowing it. Well, that's
pretty easy if you're small. The real prize is the forty trillion that's you
know, managed by advisors who are affiliated with banks or broker dealers. Right,
the big you know, the Morgan Stanley's and Merrill Lynches and et cetera.
Right, that's that's the huge amount of capital that hasn't really had any
way to even put any allocation into bitcoin exposure. Period. They don't They
didn't have the cash settled futures ETFs, they did not have access to the
closed end trusts, they a couple of them had access to like private bitcoin
vehicles like the Galaxy Bitcoin Fund right, which is like but again that that
just a few of the platforms and usually that was quite limited to like okay,
only if like you're super high net worth client like complains enough, then
will allow type of stuff. Usually, So that's the the net new addressable
market. And as far as I know, they are not really on yet.
Some of them are getting ready to turn on on their brokerage platform.
But that's that's just because they're seeing I think, well it's inevitable, but
that's also because they're seeing like what Fidelity is doing. Keep in mind,
Fidelity is like one of the biggest brokerage platform providers. Like you can go
open a stock trading account forget whether you're you know, an advisor. They
also have a big that they have a huge asset manager. Among the other
things they issue that their bitcoin tf They also have this giant distribution platform which
is the four oh one k's the iras the right the brokerage accounts. So
like I think you're going to see the platforms turn on and then when the
advisors are authorized, let alone able to pitch bitcoin exposure to their end clients'
that's the big prize. I don't think we've seen any of them turn on
yet. Really, I think so you're going to see a constant drip of
headlines over the next you know, three to eighteen months of these turning on
or not turning on, and those headlines will be bullish and then actually the
thing will be bullish because the headline isn't just a news event, it's it's
a it's a flows event. So and and yeah, so I I think
I don't I'm not prepared to say it. The flows will accelerate. They
they they should continue. I mean, I frankly like they've been accelerating even
without these guys. So I honestly, I think the ETFs have been a
smash hit, like much much more activity than we expected. And the main
like I said, to sum it up, the main cohort we think is
the net new user of this ETF is not even in the game yet.
M yeah. Absolutely. Now I'm curious what type of clients you work with.
I know there's family offices, hedge funds, pensions. Can you I
don't know if you can name drop, but if not, it could give
us the category that they fall in. Yeah, I mean it's it's all
of the ones that you said. It's it's you know, pensions, pension
funds, endowments, big pools of capital basically that have the capability first of
all, that have the capable ability of dealing directly, right and you set
to sign like legal documents. Is one thing that one point about the ETFs
is like, well, the biggest investor, like an endowment, they can
go and sign a private placement agreement and get some exposure into a private bitcoin
fund, like they have the bandwidth and the lawyers to do that, right.
And the smallest retail person that we can open an account on a coin
base or cash app or something right like, we can also do it.
It's the middle where it's like wait a second, I have one hundred end
clients. None of these platforms offer sub accounts. I can't go and negotiate
a PPA for every client with every bitcoin right like that That's why that middle
cohort of the advisor managed accounts really hasn't had access. So but yes,
I would say, you know, Wales, high net worth family offices,
hedge funds, I mean, and I mean like there's hundreds of crypto hedge
funds, liquid crypto funds, but also the traditional Wall Street macro funds and
trade. They all trade, I mean not all, but like basically they
all trade bitcoin. They either have exposure or they put it on or take
it off, or they trade it. And this is why when we say,
like or when Novo goes on TV and says, the bitcoin is becoming
or has become a macro asset, like that's what he's talking about, the
world's largest macro traders. They don't just have like rates FX, gold oil,
they also now Bitcoin sitting there on their screen every day. So and
by the way, as they should, because this is a this is like
gold, except you can actually use it. It's actually global, right,
so I mean there's no value in my mind and trading gold, like if
two sovereigns want to trade gold and there's just some guy with a rickety cart
underneath the New York Fed like moving one gold bar from one cage to another,
because that's like a lot of it is, right, Like this is
a liquid, global, scarce decentralized store of value that people are finally understanding
how it works. And so that that's some idea of the cohorts, but
again no direct typically on the trading or asset management side interaction with I would
say, also like crypto market participants, right, we have businesses that do
stuff with protocols and and and you know whatever. They're called foundations Dow's theoretically
right. Miners, right, we are mining business. We may host for
other miners. We may lend two miners, right, and do minor financing.
