Galaxy Digital CEO suggests crypto financial company craze may have peaked.

Galaxy Digital CEO Michael Novogratz believes the trend of companies incorporating cryptocurrency into their balance sheets may have reached its peak. He stated that the focus is now on identifying industry leaders among existing companies, rather than new entrants.

Galaxy Digital CEO Michael Novogratz has indicated that the trend of companies incorporating cryptocurrency into their balance sheets may have reached its peak. During Galaxy Digital’s second-quarter earnings call, Novogratz stated that the focus is now on identifying industry leaders among existing companies rather than new entrants [1].

Novogratz highlighted that Ethereum, the second-largest cryptocurrency, already has two major treasury holders: Tom Lee’s BitMine and Joe Lubin’s SharpLink, which he expects will continue to grow. He cautioned that new market entrants may face challenges in gaining traction [1].

Galaxy Digital currently works with more than 20 crypto treasury investment firms, collecting management fees for overseeing their cryptocurrency holdings. These partnerships have added approximately $2 billion in assets to Galaxy’s platform, generating what Novogratz described as "recurring income that will go on and on" [1].

The surge in companies created to hold cryptocurrencies on their balance sheets has benefited from a more favorable regulatory environment in the United States. However, Novogratz and other industry experts have warned about the potential risks associated with this trend, comparing it to the 1920s investment trust boom [2].

Galaxy Digital, in a July 31 research report, cautioned that the rise of Digital Asset Treasury Companies (DATCOs) could make the market "structurally fragile." The report noted that the rise of DATCOs is tied to a single trade: raising equity and using the proceeds to purchase Bitcoin or other cryptocurrencies [2].

While the risks remain largely theoretical for now, the report warned of a potential "death spiral" where dropping BTC prices and rising debt could push companies into distressed sales [2].

References:
[1] https://www.benzinga.com/crypto/cryptocurrency/25/08/46867915/michael-novogratz-says-bitcoin-ethereum-treasury-frenzy-may-be-over-what-now
[2] https://thedefiant.io/news/research-and-opinion/galaxy-digital-warns-crypto-treasury-firms-create-structurally-fragile-market