Galaxy Digital to build UK banking team as US crypto crackdown bites

Canadian-listed Galaxy established an investment banking outpost in London in October 2022 by hiring Alwyn Clarke, a former banker at Fenchurch Advisory Partners and Barclays, but was forced to rein in a wider hiring push when the so-called crypto winter hit.

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 have to perform [Clarke] and the effort more generally with more resources.”

Galaxy is one of the largest investment managers in the crypto sector with $1.9 billion in assets under management at the end of February. It employs more than 400 people globally.

The dealmaking unit has 16 people, mainly 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 asset firms, it suffered a sharp decline in profits in 2022, reporting a net loss of $1 billion for the calendar year. It came after a dramatic crash in the prices of leading cryptocurrencies such as bitcoin and ether in the second quarter.

The worsening crypto climate was exacerbated by a number of high-profile corporate collapses throughout the year, including Sam Bankman-Fried’s crypto empire FTX and lender Celsius Network.

READ ‘Grow up,’ ex-Celsius execs 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 expected to build our European coverage business more aggressively. “In light of everything that was happening in the market, it felt like the smart thing to do was to pause the overall expansion plan at the time,” Ashe said. United Nations.

Instead, it turned to opportunistic deals such as buying Argo Blockchain’s bitcoin mining facility Helios for $65 million and failed cryptolender Celsius’ custody platform GK8 for $44 million.

Galaxy posted a pre-tax profit of $150 million in the first quarter of 2023, following a partial recovery in the price of bitcoin, and is now looking to revive its expansion plans.

Ashe said he wanted to hire from traditional financial firms and that the team would consist of a senior banker plus a “small group” of analysts and associate-level bankers.

The senior hire would ideally be someone from a traditional finance firm, he added: “You usually have to be scrappier and more entrepreneurial in these firms to generate and win new business.”

Regulatory headwinds are driving businesses to the UK and Europe

A recent crackdown on crypto firms by US authorities provides another reason to focus on boosting Galaxy’s investment banking capabilities in the UK and Europe, where regulators are seen as friendlier to the sector.

The US Commodity Futures Trading Commission last month sued Binance, the world’s largest crypto exchange, claiming it was operating illegally in the country.

READ Binance, Changpeng ‘CZ’ Zhao Sued by CFTC for Compliance Violations

In the months prior, 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 programs.

Meanwhile, the UK Treasury is consulting on how to monitor the sector. The companies have until 30 April to respond to the consultation. Galaxy was one of the first firms to register with the Financial Conduct Authority as a crypto service provider in 2021.

The EU’s Markets in Crypto Assets Regulation, which brings a new licensing regime and regulatory clarity to the bloc, is due to be finally voted on on April 19.

“The fact that we’ve seen this big delta between where the U.S. regulators are going and where the rest of the world is going … reinforces the strategy,” Ashe said. “The hardest part is figuring out exactly when [expansion] occurs. I wish it was this year, but it’s going to be dictated more by the market than anything else.

Waiting for a “healthier” market

Ashe added that expansion could happen when Galaxy sees a “healthier fundraising market”.

“The deals currently being done are seed, pre-seed, very early stage and the occasional Series A. We want to see more activity around the growth stage, Series B and Series C works.”

Another obstacle could be the cyclical nature of investment banking in traditional finance, he said.

READ Head of European Banking Authority: Expect tougher enforcement as new crypto rules take effect

“When you’re building a team it’s hard to hire in the fourth quarter of the year because you have bankers who are on their home turf for years and to get paid by their current employers,” Ashe said.

“So we have a somewhat limited window here in 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 in that time, [the investment banking hiring] will be an early 2024 exercise.”

For the latest news, the UN’s Fintech Files bulletin has you covered

To contact the author of this story with feedback or news, email Alex Daniel