So a wide variety. But not like Alex Thorn right, not like
random, not Tony Edward, not not just like normal individual people typically,
Right, Alex, I'm gonna ask you a question that you probably can't answer.
This. We know the likes of Jamie Diamond is constantly bashing bitcoin.
But can you say yes or no if you know of JP Morgan and those
guys are trading bitcoin. Well, I know that JPM is an authorized participant
in at least I think some of the ETFs. So they are basically helping
create redeem shares. I don't know off the top of my head, but
there are definitely My guess is there are places inside JP that are trading maybe
futures on CME right, Like, So I would say, in general,
like basically every Prime Brokerage is doing something in this space, Like I mean,
they have a big trading business, so I'd be shocked if they weren't
trading the ettfs, trading the futures. I mean that's doesn't require bitcoin wallets
or anything like that to do that, so I think they probably are now.
As far as assets that you guys support obviously bitcoin, do you include
like the top ten to twenty all coins as well and your clients have access
to trade those as well. Hi, everyone part in the interruption. I'm
Tony Edward, the founder and host of the Thinking Crypto podcast. I have
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Thank you for your support, and I'll let you get back to the content.
So with our counter parties, and I make that distinction because on our
trading business, this is over at the counter trading, right, It's not
a fiduciary relationship. For the most part, it's I think maybe at all.
So these are you meet us out in the world and you say,
hey, are you guys selling bitcoin or buying bitcoin? And we're like,
yeah, we're selling it for this much and we're buying it for this much.
Feel free to take it or leave it, right Like, that's sort
of how TC trading works. You know. I don't have the list in
front of me, but it's it's you know, it's most of the top
coins. I think in general, we it matters via jurisdiction, right.
We have a like probably all places, we have a pretty robust compliance review
process to determine if something can or can't be listed, right, and includes
both you know, regulatory and safety questions, right, Like, we're not
going to list a network that can't operate something right or has the risk or
too high, but there are also regulatory questions, right. I don't so,
yeah, but I would say, I mean most of the top coins,
I think, you know, and I look behind you pretty much all
the ones that you have pillows for there. I'm not sure about XRP.
I don't know whether we still trade it. Obviously, at one point the
lawsuit made that with the SEC praise some questions there, and like I said,
I don't have the list in front of me, but basically all of
the top coins that you can mostly think of. So on the venture side,
you guys are probably invested in quite a few companies. Any that stand
out to you or you know what you're looking at it this year. Yeah.
So I'm not on the venture team, but I am on the investment
committee, and I did do crypto vc AD fidelity for several years, so
I mean I'm a big fan in some ways outside of research. Venture is
my actual skill set in crypto because it's the only other job I've actually worked
in technically, right, So yeah, I mean I would say, look,
they do, They're interested in a lot of things. I think some
of the theses that I've seen that we've announced that have been invested in.
One we just did a deal with Chainway Labs, which is the builders of
Citria, which is a new zk row I think will be the first zk
roll up on bitcoin. So you know, I think bitcoin composibility and extensibility
is interesting there. I think in general, payments, stable coins, new
next next generation blockchain technologies equity businesses in a variety of places. I mean,
you know, Galaxy's got a giant portfolio of I mean, they've been
investing well before I came in in crypto and doing ventures, so a ton
of stuff. But I don't want to I don't want to say too much
more because I don't know exactly what they're comfortable saying. But I mean literally,
I think if you go to like crunch base or whatever the public data,
you'll see like hundreds of investments, so like a lot historically a lot
of the time. I think, you know, in general, what I
would say in terms of like this year, themes that are very interesting,
like I mentioned Bitcoin L two's absolutely, I would say modularity, restaking in
the ethery world both very interesting. And in other you know, protocol worlds,
you know, high speed you know, parallelized blockchains, new next generation
blockchains I think could be very interesting, which is basically Solana technology, right,
the parallelization of execution. That stuff's interesting. I think Solana is from
a usage standpoint, like very pretty much undeniably the third chain now Bitcoin ethan
Solona literally not in terms of what should happen, just literally in the amount
of transaction volume, the amount of trading volume, the amount of TVL like
if you look, it's basically third on all of those, so that's interesting.
I think this rally has I've been describing it as like a barbell rally.
