Galaxy's Decorrelation Test

Author: Prathik Desai, Translation: Block Unicorn

Preface

Galaxy Digital’s cryptocurrency trading volume continued to decline in the first quarter of 2026, but its operational business began to decouple from the crypto cycle, which the company believes is the right strategy to combine both. In the first quarter of 2026, Bitcoin prices fell over 20%, and Ethereum prices dropped about 30%. However, Galaxy’s trading volume remained steady. This is the first sign of Galaxy’s business decoupling from market cyclicality.

In previous analyses of Galaxy’s profitability, I pointed out that Helios data centers could serve as a hedge against crypto cycle fluctuations. However, this argument was forward-looking and based on the company’s ability to complete construction on time and fulfill cash flow from contracts not yet started.

In April this year, Galaxy delivered its first data centers in Texas to CoreWeave, indicating that the company is gradually diversifying its overall business, shifting toward high-margin, non-cyclical data center operations. Although revenue from its data center business is currently negligible, it is expected to improve from the second quarter of 2026 onward.

In today’s analysis, I will show how Galaxy plans to develop these two businesses together rather than separately, and how this will help the company achieve a level of stability that others cannot easily match.

TL;DR:

• Despite cryptocurrency prices dropping about 25%, Galaxy’s adjusted gross profit from its digital assets division still reached $49 million, roughly flat compared to Q4 ($51 million).

• Galaxy’s trading volume remained stable, while the entire industry saw a decline of over 20%.

• Helios delivered its first data hall to CoreWeave, marking a construction milestone and the start of operational revenue.

First Signs

Galaxy’s financials are not much different from other crypto companies. Its first-quarter adjusted EBITDA was negative $188 million, almost entirely driven by a $140 million adjusted gross loss in its finance and enterprise divisions. This loss was largely due to unrealized impairments on its net digital asset exposure. As of March 31, 2026, Galaxy had reduced its digital asset holdings to $667 million, down 27% from $920 million at year-end.

The digital asset division handles crypto trading, lending, asset management, and infrastructure development, with an adjusted gross profit of $49 million. Despite crypto prices rising in Q4, this division’s gross profit was nearly unchanged from $51 million in Q4. Price declines led to participant attrition, a sharp drop in trading volume, and impacted Galaxy’s business. This also reduced the collateral backing its interest-earning loans.

Trading activity on Galaxy’s trading desk also confirmed this trend. Its trading volume was roughly flat quarter-over-quarter, while industry-wide trading activity shrank by over 25%.

But during the market crash, what prevented Galaxy’s operations from faltering?

A Stable Pillar

The secret to Galaxy surviving when peers face market collapses lies in diversifying risk through expanding product and client bases.

Over the past 18 months, the company has gradually increased fee income and recurring revenue in its trading division. Although asset management AUM declined from $11.4 billion to $8 billion due to revaluation of existing holdings, the asset management business still saw a net inflow of $69 million. Shortly after quarter-end, Galaxy also secured a $75 million single-client mandate, one of its largest ever. Despite a 20% shrinkage in loan scale due to falling crypto prices and natural loan maturities, Galaxy added new clients and diversified its counterparties.

This May, the company plans to launch a fintech hedge fund investing in companies building tokenization infrastructure. It will also open its consumer-facing trading app GalaxyOne to enterprises, allowing institutional users to trade, manage digital custody, finance, stake, and access crypto research. Both businesses are expected to generate sustained income regardless of Bitcoin or other crypto price fluctuations.

The second step is strategic positioning.

Galaxy has reduced its Bitcoin holdings and shifted a large part of its balance sheet toward Hyperliquid.

This rotation has resulted in a better performance of the balance sheet compared to pure beta strategies.

But for Galaxy’s investors and analysts, the biggest takeaway is: the lights in Texas are finally on.

Lights, Camera, Data Center

Galaxy’s Helios data center delivered its first batch of server rooms to CoreWeave in Q1, with full deployment expected by 2028, generating $1 billion in annual revenue.

Originally planned as a Bitcoin mining facility, it has now been transformed into a fully operational AI data center equipped with real-time power distribution, cooling, and networking.

Although revenue from the data center business is only $3 million, the company is still progressing with its Phase 1 project of 133 MW. Three points excite me most about this division: profit margins, non-seasonality, and contract duration. These contracts provide 15-year cash flows, with lease EBITDA margins around 90%. The Phase 1 project is expected to be fully operational in the second half of 2026, with annualized revenue reaching $250 million, completely independent of digital asset prices.

For reference, this quarter’s digital asset division’s adjusted gross profit was $49 million, with an annualized recurring revenue (ARR) of $200 million. Just the Helios Phase 1 project alone could generate higher operating profit, with ARR reaching $250 million and EBITDA margins as high as 90%.

Galaxy also received approval from the Texas Electric Reliability Council (ERCOT) to add 830 MW of power capacity.

Besides CoreWeave, the company is actively negotiating expansion with other tenants. But why seek new tenants?

Galaxy aims to avoid repeating past mistakes—over-reliance on a single business or client. This is likely why its President, Christopher Ferraro, emphasizes a multi-tenant, multi-site strategy.

But how will it fund these multiple sites? Each requires capital-intensive compute capacity, cooling, and other infrastructure.

In Helios Phase 1, the final customer—an investment-grade publicly traded company valued in the trillions—will use its GPUs. This credit rating will directly influence future financing terms for Galaxy’s data center projects.

Galaxy’s Dual Business Model

Galaxy Digital’s two businesses are evolving, with different capital needs, profit models, and outlooks. They seem to have limited synergy and no clear reason to operate under the same entity. So, why not split them?

The company is not certain these divisions will remain unrelated.

Most see Galaxy as a typical crypto firm about to spin off its data center business. But they overlook the connection between its crypto trading and data center operations. When Galaxy’s data center revenue hits $1 billion annually with EBITDA margins of 90%, it will be fully capable of robustly operating its crypto infrastructure even in a bear market.

Data centers cover fixed costs, while crypto trading generates profits during market volatility. This model reduces total capital costs because the two can mitigate risks for each other. The crypto business doesn’t need to be profitable enough to withstand downturns; as long as it covers variable costs, it can sustain operations, as seen in Q1 2026. Data centers can operate independently of token prices, driven by demand from large-scale data center operators competing for compute capacity. Sharing assets and liabilities with a cash-flow-generating crypto business allows Galaxy to flexibly fund early-stage development and accelerate new site builds faster than independent startups.

These conclusions are not yet definitive. They are merely signs of decoupling observed in Q1, for reference. To establish this as a general pattern, it must be validated over the next two or three quarters.

But indisputably, Galaxy is building the right architecture. Its data center business offers high-margin, fixed, predictable revenue, while its trading business provides low-margin, high-volume, cyclical crypto trading.

Novogratz says if this performance continues for three more quarters, he will be celebrating.