Mike Novogratz’s crypto firm Galaxy Digital wants a full-scale investment banking team in the UK and Europe, its top dealmaker has told Financial News, amid growing regulatory headwinds in its US home market and a projected rebound in digital asset prices.
Canadian-listed Galaxy established a London investment banking outpost in October 2022 by hiring Alwyn Clarke, a former banker at Fenchurch Advisory Partners and Barclays, but was forced to rein in a broader hiring push as the so-called crypto winter struck.
Now, the company is aiming to bolster its dealmaking and advisory capabilities again, including hiring a more senior figure to lead the unit and a handful of analysts, according to head of investment banking Michael Ashe.
“Europe for us is an important growth area,” Ashe said. “We need to provide [Clarke] and the effort more generally with more resources.”
Galaxy is one of the biggest investment managers in the crypto sector with $1.9bn-worth of assets under management as of the end of February. It employs more than 400 people globally.
Its dealmaking unit has 16 people, mostly based in New York. It counts the likes of Goldman Sachs and Citigroup as competitors in crypto-focused M&A advisory services.
But like many digital assets firms, it suffered a sharp downturn in profits in 2022, reporting a net loss of $1bn for the calendar year. That came after a dramatic crash in the price of leading cryptocurrencies such as bitcoin and ether during the second quarter.
The worsening crypto climate was exacerbated by a slew of high-profile corporate collapses throughout the year, including that of Sam Bankman-Fried’s crypto empire FTX and lender Celsius Network.
READ ‘Grow up,’ ex-Celsius directors warn crypto as BlockFi joins bankruptcy club
As a result of the crypto winter, Galaxy was forced to shelve plans to set up an investment banking team in London, which would have covered Europe, the Middle East and Africa.
“It was a difficult summer, to say the least. We had anticipated building our European coverage business more aggressively. In light of everything that happened in the market, it felt like the prudent thing to do was to put a pause on the overall expansion plan at that time,” Ashe told FN.
Instead, it turned to opportunistic deals such as buying Argo Blockchain’s bitcoin mining facility Helios for $65m and failed crypto lender Celsius’ custody platform GK8 for $44m.
Galaxy turned a $150m pre-tax profit in the first quarter of 2023, after a partial recovery in the price of bitcoin, and is now looking to revive the expansion plans.
Ashe said he wanted to hire from traditional finance firms, and that the team would be made up of a senior banker plus a “small group” of analysts and associate-level bankers.
The senior hire would ideally be someone from a boutique traditional finance firm, he added: “Typically you need to be more scrappy and more entrepreneurial at those firms to generate and win new business.”
Regulatory headwinds drive firms to UK and Europe
A recent crackdown on crypto firms by US authorities provides another reason to focus on growing Galaxy’s investment banking capabilities in the UK and Europe, where regulators are seen as being more friendly to the sector.
The US Commodity Futures Trading Commission last month sued Binance, the world’s largest crypto exchange, claiming it operated illegally in the country.
READ Binance, Changpeng ‘CZ’ Zhao sued by CFTC over violating compliance rules
In the months before, both Kraken and Coinbase were targeted by the Securities and Exchange Commission for allegedly issuing unregistered securities in the form of consumer-focused crypto staking programmes.
Meanwhile, the UK Treasury is consulting on how to police the sector. Firms have until 30 April to respond to its consultation. Galaxy was one of the first firms to register with the Financial Conduct Authority as a crypto services provider in 2021.
The European Union’s Markets in Crypto Assets Regulation, which brings in a new licensing regime and regulatory clarity in the bloc, is due a final vote on 19 April.
“The fact that we’ve seen this big delta between where the US regulators are going and where the rest of the world is going… reinforces the strategy,” Ashe said. “The hardest part is pinpointing exactly when that [expansion] occurs. I’d like it to be this year, but that is going to be dictated more by the market than anything.”
Waiting for ‘healthier’ market
Ashe added that expansion could happen when Galaxy sees a “healthier fundraising market”.
“The deals that are being done at the moment are seed, pre-seed, very early stage and the occasional Series A. We want to see more activity around the growth stage, the Series B and Series C work.”
Another hurdle could be the cyclical nature of investment banking in traditional finance, he said.
READ European Banking Authority chair: Expect tougher enforcement as new crypto rules come into force
“When you are building a team it is difficult to hire in the fourth quarter of the year, because you have bankers that are on the home stretch for their years and for getting paid out by their current employers,” Ashe said.
“So we have a somewhat limited window here over the next six months to see if the market turns, and to see if we think it makes sense to move forward. If it doesn’t during that time, [the investment banking hiring] becomes an early 2024 exercise.”
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