It's basically like the l one majors, with obviously some exceptions. Every
statement has plenty of exciptions, but it feels like a Bitcoin driven rally.
I mean, it's bitcoins the only one of the majors that's retaken and exceeded
it's all time high prior all time high still and then sort of like a
meme coin rally. And to me, that tells me that like, yes,
like mass market retail likes memes, but the fact that doge is so
underperforming shows that they're not really here yet. In my mind, I feel
like it's the jaded crypto native retail that like, we hung on for so
long in that bear market, like and they're not excited right now about things
like DeFi Web three metaverse, Like no one's really excited about that inside the
crypto native world. I mean, I don't mean no one, and I
think these things still have prospects, but like you know, the crypto natives
that stuck around were like ready to go wig out on the risk itself,
right, and that's why you have like these this cascade of derivative mean coins
that have been rallying. Meanwhile, basically it's still a bitcoin driven market.
I mean that this bitcoin is still more than fifty percent dominance by that metric.
And so anyway, I think that there'll be some they'll catch they'll we
catch up. I mean, DeFi is obviously very important in crypto. Still,
it's just that someone's like, oh my god, like the not no
one. There's some exceptions to this, of course, but we're not like
all getting hyped up about the next lending protocol. It's not like DeFi summer,
you know, yeah, no, absolutely, you're right. And then
you know you're mentioning Solana. There's been a lot of mean coins building off
of Solana. So a ton, yeah, a ton yeah. Let's talk
about your bitcoin mining operations. I'm very curious about that because we've seen the
rise of bitcoin mining in the US, even though we had some fud from
the EIA Elizabeth Warren and likes of her camp. Where are your mining operations
and you mentioned you're also hosting for other companies as well. Tell us a
bit about that. Yeah, yeah, so we we have large mining operations
in Texas in Urkat which is the Energy Reliability Council of Texas. I even
remember that. Shout out to my friends Brian and Austin who run that business
for if they're watching, Like I got that right, the acronym, so
large facility there in Kins County, which we're a you know, big supporter
of the folks there. It's a giant area of wind and solar production.
To be clear, at Texas is I think I read once that the that
if it were a country, would be the largest wind creator in the world,
right, so like has this It has this you know, outdated reputation
sometimes of being like oil country, and absolutely there is oil and and and
fossil energy there, but it is I think it's a massive renewable energy generation
state. So we have a big proprietary mining operation there. We also host
there and yeah, I mean we're we have some of the best mining people
and talent here in the space and continue to we've you know, we're a
public company traded in Canada right the and you can see our financials and so
I'm not really supposed to talk about this type of stuff specifically, but go
and look, we have plenty of information about our mining businesses success, but
I would say in general, look, we believe mining can be a great
business. It can be run well. We love the optionality and and sort
of like market dynamics in Texas that allow for dynamic pricing and hedging that that
make us like a I think both a profitable and and positive art of the
Texas energy grid. And so yeah, I mean, and we just I
mean, mining is just an interesting and tough business overall, I would say,
because like in thinking about it, like menting, you tell someone every
four years that gold's going to have in value like that, you pull out
of the ground like it. So it's a fun, difficult and uh fun
and difficult business but with a lot of room for optimizing with your intellect.
And we have some of the smartest people building and operating that that business.
So we think it's an important important thing going forward. Sure, let's talk
about bitcoins price movement. It seems to be ahead of schedule the type of
price appreciation we're seeing happens post having but I think the ETFs, as we
were talking about earlier is driving a lot of demand. What are your thoughts
and do you think we see a blow off top this year? This was
a big question people are really worried about, like two weeks ago. I
mean, I think people are still worried about it, but I mean I
started to hear this question about two weeks ago. I wrote about this,
and I had pointed out to your point, Tony, that at the time
it was fifty days before the having, now about forty days before the having,
So I'm gonna use that outdated numbers. But fifty days before the prior
to havings, bitcoin had was still between sixty and seventy percent below it's all
time prior all time high. Yeah, fifty days before the having, this
time we were twelve percent below the all time high, and of course forty
days before it were over the all time high. Right, So that's new.
I agree that that's new, and that has led some people to worry
that we're like speed running the cycle, that like, well, wait a
sec, does that mean we're going to talk too early? Right? And
you even in the construction of your question said like are we ahead of schedule?
