Odd Lots - Mike Novogratz's Vision for Rebuilding Finance with Crypto

Episode Date: February 8, 2021

Bitcoin, and crypto more broadly, have been on a huge tear lately. Then, with the chaos surrounding GameStop, there's been more discussion about whether financial markets could be rebuilt in a fairer way, perhaps involving crypto or decentralized finance. Probably one of the best positioned to take advantage of such a shift is Mike Novogratz, the CEO of Galaxy Digital, which might best be described as a crypto investment bank. Prior to his current endeavors, Novogratz was a global macro fund manager at Fortress Investment Group, and prior to that he was at Goldman Sachs, meaning he's seen the traditional finance world, and this new world. He talks to us about why he's so bullish on crypto, and how it can be used to create a fairer and better financial system.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. So Tracy, that whole GameStop thing was pretty crazy, huh? I notice you are putting that in the past tense. So you think it's over already. We're still in the midst of our Odd Lots GameStop series. So please don't say it's. over. It's not over. I mean, I do think the squeeze in just like this incredible, like, moment where the squeeze got so intense that it was causing various hedge funds to not only

put up massive losses on their short positions, but also have to liquidate some of their long positions to degross overall. I mean, it feels like we're sort of in, you know, we sort of faded a little bit, but obviously the sort of impact of this moment, not going away anytime soon. Right. So I agree that the technicals for GameStop look to be diminishing at this point. You've got the short positions have mostly all been closed. The gamma squeeze probably isn't going to be as easy to achieve now because calls are going to be a lot more expensive. And of course, most of Wall Street bets is currently arguing with each other about what to buy next. But I guess that kind of brings us to the topic for this particular episode.

Right. And I mean, I think there's like a few things. So obviously lots of concerns raised about market structure, how markets work, how markets settle, the whole big guy, little guy thing is the car is the deck, you know, stacked against the individual trader? I'm not really convinced it is. But so many questions, I think sort of like it was not a good moment for trust, I would say, for traditional markets. I don't think by and large, even if the system did kind of work and some of these curbs were put in place before it got completely out of hand. Like, I don't think traditional markets, market structure, I don't think too many people came out like looking particularly good out of it. Yeah. I mean, I feel like market structure is always going to be a hard sell to the majority of people. And, you know, I say that as someone who used to write market structure stories and had to pitch them to editors whose eyes would. occasionally gloss over. But the industry definitely did not cover itself in glory over the past week or so. And you can see a lot of the outrage online, the talk about Robin Hood, basically

protecting hedge funds by shutting down or limiting trading of a bunch of different stocks and some other types of assets. The distrust is there for sure. Right. So coming into this, of course, obviously 2020 or 2021, but also the second half of 2020 has been a a huge sort of boom for crypto, Bitcoin surging to new highs. I should note, we're recording this February 3rd, 2021. I think Bitcoin is around 36,000. It had pre, its old high was around 20,000 back in 2017. So we have this industry that's really regathered a lot of momentum.

And there are many participants in the industry that say, look, you know, this traditional finance, stocks, all kinds of issues with it, maybe some reasons not to trust it. You don't know the rules. How about crypto? This is our moment, something more transparent, something where the rules are much harder to change on the fly. And so I think there's, you know, you already had this moment before the industry coming into this moment. And I think probably a major attempt to seize on it by some of the big player. Yeah, I feel like there are probably two overlaps with the GameStop situation here. One is, is Bitcoin an asset that's going to get a lot of retail attention?

