Galaxy Digital Holdings shareholders (including myself) have watched with great consternation as GLXY’s share price has continued to slide in conjunction with, and more severely than, Bitcoin and Ethereum Prices. What is going on here?
We know that GLXY is a well capitalized, profitable merchant bank existing smack dab in the middle of the crypto currency and DeFi revolution. I’ve googled about it several times over the past year, including in this post from September 25, 2021, where I was looking at the upside correlation between GLXY and the main crypto currencies.
Back in September, during BTC and ETH’s bull run, GLXY was outperforming, strongly correlated to BTC & ETH values. Its share price was clearly leveraged to the upside based on the profitability, diversification and trajectory of the company. Well, what a difference a few months make! Now, GLXY is under performing, falling faster and further – Leveraged to the downside – than its two crypto benchmarks since BTC’s peak in early November. Whats up with that?
It turns out GLXY’s price performance vs Crytpo is turning out to look a lot like how other merchant banks / asset managers behave against their primary business sector. When things are good, they magnify the sentiment of the sector, through expanding earnings and balance sheets. And when bad, amplify the negativity of the sector. They are prone to overshoot in each direction.
So how am I looking at this pullback? I’m asking questions!
First, I am questioning some beliefs that I’ve built my GLXY position on, starting with some really big picture questions. Lets get the big existential question out of the way first.
Do I still think that the advent of crypto currencies and decentralized finance is legitimate and sustainable? YES
Ok, now, what about Galaxy itself?
Do I think that GLXY is an aggressively managed, well capitalized company and leader in this sector? YES
OK. So big picture, its all good. Now lets drill down a bit. Lets accept the fact that GLXY’s share price performance is strongly correlated to the price performance of BTC and ETH. That being said……
Do I think that BTC / Crypto prices will rebound in the near future? I don’t know
Let me elaborate on this. If BTC is indeed ‘digital gold’….well, it might end up behaving like gold, and go through long periods of decline, sideways trends, or sudden bull runs. Or perhaps, if BTC is more like a technological commodity, subject to Metcalf’s law (as many propose), its value will be driven by network effects, and continue to grow with usage.
But that doesn’t mean anything will happen fast, or continue to happen the way we would like. It is very possible for crypto prices to go lower, stay flat or not do what HODLr’s want (which is to go up!). Network adoption and decreasing supply are macro levers that should serve to push prices higher. BUT that doesn’t mean it will unfold without volatility, risk or in the time frame we want.
So, an investment in GLXY remains a bet on the value of the major crypto currencies, and a high correlation will remain between them. There is some leverage to the up and down sides. In my humble opinion, it remains a liquid, diversified way to invest in the sector.
What am I going to do with this downturn? I’m going to follow my plan – Average in, keep my position size in its target range, stay long term focused and ignore the short term noise. I’ll continue to keep an eye on the macro crytpo environment, ask the big questions along the way about the legitimacy of the sector, track the company’s progress, And hold on for dear life!
GLTA!
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