Right? So I'm here to say that basically none of that matters,
and this time is different, and the reason it's different is for because of
the ETFs. I mean, I doubt we'd be where we are in the
supposed cycle if the ETFs hadn't come out when they did. It's driving there's
a giant amount of money that likes bitcoin that was never able to really figure
out how to do it. You've told your parents and grandparents, all they
got to do is down on this app blah blah blah. Well there's still
like three steps, three or four steps of complicate. They got to take
a picture of their driver's license. Like I know tons of people who are
like, yeah, I just I tried to you and I didn't fit get
through the onboard. It's I know it's not that hard to us, but
like you know, it's hard to allot of people. And certainly on the
advisors side, they can't set up a coin based account for every one of
their clients, nor would they want to, because if it's not inside their
advisor managed accounts, they don't make any money off it, right, So
there there is a giant pile of money that is looking to get involved.
I also think the macro situation it's really becoming quite serious on the government debt
and fiscal situation in the United States and globally in a way that was just
simply not the case even five years ago. And what I mean, the
trajectory was bad then and it's obviously only gotten worse now. But the under
the there is pervasive fear in the investment community about the state of the American
fiscal situation. I mean truly, like it's not it's no longer a low
murmur for gold bugs to complain about the national debt. You have the literally
the world's most famous investors all basically freaking out about it. Right. You've
Jamie Diamond is you know, shout out Jamie our friend, he said it
it's unsustainable, stand truck and Miller, Paul Tutor, Jones, these guys
have all been talking about this. It's even even Chairman Powell and CNN finally
admitted directly that it is absolutely unsustainable and and a problem. I'm now obviously
the FED. It's a fiscal question. It's not a it's not a monetary
question. In some cases, it's the tail wagging the dog with the FED
having to try to deal with and absorb the issuance that's coming. But the
US is adding one hundred adding a trillion dollars to the national debt currently about
every hundred days. And in that environment, you're looking for hard assets and
particularly ones that you could use that aren't controlled by a state. You know,
even real estate is certainly good. We have very strong property ownership protections.
And law in the United States is important, by the way, as
a core foundation of a free market to have value. It's one of the
reasons the capital markets are so valid in the US is because of our rule
of law. But you can envision, and certainly in a less advanced country,
but you could envision when you know, like for example, I just
read a story today that the top like compliance investigator for Binance when to a
meeting in Nigeria about this and what was detained is basically being held ransom by
the Nigerian government. They want ten billion dollars from finance. Well that's they're
seeing greater than thirty percent monthly inflation right now in Nigeria. So you can
imagine if that if the US or any country experiences that level of economic fiscal
monetary struggle, that the rule of law can break down. So you really
want things that you can possess yourself, the hardest assets, you know,
a deed to a house. Yeah, I mean it's pretty good, but
like, you know, it's better is like cryptographic keys to like a global
digital asset in my opinion, So that is also going to be helping bitcoin,
I think. And whether that's you know, good or bad, I
mean I don't, I don't. You know, the uncertainty, the geopolitical
fragmentation, the macro situation, the government debt situation is all I think very
supportive for bitcoin. And you know, so broadly, is is there I
sort of joking with you at the beginning of this question that like is there
a schedule? Sure, historically we've seen that like the having and is this
part but even that, like was that causation or merely correlation? I've seen
other people who have who have argued that just global liquidity lines up better with
the bitcoin cycles. Like, so, yeah, this time is different.
I acknowledge that, but I also think this time is different. I think
we've got a giant new set of market access vehicles, we've got a very
different macro situation, and we have just again a giant a growing base you
know, like the number of people that are interested in bitcoin and digital assets
crypto in general, it's significantly larger than that, and and and it's going
to get larger. So I don't I'm definitely not saying super cycle. There
probably is top, like there probably is a cycle. I mean, I
don't want to deny history. They probably see it the same thing. But
again, this one also already looks a little bit different in other ways as
well as prior ones. You know, I just I think it's too early
to say. I really don't think that, you know, five percent ten
percent above the prior all time high as the top though, I really don't
think we're close to it personally for sure. And you know, to your
point, I think a lot of people are becoming more aware of the macro
issues while historically they haven't really paid attention. But maybe the Internet, the
flow of information is helping social media, like you said, even Jerome Powell
talking about the debt situation. So question about that, you know, is
bitcoin impossible solution. I'm not saying it's the only solution to that global debt
situation, to fiat currency problem, we've see central banks are awarding gold.