Or as we see a bunch of meme stocks get more popular, is that maybe going to take away attention from something like crypto? And then secondly, this idea of decentralized finance, whether or not something like Bitcoin could be an alternative to the existing financial system that a lot of people don't really believe in. Yeah, exactly right. So our guest today, I think, is probably one of the best. people to discuss all this because he really has seen both sides of this divide, all the different worlds from multiple perspectives, crypto, traditional finance, traditional big banks, hedge funds. We're going to be speaking with Mike Novagrats. He is the CEO of Galaxy Digital, which will get a full description of, but it's sort of this crypto investment bank with lots of different aspects

in the crypto world. But prior to that for several years, he, was a global macro manager at Fortress, and prior to that, he was, he did 12 years at Goldman Sachs. So he really knows the financial world inside it out, seeing the traditional space, knows crypto extremely well. I mean, a lot of like ex-finance names have gotten into crypto, but Mike actually beat them all to it and was there when everyone was mocking it. And so he actually has a claim in a way that many don't. So we're going to talk about all these issues.

So Mike Novagratz, thank you so much for coming on Noddlot. Thank you, guys. How are the phones ringing off your hook specifically as a result of what we've seen with GameStop? And the way that this sort of GameStop story has become and part of crypto story. Yeah, listen, you know, it's interesting. The last three months of crypto have been insane. We're hiring people, you know, one a day trying to build a company up to kind of deal with the opportunity set. some of our businesses made more money in January than they did in the last two years combined.

Just the activity level was up. And so I think that's great for the system, right? There was a thesis that was put out there a while ago, and it's being validated as institutions and retail moved into mostly Bitcoin, but now the entire decentralized space. I mean, I think, listen, GameStop was interesting because it started off as some really smart young kids figuring out, you know, a chink in the armor. a bunch of the big hedge funds that they had shorted way too much in the stock that wouldn't be easy to squeeze. Now, if it was three hedge funds, that would have been an illegal behavior, right? Me and I called Paul Jones and Lewis Bacon and said, dude, let's squeeze this, right? We had to go to jail. But what is online and, you know, anonymous, you know, that wasn't illegal. And one of those

participants had enough individual weight to move the stock. But collectively, the swarm of killer bees pushed the thing up. What was interesting was after the squeeze on day two, day three, you know, GameStop goes from 180 to 300, 350, all the way to 500. The energy that got created was the energy of a revolution. It was nihilistic. It was angry. It was, let's tear down the system. It was David versus Goliath. It was endemic to what we're seeing in the country and in the world. We've had this inequality gap that is so wide that we had. It was very similar to people tearing down the capital. Let's burn it down.

We don't believe you. And so when Robin Hood got overwhelmed with new orders, right, their business is booming. They didn't have enough regulatory capital. And they, in one of the worst corporate communications jobs I've ever seen, said, okay, we're going to stop you from buying more game stuff. All of a sudden it became the conspiracy theories. It was like Trump getting the election stolen, right? Stevie Cohn called and stopped.

All these guys are inspiring against the little guy. The reality was this was legislation from Dodd-Frank, from the progressive side of the house, that came back to say, hey, if you're going to participate, you need regulatory capital. Listen, the GameStop squeezes over. You asked that question earlier.

These squeezes can't sustain themselves for two really simple reasons. I call it greeting gravity, right? If you bought it at 40, 20 or 40 or 50, at 400, you've made a fortune, right? There was a crypto thing called Doge that got squeezed. And my daughter's boyfriend, he participated. He sold his Doge and bought his first car.

Nice. At one point, the impetus to take some of that money that feels like it's free, that you just, like, it's showed up in your wallet, happens. New people come in and they start buying it. Remember, there were $23 billion of volume that traded in GameStop on like the 3rd. day of the squeeze. That means $23 billion of people selling, but new people buying. When that gravity starts happening and it starts going down, if you bought it at 400, it feels pretty shitty at 300. And so then you get the collapse, which we've seen. Game stock will go back to its old fundamental

value, which is probably $25. What really pissed me off is that a lot of, you know, senior people in finance, Cameron Winkelvoss and Shamoth and even Elon Musk. employee kind of encouraging the masses. What they were encouraging was unsuspecting new investors, not the smart guys that bought it at, you know, before it was squeezed, but new guys that got caught up in the frenzy spending their hard-earned dollars and to buy the thing at 400 with almost knowledge. It was almost a certainty they'd lose all their money at that point. And so I think that was just, it was frustrating to watch. Yeah, that was around the like $450 mark. I have more GameStop questions, but before we sort of dive into a lot of this, I have a very simple thing to ask you, which is, what does Galaxy actually do? Because every time I see it described, it's usually in a really vague term, like Galaxy is an investment firm in crypto or Galaxy works in the crypto industry. I never see a really specific description of it.

