Former wall street hedge fund manager Mike Novogratz has revealed his plan to create a merchant bank that will be wholly focused on cryptocurrencies and enterprises based on blockchain technology.
As stated in the press release, through his company Galaxy Digital, Novogratz hopes to develop a “best-in-class, full service, institutional-quality merchant banking business in the cryptocurrency and blockchain space.” He also intends for this bank to be a publicly traded company.
The Bank’s Creation
The press release outlined a series of complex transactions that will eventually culminate in shares of Galaxy Digital being traded in Canada’s TSX Venture Exchange. First, Galaxy Digital will acquire Canadian startup First Coin Capital Corp, creating an operating partnership which will be under the control of Digital’s principals.
Thereafter, the partnership will merge with Bradmer Pharmaceuticals in a reverse takeover, an alternative funding scheme to both an ICO and IPO. It is this step that will allow the bank to be listed on the Canada-based Exchange.
“If completed, the Proposed Transaction will constitute a reverse take-over of Bradmer by Galaxy Digital and First Coin pursuant to the policies of the TSX-V and the reactivation of the listing of Bradmer, which is currently a NEX-listed issuer.”
After the transactions are completed, Bradmer will change its name to Galaxy Digital Holdings and conduct all business under its new name. Novogratz hopes to raise about C$ 250 million through the issuance of placement receipts which are essentially shares in Galaxy Digital Holdings.
“The Subscription Receipts are currently anticipated to be issued by Bradmer. Purchasers of the Subscription Receipts will ultimately, as a result of the Proposed Transaction, acquire shares of the renamed and relisted Bradmer, following the satisfaction of certain specified escrow release conditions attached to the Subscription Receipts,” explains the press release.
Galaxy expects the transactions to be completed by the end of the first quarter after which it can begin publicly trading on the TSX Venture Exchange.
Cryptocurrency Hedge Fund
This news comes less than a month after Novogratz announced his decision to suspend his plan to start a cryptocurrency hedge fund. Just two days before the fund was scheduled to begin its operations, the investor informed potential partners of this change in plans.
Some took this to mean that Novogratz was changing his bullish stance on bitcoin and cryptocurrencies, however the millionaire was quick to refute this and explain the reasons for his decision.
Speaking to Bloomberg, Novogratz cited a conflict of interest as one of the reasons he decided against a hedge fund. He explained that he found it difficult to reconcile buying bitcoin as well as other cryptocurrencies for his clients while selling his holdings.
“I didn’t want to have to deal with the schizophrenic emotional side of it. There are just so many conflicts in that business. It was going to be more complicated than I wanted,” Novogratz said.
He further explained on Twitter that the market was not favorable for new players: “To be clear, we delayed launching a hedge fund with outside investors capital last week because we didn’t like market conditions for new investors. In no way does it mean we are less bullish [in] the crypto markets.” The hedge fund would have been a part of the merchant bank.
The Bank’s Offerings
The decision to put a cryptocurrency bank in place is an integral part of Novogratz’ long-term goal with his firm as well as a testament to his overall belief in cryptocurrencies and blockchain technology. He believes the blockchain will change finance in the same way the Internet changed communication.
“This corporate development is an important step in the evolution of the Firm’s [life cycle] and provides Galaxy Digital with a strong foundation from which to build and expand its platform, network, and brand.”
The bank intends to specialize in four business segments. The first of these is trading. Novogratz will turn over his portfolio, which is worth over $400 Million, to the company which will continue to manage and trade it, with the aim of generating profit.
“Galaxy’s in-house, quantitative development team is building and intends to expand its proprietary infrastructure and trading strategies, initially focused on cross-exchange arbitrage opportunities.”
Secondly, the bank will also facilitate principal investments which are funds paid during ICOs as well as pre-ICO’s. “Galaxy will continue to make selective principal investments across the ecosystem using capital raised from the Transaction, as well as recycling capital from existing investments upon realization.” It will use its in-depth knowledge of the inner workings of the crypto space to choose promising coins in which to invest.
Thirdly, Galaxy Digital will seek to manage assets for individuals and firms in exchange for fees and percentages of profit. “Near-term plans include developing a passive beta product and a venture-style fund focused on investing in and building a specific blockchain protocol.”
Lastly, the bank will offer advisory services. These include market research, solution ideation and white paper writing, architecture design, business and technical requirement documentation, vendor selection as well as project management. The combination of the firms involved in the project will give Galaxy Digital Holdings multi-jurisdictional knowledge of the technology space and money markets in a manner of which it intends to take full advantage.
Novogratz, who intends for the bank to become the Goldman Sachs for cryptocurrencies, will be the chairman and CEO of Galaxy Digital Holdings. The nine-person management team is composed of a number of people well-versed in investment and the cryptocurrencies. They include Richard Tavoso, Christopher Ferraro, and Sam Englebardt among others.
Galaxy further stated that all transactions are subject to approval from shareholders as well as compliance with tax regulations and commercial considerations.