So what if eventually they start to hold bitcoin also as a reserve asset.
And I don't know what the reset looks like for fiat currencies, but any
thoughts on that. Yeah, it's definitely not the only thing, right,
I mean, again, precious metals, I mean, from an investment great
standpoint, gold is still a huge deal, certainly at the sovereign and central
bank level, you know, Yeah, I mean, so I think we
will. I honestly, I would bet we will see more sovereigns, so
nation states or sovereign wealth funds. I don't we don't have a central bank
as far as I'm aware of of any type yet that holds bitcoin, but
it wouldn't surprise me. And frankly, I would suggest that, like anyone
you know, the right allocation of bitcoin can be hinting to your portfolio from
a risk adjusted basis and blah blah blah like at certain levels like and again
even at small levels, it can have a positive impact. So I think
that's true. Basically the math that I've seen and that we've published on our
website and research we've written shows that that's provably true, right, so to
me, like in a world of uncertainty and growing uncertainty. Again, you
want harder assets, and so I think you will see it. Yeah,
And something that happened recently, the state of Arizona is look is looking to
pass a bill that will allow them to add the bitcoin ETPs I believe to
their pension or treasury one of those. So it's interesting that states here in
the United States are looking to do that, and I think one of them
does it. You know, there's going to be a bunch that follows.
So oh yeah, I'm very fascinating to see how that plays out. Yeah,
I think there are already states to be clear and who's whose government employee
pensions or whichever depend Different states do this differently, by the way, in
some cases, like you know, you're telling me that Arizona may pass a
law allowing them to do I believe in many states nothing like that is wire
they outsourced the management of their pension to an financial advisor, so they may.
I believe there are already several, you know, large like pensions comprised
of government employees or state employees that already have exposure to crypto in general,
like whether it're bitcoin directly or venture by the way, huge, I mean
almost all of them. There are plenty of big investors in you know,
the big crypto vcs as well. So but yeah, you will see it
like again, like that's that's not that's not Not only is it not far
away, it's already happening for sure. Now there's talks of any theorems POTYTF
coming this year. It is a May twenty third deadline. Some people are
saying it may not happen then, but it will eventually happen. And if
the SEC decides they don't want to approve it, folks are going to take
them to the court and win like they did in the Bitcoin situation. What
are your thoughts on the approval of the ETHEROREMYTF It would be a big deal
for ethereum. I personally don't think you'll see as much interest from traditional finance
and allocators as you are in Bitcoin. And that's it's just a more complicated,
different, you know, different thing. It's not as easy as story.
It's it's got other there are other things like I mean, you know,
not to throw shades specifically on Etheroreum, but like they've changed their monetary
policy like nine times, Like some of the pitch doesn't make as much sense,
and it's and by the way, it hasn't been practiced. I mean
the bitcoin world, and I mean even in the financial world who likes bitcoin
has been successfully explaining and running the numbers and pitching bitcoin for like over a
decade, right, Like, so it's like, we know what the story
is, we know why people should allocate it. Theoria is a much more
complicated and different type of system, but it would definitely be a big deal
for Theoryum, I'm in the camp. I mean, I've called it publicly
a toss up whether something happens in May. I don't really meaning, like
you know, I happen to think it's less likely than it's less likely than
not or less than fifty percent. We'll just say that way a chance that
it's approved in May. The reason for May is similar to the January eleventh,
like our FINALI approved a nine date for the bit twenty TF I forget
which one it is, but some of the several filers have their final nineteen
before approved deny date in May, and so you know, they can either
withdraw or they can be accepted or rejected. Right, And there's a bunch
of we could hash out the arguments for and against I think long term absolutely
like they will be approved. The main reason is because the SEC already approved
the Cash Settled Futures ETH ETFs. So like that's basically the pathway that's been
set by the Bitcoin ETFs. Right, get you get CM futures, maybe
maybe you get Canadian ETFs. Bitcoin and ETH have both, right, and
typically Canada was part of this. Now like it's directly relevant, but it
was in this order. Then you get the futures based ETF, and then
you get the spot ETF. Like that's that's what Bitcoin did, and ETH
has three of the four. So like it seems like if you're going to
deny the Eth ETFs for something other than the same reasons why they wanted to
they had been denying the Bitcoin ones, which was primarily about surveillance sharing agreements
and a regulated market of sufficient size stuff. And that those questions are what
was basically directly rejected by the d C Circuit Court of Appeals in the Grayscale
case last August and August twenty three and effectively forced the hand of the SEC.