We're going to try to be much more crystal clear. So we have four or five businesses depending on when to break it out. We have one business, which is we're a venture shop, direct investing. And so we've invested in 80 companies that are building out the crypto ecosystem from new protocols like one inch or Luna token to exchanges to custody services. So anything that has touched the crypto ecosystem or quite frankly the virtual world ecosystem we're investing in. And so we have a giant portfolio of investments. We have an inventory of both Bitcoin, Ethereum, and other coins that I personally trade. And so buy it when it's going down and sell it's going up. And so that's our principal activities. Then we have what you would call a traditional sales trading credit business. We lend money to people that are participating in the space.

That's miners. That are just normal customers lending on margin. We have a derivative business, right? We're the second or third biggest market maker in options. And so if you want to do a structured product or sell calls against your position or buy puts, we're there for institutions. We have an asset management business where we take other people's money and raise it. We have a Bitcoin fund.

We have the Bloomberg Bitcoin Crypto Index. We have a venture fund that focuses on the virtual world stuff. And we have an investment bank, a group of people that have great domain expertise in the space. and we'll give advice on mergers, on acquisitions, on capital raising. And then we have a mining division, right? We are mining our own crypto, and that's mining finance, it's mining derivatives, and it's us mining ourselves. And so pretty broad and diversified.

It's been focused on institutions, not retail. And so that was a painful position to be in until about April of last year when COVID happened, right? I said, oh, the institutions are coming. And man, they were slow. And then COVID happened. And they went from walking at one mile an hour to trotting to sprinting. And now it's like a 99 mile per hour, you know, just mad dash.

And so you've seen hedge funds, insurance companies, asset managers, all entering the space since April. And that's why when we went through 20, we went right to 40 in Bitcoin. Those institutions are mostly buying Bitcoin. but the moment you make a little money in Bitcoin, you're like, hey, what else is in this space? And you look into the Ethereum ecosystem. And you're like, wow, that's pretty cool too. And so then they're putting some money in Ethereum. And then the final space is, well, where the real disruption is going to happen is in Defi.

Defi really simply put is taking a blockchain and bringing it to the financial system, right? It is creating driverless banks or driverless insurance companies or driverless derivative markets. And that, while it's still, I think, in the sandbox, It's still working out the kinks and being exploited. It's growing so fast that you could see the little guppies jump out of the sandbox and become frogs really fast. And so it's a really exciting time to be in the space. You know, there's tons of human capital pouring in.

There's tons of interest. And it does, you know, I got into the space. I already had made a whole lot of money in my life. And so if I was going to go back to work and work 70 hours a week, I had three things I cared about. One, am I going to work with young people? Because I think if you work with young people, you stay young. Two, is it a big learning curve?

Right? You want to learn new stuff. And this is a fantastically cool learning curve. And three, did I have something to add? And I thought partly because I got in early and I have Wall Street experience and I'm older than most people that there was something I could add to the community, if not just being the spokesperson or the unofficial spokesperson. But mostly, it was purpose driven, right?

Crypto at its core is not about making money. It's about systems change. It's people started Bitcoin in Ethereum because they said, hey, the world is screwed up. It is stacked to the to the big guy. Can we make it more transparent, right? Sunlight brings disinfectant. Can we bring it more transparent? Can we make it more egalitarian?

