Summary Downgrade to Hold: Galaxy Digital still trades mostly with crypto, and I see a weaker setup for Bitcoin from here. Hotter inflation and slower rate-cut expectations are a bad mix for a liquidity-driven asset like Bitcoin. If crypto stays weak, Galaxy gets hit through investment losses, lower trading volumes, and lower AUM/fee income. Not a sell because valuation is no longer stretched and Helios adds cash flow support. Introduction My last Buy rating on Galaxy Digital Inc. ( GLXY ) has not worked out too well so far, and since then the stock is down 33%, though I still believe in GLXY's potential in the long run. My previous thesis was: Today, I believe GLXY remains a Buy but also faces significant issues. It is in a very interesting spot here, as crypto cyclicality has leveled off, thanks to the promising prospects of its AI compute business. Still, crypto faces risks in 2026; the stock is not as undervalued as I would like it to be an attractive buy. On the other hand, upside from Helios' recurring revenues and technical factors support a continued buy rating. Today, I am making the case that despite GLXY's data center buffer, which adds cash flow certainty, their core income remains heavily dependent on the development of crypto markets, which limits near-term upside, as those are showing increasing amounts of warning signs. I could see a broader sell-off soon, but also acknowledge GLXY's long-term potential, especially after having already sold off 50%+ and trading at a moderate valuation. In the meantime, technicals have worsened too. Crypto Developments To me, the strongest fundamental reason to stay cautious on Bitcoin here is the liquidity setup. The problem is that it is no longer improving enough to support a highly positioning-driven asset. The Fed held rates at 3.5% to 3.75% in late January and kept a clearly data dependent tone, which means the market still needs softer inflation to rebuild confidence in a faster easing cycle . Today’s inflation data moved in the wrong direction for that narrative: core PCE, the Fed’s preferred measure, came in hotter than expected at 0.4% month over month versus 0.3% expected, with the annual rate rising to 3.0%. Reuters noted this strengthens the case for cuts being delayed until after June. That matters for Bitcoin because crypto tends to behave like a macro risk asset when markets are under stress. Bitcoin may diverge from the QQQ over short periods, but in a risk-off macro environment that usually reflects unstable positioning rather than true decoupling, which means it is still difficult to argue for a durable crypto rally while inflation and rate expectations remain a headwind. What makes this more bearish in practice is that flow support has weakened. CoinShares reported a fourth straight week of digital asset fund outflows, bringing four week withdrawals to about $3.74B, and also showed ETP trading volumes falling sharply from $63B to $27B week over week. On top of that, the recent selloff has looked more like a deleveraging phase than a full capitulation. VanEck’s framing of “deleveraging without capitulation” describes a market that still needs time to reset, with failed rebounds and retests, rather than one that has already printed a durable bottom. Looking at technicals, the large wicks towards the end of last year should have been a key warning sign of a potential top in hindsight. As apparent in the post by Rekt Capital below, we have since formed a lower low. This suggests the long-term uptrend (started in 2022) has come to an end, and we are now in a long-term downtrend, until proven wrong. Rekt Capital On the monthly logarithmic chart, we can see that during previous bear market drawdowns, Bitcoin dropped 20% below the 50-month MA in 2018, and 40% in 2022. For now, price only wicked below the 50-month MA; therefore, we could see much more downside. At 30% below, we would reach prices of approximately $46k. TradingView On the daily chart, the downtrend is again confirmed. After a lot of downward pressure from October to November last year, price consolidated for a while, which ended up as the perfect bear flag. After breaking below it, price dropped sharply again and is now building a similar structure. I could imagine a few more days or weeks of consolidation, and after that the most likely outcome is another break to the downside. TradingView What does this mean for Galaxy Digital? The most obvious repercussion of a prolonged and worsening Bitcoin bear market for GLXY is that investment income turns into investment losses, even if many of those remain unrealized. That increases earnings volatility and can make trailing valuation multiples look artificially high. Galaxy reported that net digital assets and investments fell 22% QoQ in Q4, while Treasury & Corporate posted a $454M adjusted gross loss, driven primarily by unrealized losses on digital assets and investment positions. The second hit is to activity-based earnings. In Q4, Galaxy’s digital asset trading volumes declined approximately 40% QoQ, which management attributed to softer client trading activity after a record Q3. That directly pressures trading-related profitability, and it already showed up in the numbers, with Global Markets adjusted gross profit falling to $30M from $295M in Q3. The third hit is fee pressure through lower asset values. Galaxy ended Q4 with $6.4B in AUM and $5.0B in assets under stake, both down materially QoQ as crypto prices fell. Within that, ETF assets declined 27%, Alternatives declined 26%, and Assets Under Stake declined 25%. Even if fee rates hold, lower asset values and weaker sentiment make it harder to grow recurring fee income in the near term. Further, a bear market environment usually weakens capital markets and M&A activity, which matters for Galaxy’s advisory business as well. What I also consider to be a red flag is the fact that they are barely turning a profit net of investment gains in a post-halving year, during which crypto prices and trading volumes are usually elevated, which, although not to the euphoric extent of last cycle, has also been true this time. I believe this shows they lack operating leverage and remain mostly a leveraged bet on crypto prices, where it makes sense to buy the stock when it trades at a low price-to-book ratio, betting on investment gains of their crypto holdings and a re-rating of that. Valuation Speaking of valuation, current levels neither seem particularly extended nor severely undervalued. GLXY's P/B ratio trails at around 2.1, much higher than during fearful levels, such as in 2020 or 2022, but also much lower than levels of 3+ in 2021 and last year, suggesting the potential to move in both directions is present. To me, this further makes developments within the crypto markets the deciding factor for Galaxy's performance. The stock market looks into the future, and when crypto's future looks much less bright, Wall Street will extrapolate that onto GLXY's results, making multiples re-rate to the downside. In that case, there would likely come a point at which those projections become too pessimistic and Galaxy trades at a cheap valuation where it becomes an asymmetric bet. I do not think we are at that point now. Data by YCharts However, the fact that we are also not valued like Galaxy will be a key player in future crypto and AI data centers contributes to me not rating the stock a Sell at the moment. It has already sold off quite a bit, and sentiment is certainly not euphoric. Technically, Galaxy Digital looks worse off than previously. The weekly price action closed below a key support at $22, which negates the uptrend, similar to Bitcoin's latest price action. Price now seems to struggle to reclaim this level, which is crucial for positive performance from here. A bullish reading of this could also suggest that we are in the midst of another April 2025 type of crash, after which the stock did great, making my first-ever Galaxy Digital rating look on point. TradingView At the moment, the technical situation looks neither severely bearish nor super bullish, contributing to my recommendation of staying on the sideline. Conclusion If Galaxy had no data center business or if we were at higher prices/valuations, this would certainly be a sell rating, as pressures on the crypto market mount and Galaxy is an incredibly susceptible stock to that. Cash flows from AI hosting, however, should be able to reduce some of the downside compared to 2022 and vastly limit financial risks. At the same time, the current valuation seems reasonable based on historical standards. Still, I believe Galaxy is more likely to suffer from crypto's poor performance than benefit from it, at least in the near term. This makes the stock an opportunity cost. In my view, capital is better off in stocks with a more attractive risk-to-reward ratio. Here are three examples of articles that I wrote with more long-oriented conviction: one on Meta Platforms Inc. ( META ), one on Amazon.com Inc . ( AMZN ), and another on Nebius NV ( NBIS ). Rating GLXY: Downgrade to Hold.