Right there were no other arguments they basically ever made for why they shouldn't
approve the bitcoin e TF. So when those two arguments were returned, there
were no other good arguments you. I mean, bitcoin and theory are significantly
different enough in my view that like, you could bring up other arguments,
But the problem is they already if you're the sec looking to deny, in
my opinion, you've already approved the cash settled future. So like, if
you wanted to bring up other arguments other than the correlation between spot and futures
prices, the availability of surveillance sharing agreements, and blah blah blah, you
should have done it when you heard the future CTFs, not now that you've
allowed them. So this is the common argument in favor of why people think
that they could be approved in May. I just you know, I just
don't know. It's why I'm calling it a toss up. I think,
obviously invite they get approved at some point. It's just a matter of if
they get rejected. You know who sues? Does does Gray Scale sue?
Again? I don't know. I genuinely don't know. So, I mean,
if they have to be great, the se see has to isn't going
to act absent a direct ruling from a court, then I don't know.
When it would happen, but eventually they probably win that case. You would
sit the d C. Circuit Court of Appeals decision and gray scale as as
the cop here right in your in your court case. Yeah, absolutely So
on that note, you know, we are facing a lot of regulatory hurdles.
There's a lot of uncertainty the sec. I mean, it's a mess.
They're losing in court, they're suing people, people are suing them.
But Congress has a couple of bills in the House, there's two in the
Senate. I don't know what you guys are hearing. I don't know what
Mike is hearing. But you know, are you optimistic that we might see
some sort of regulation this year or maybe next year? Oh? Yeah,
I mean on a long enough time frame, I mean next year. A
big difference between this year and next year, I would say, I mean
we're an election cycle this year at the federal presidential obviously, so and that
makes it a little trickier. I would say, I think of the you
know, major issues that I've seen before Congress on this is you know,
stable coins, realizing them, regulating them whatever. I mean, they're already
legal, but you know, formalizing the rules around them, creating a regulatory
framework to issue and use them, and blah blah blah. And obviously we've
had work on that done. I think great work in the House Financial Services
Committee with current Chair Pat McHenry and ranking member Maxine Waters. And even when
Maxine Waters was chair and Pat McHenry was ranking member, they also did good
work. So there's there's some bipartisan desire to do that, to do something.
I'm hearing that there may be new movement happening on it as well.
So I would say most likely of any of the things that are sort of
big stable coins could still happen this year. I'm not really, I'm not,
you know, holding my breath for a market structure bill, which you
know, the idea here is like, well, maybe we could sort out
some of the conflicts that have arisen between the se see end the industry about
like well, what is a security, what's a commodity? Who regulates what
when? Like that, there's a couple of proposals the Fit Act, the
Lamas Jillibrand Bill, and the Senate there was the stab An O Bozeman proposal,
Like there's several of these bipartisan. I'd be very surprised if there's really
any real traction on that this year. There's also not a lot of time.
I know it's crazy, but like you've got the government, you've got
must pass spending stuff where the government could shut down again, right, this
is the new normal in America. Congress hasn't passed a budget on time since
nineteen ninety six, so like they're basically struggling to keep their head above water,
just doing their basic job. So like big sweeping bi apartisan and stuff.
I mean, we haven't amended the tax code in thirty years, right,
so in general, hard to get the stuff done. I would say.
The other thing that obviously has been top of mind is illicit finance related
questions. Senator Warren's proposed bill, the Digital Asset Anti Money Laundering Act,
is you know, was raising a lot of eyebrows and getting a lot of
interest, partly because of the renewed interest following the Hamas's attacks on Israel on
ten seven, But even then, it was initially introduced right after FTX and
got some in fall twenty twenty two. I've been very vocal I won't retash
the little thing I think it's a terrible bill. I think it doesn't do
what she claims it does, and what it does do basically criminalizes running software
in America. So I think it doesn't even accomplish what she says it should
accomplish. It would create an unenforceable prohibition on basic, basic freedoms that Americans
have. It's a crazy concept. There are other ways to help style me
the use of crypto assets for illicted finance. That and by the way,
she constantly says that shouldn't crypto firms have to follow the same rules as banks.