And that intuition you saw last week or the week before, right, when it felt like we're just getting screwed again, even though it wasn't the truth when Robin Hood shut down. The little guy felt like we'd be. he's just getting screwed again. And when you think about, you know, IPO allocations all go to the rich guys, right? They invest in the coolest projects early. You've got to be rich to be able to be a venture fund or private equity fund. And so we have this set of rules that were supposed to be set up to protect the little guy,

but feel a lot like rules that are boxing the little guy out from the best investments, leaving them to crumbs. And the little guy got angry. And so I think one of the reasons crypto resonates is at its core, the people are trying to rebuild the financial market infrastructure and the consumer infrastructure on a more fair platform. And again, it doesn't always feel that way, right? Crypto insiders still get a better deal than crypto retail. But the DNA of the space is really kind of a progressive social DNA. Now, it has a big libertarian feel to it, right?

keep the government out. I want to be peer-to-peer, right, peer-to-peer transaction. I don't need the government. But you're not just keeping the government out. I don't think we're going to be working in the long run have a system that there's no government regulation in. You're cutting out the rent-taker. And that's really where it becomes progressive.

On April 4, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. You know, I mentioned it in the beginning, and it can be quick, but it's pretty cliche by this point to hear it's like, okay, this banker so-and-so jumps over to some crypto thing. you usually hear about it at Market Tops, who is very big in 2017, it is a lot more these days.

You actually were not one of those people. You were interested in it when it was not cool when, I don't know, Ethereum was a few pennies or something. I think it was a Bloomberg article that first sort of report on it. But sort of what is the quick version of when you got interested and why? You know, you always get a little lucky in life to be that early. A friend called me up and said, have you heard about Bitcoin? And I hadn't and I googled it. And it was trading about $90.

And I was like, wow, has all the markings of something that could be a good speculative bubble. And so I originally bought it thinking, you buy something cheap, you sell it when he gets rich, right, when it goes up. And it was good technology. It was at the time of the financial crisis number two, right, the European financial crisis. So we'd already had the financial crises. Now we're at the European financial crises. We're in QE2. Yeah.

They're printing money. And so there was this group of people that thought, oh, we're going to debase the currency. There was going to be hyperinflation. They were wrong, but I thought that. And there were libertarians that cared about it. There were cypher punks. And the Chinese were buying. So I'm like, dude, this is going up.

So I bought it as a speculative hack. And because I talked about it publicly, without knowing I was in the public, I started getting asked to, you know, give speeches and whatnot on it. And that forced me to dig in and really try to understand. it. And the more I dug in, the more I were like, wow, this is kind of a cool, coolly designed thing. But it's when I started touching with the community. It really accelerated when my old college roommate, Joe Lubin, who was the founder of consensus. I went over to see him in his business. He was like three months old. And I felt that spirit of all the people in his office that they were like, we're going to disrupt the music industry. We're going to disrupt the finance industry.

And I was like, what, the music industry? And they were like, yeah, we're going to hook royalties right into the song. And so you're the creator. You're going to get something whenever that song is played, and it's actually automatic. It's not some promise from a shady music producer. I was literally looking at this. I was like, dude, these guys are going to rebuild the world. And that's when I got really above. That's when Ethereum was 96 cents.

And so I bought a ton of Ethereum and really started understanding the space more. Listen, 2017 was a bubble. So everyone thought, oh, this is just tulips. And they were wrong. It was a bubble for lots of reasons. It was such a powerful idea. bubbles always happen around ideas that change the world. Like the internet bubble in 99 was a bubble.

It wasn't like the internet didn't change the world. The internet changed everything about the world. It's just those ideas get so powerful and they spread so quickly. You know, you get irrational exuberance. And that's what happened in 17. The market had less knowledge. But what was cool about it and is important to talk about is that it was the first bubble that started from the little guy, right?