Well, first of all, that's a loaded term because banks actually have
a whole different set of rules that many financial companies don't have to follow.
But by the way, what she means is like on AML and KYC laws,
they do crypto firms do. Her bill doesn't put it on crypto firms.
It tries to apply the Bank Secrecy Act to nodes, minors, software
developers. Is crazy. There's no precedent for that at all. So there
is a potential always and I've been warning about this for something in that world
or in that sort of issue to bubble up in Congress. Those are the
three sort of main right stables, market structure, listed finance that I'm really
seeing. I should say, there have been plenty of other good bills that
have been introduced in the House and Senate that are maybe more narrow. There's
the proof fact from Senators Tillis and heckn Looper in the Senate Banking Committee that
mandates proof of reserves on cryptographic you know, crypto style proof of reserves on
exchanges and custodians in the US. I think that's just undeniably positive for consumers,
and it's also great. It's a technology that you can only do with
crypto assets. Right. It's actually an area where crypto assets are significantly better
than traditional assets. Right. You can't mathematically prove the stock is in your
account, but you can mathematically prove the cryptos in your account. So,
and others a variety in the House as well. There's issues with like SAB
one twenty one, which is the stupid staff accounting bulletin out of the SEC
that blah blah blah. Long story short, it makes it impossible for publicly
traded banks to touch crypto. Mike Flood and Richie Torres and the House have
introduced a bill under the Congressional Review Act to block it, or I don't
know the terminology overturn it. I mean, there's plenty of interesting and bipartisan
works, but I would look out for illsted finance and stable coins as being
possible this year. Market structure most likely not. Yeah, it's tough,
Like you said, government has to get out of its own way a whole
bunch of other things, but hopefully they can come together and get this through
it within the next two years. What are your thoughts on NFTs and tokenization
and is Galaxy looking to do anything on that front. I've been looking at
this myself for years. Token is a you know, I mentioned sort of
at the top of the discussion a little bit about how we looked in all
this private blockchain enterprize blockchain related stuff. A lot of that was sort of
like tokenization questions. I happen to believe that public blockchains and distributed ledgers are
a far superior technology for uh tracking the ownership and transfer of assets of all
types. So, like I personally, if I think if you developed a
financial system from scratch, you would absolutely have a lot of these tokenized assets.
You'd probably obviate the need for the Depository Trust and Clearing Corporation the DTCC,
by the way, they wrote a paper in twenty fifteen or sixteen that
said they should be disinterremediated by blockchain that they were very forth uh, you
know, forward looking about that, and they're totally right. There's a variety
of reasons why we haven't seen it at scale outside of the stable coin use
case, which is I think a tokenization like group of concept that is absolutely
positive stable coins. That is tokenization that's working right. People love stable coins
all over the world. I think you'll see more. I think we're we're
very interested in it. We have some efforts, mostly not publicly disclosed,
that are that we're interested in research and development side. I think you are
seeing the increasing tokenization of things like private credit and treasuries on chain right from
issuers like I think, you know, like Franklin TEMPLETONA maybe others like what
we call r w A. I hate to say that because actually I'm with
it, but my colleagues that come from the real traditional finance world, even
though I come from Fidelity, I'm not like from Rice. I told you
I did legal and compliance primarily before I did cryptos. I'm not like a
finance guy in that sense. But my colleagues tell me that's actually the acronym
for risk weighted assets, and they get annoyed when people misuse acronyms. But
in any case, r w as have been a very interesting theme in the
last year and I think will continue to be. So maybe that's the pathway
we finally start to see tokenization as sort of a broad thing. NFT is
like, I mean, I think I'm personally interested in scarce artwork generally that
is pleasing to me. I'm not a huge believer or just don't have ambivalent
don't have many cares for buying pfps and things like that. I would say
we do follow it very closely. Galaxy owns a number of NFTs that we've
talked about. I mean, on our out we've got punks and other stuff.
The Galaxy on is on its balance sheet, So I mean we like
NFTs. I would say broadly. I think it's kind of interesting. You
see the NFT market really sort of lagging here while the mean coin market,
which is kind of similar, right, It's kind of like, yeah,
maybe you don't get like an individualized jpeg to display your community affiliation, but
it is sort of a community building vibe a lot of these meaning coins,
you know, like you're you're part of the community. You can do token
gated access, you don't need an NFT you can do a you can do
a fungible token and do token gated access with So you're seeing something similar.
I think we obviously follow it from a research standpoint. Volumes are still done
huge. Probably the most interesting thing in NFT today as bitcoin ordinals, which
are dominating trade volumes at most of them. I mean, I just looked
recently of something like eighty percent of the Magic Eaten volume is bitcoin related.
So I don't know how sustainable that is. I mean, we've covered inscriptions
and ordinals earlier and at better length and deeper than anyone that I know.
We have multiple deep, long reports about it. We're in a unique position
to cover it because we know bitcoin really well, we know NFT's well,
we have a bitcoin mining business that we can get the miners perspective involved in.
But to me that that's probably the most interesting story at the moment in
NFT world. So, I mean, you know, I think it drives
activity. I mean, I'd be crazy if I said that the PFPS will
go away. I think whether we rebound to like I mean, that was
the really forefront narrative in the twenty twenty one Bowl market. We may never
get back there, or maybe it's crazy for me to even say that,
and we eventually exceeded at scale. I really don't know, but I think,
you know, artwork on the blockchain is it's going to be here to
stay. Yeah, And I'm excited to see NFT utility. To your point,
I'm not so much into the collectibles aspect, but if I can get
an NFT that gives me special perks, benefits, access, and I know
there's dynamic NFTs being worked on for different industries with cars, real estate,
and so forth. So I'm excited to see that aspect of it. Yeah,
I mean I think you could have I mean, from a tokenization standpoint,
that's right. I mean, you can tokenize non fungible assets like real
estate and identity. I mean I think, I mean, I'm basically in
favor of all of this. There's just a variety. In some cases you
don't really need the blockchain for that. Really, what we're talking about in
those in whatever industry, it's that they need better digitization and other issues.
There's a slew of intermediaries that would be harmed if the if we would disintermediate
them, so well, it's possible. It's going to be the UX for
us has to be ten x better so that we can convince the people to
cut them out or whatever where they stand in the way or there's or there's
regulation. Like I think, Like I said, if I designed it from
scratch, I think we'd use this technology a lot more than we do today.
But it's going to be slow going for a variety of reasons, for
sure, Alex. I got some wrap up questions here for you. First,
if you could create your own metaverse, what would the theme be?
Oh man, you'd have the Las Vegas sphere with Michael Saylor's face on it
saying there is no second best, is no second best? Right, I
don't know. If you'd have there'd be a lot of hip hop music.
You'd have DJs everywhere, We'd have some break beats going on, some people
doing some breakdancing on cardboard in the streets, and it would be it would
be Sonny in sixty seven degrees every day and we'd all be having a We
would be walking constantly to a baseball game, like eating a hot dog,
listening to you know, listening to DJ Screw or like three six Mafia or
you know nas or Tupac. Nice hip hop The Sailor as the Sun God
themed metaverse. That's my idea. Questions favorite food oh Man, pad tie,
spicy pad tie, steakby Steak, oh Red Bye Steak for sure.
A musician or a favorite musician or band, oh Man, I'm just gonna
say currently eminem logic, Joinner, Lucas, all Kendrick Lamar, all the
real lyricist hip hop artists. By the way, shout out to Captain Youth
and eight. Any my two favorite like bitcoin themed wrappers? Nice? Favorite
movie? Oh Man, Tropic Thunder. Favorite book, um ooh Man,
goodness, gracious love the Red Rising series that's recent though I just read it.
I mean favorite book. Lord, There's a lot Hunter Thompson, any
I have to pick one Hunter S. Thompson, the Doctor, the gonzo
journalist himself, any of them. Fear and Loathing on the Campaign Trail,
any of those books, experien loathing in America, You're and loathing in Las
Vegas. I guess anything hundred Thompson Fear and Loathing. It's my favorite.
And when you're not working a Galaxy, what are you doing for fun?
Hanging out with my kids, making hip hop music and reading nice Alex pleasure,
chatting with you, and I definitely have to have you back on because
you guys at Galaxy are doing so much. You got your pulse on the
market. But thank you so much for joining me. Yeah, Tony,
thank you having me