This was a retail-led global speculative mania. We never had one before, right? Where Mr. and Mrs. Watanabe in Japan and Mr. Mrs. Kim in Korea and guys in India, maybe we'll call them the Sings, so I could really get myself in political trouble. You know, when we had people from all over the world participating in this story, right? When people buy Apple stock, it's not the thing everyone talks about in India, right? local markets usually traded local things. And now all of a sudden, everyone was talking about this thing

called crypto. And so I think we're in this transition going from a 99% retail driven market to a market where institutions are moving in fast. That will create less volatility in the long run, right? Institutions have deeper pockets. They're not buying it leveraged. Retail, especially in Asia, love to play it leveraged. But that idea that this was the people's revolution, right, that this was our was both generational, millennial and Gen Z, realizing that the baby boomers had screwed the world up, right? They've leveraged the future, right? We have these giant deficits that probably can never get paid back. And so intuitively, they know they need some of their own store value, and that's where Bitcoin really works. It's a social money, right? It's kind of the internet, the money of the

internet in some ways for young people. And so you have this rich, poor revolution and generational revolution happening at the same time. And I think that's a powerful force. I don't think that's going away. I noticed when you describe Bitcoin initially, you talked about it being a store of value. And I'm curious, like, what happened to the payments thesis around Bitcoin? Because that seems to have fallen by the wayside a little bit. And it's kind of interesting how the narratives on Bitcoin change. But I'm curious how you sort of see the use case now and how that differs to when you first got into the space? So Bitcoin originally people thought it would be money.

And that's why they called it a cryptocurrency. And for a bunch of different reasons, it morphed. Part of the Bitcoin technology is really cool, but it's not what gives it its value. What gives it its value is this social construct. I believe it's valuable and you believe it's valuable. Therefore, it has value, right? Because we can take the same code and call it Bitcoin cash or call it Novocoin, right? And it would be worth nearly as much.

And so there was a debate about what it should be. There were storytellers, me being one of hundreds, that said, no, no, no, no, this is digital gold. And the story of digital gold won. And it's important in a lot of ways because gold doesn't get central banks and regulators nervous, right? There's $10 trillion with a gold. No one's freaking out that it's going to ruin our ability to tax and citizens and whatnot. Nor will crypto get them nervous. But payments does, right?

Money does. And so you're going to see a whole huge war in payments. Fidelity is getting into it with stable coins. But I think you're going to see payments done on blockchain, but it's going to be done in things that look far more like stable coins or traditional currencies wrapped in a token. Now, they might not all be government-issued stable coins. They might be algorithmic.

Like in Korea, there's a thing called the Chi payment system, which is built on the terra-block chain. which accretes value to the Luna token, complicated systems. I'm along a lot of Luna tokens. I love it. It's one of the first applications where a fintech crypto experience has jumped out of the sandbox and is being used in real life. It is gaining traction, right?

So it's really cool to watch because if you're a user, you don't care if it's built on a blockchain. You care about the user experience that it's cheaper and it's faster. It's more efficient, right? And so keep your eye on that project as how this whole system could, develop. But yeah, I don't think Bitcoin will fight with being a, with being a money. I think it'll be an asset. We should call them crypto assets in a lot of ways. And in that middle bucket, there's going to be a monster battle, right? Facebook's coming out with the DM coin. You have

USDC, you have tether, you have algorithmic stable coins like die. That space on how we move money, because reality, the real estate that everyone cares about is going to be your wallet. Like what's in your crypto wallet. Bank accounts at Bank of America and J.P. Morgan are going to be placed with wallets. The banks will be dinosaurs if they don't quickly flip over. And that's why the PayPal news was maybe the most important news of the year. PayPal has 330 million customers that now have crypto wallets, right, or that will have crypto wallets. That's a big deal. So if you're a Bank of America, you're like, okay, they have more customers than us. And you know, you think young kids are going to want to go to the bank teller or even deal with their bank, it's going to be all on your phone.

And so the real real estate that Facebook is going to fight for it, I think everyone's going to fight for is, can you control? And you see that in China with, you know, Ali, you know, Ali Pay and WeChat and, you know, and financial. The innovation is literally happening on people's telephones. You know, I want to like compare and contrast the crypto ecosystem with, say, what we've seen in traditional markets lately, because people looked at what happened with Robin And even though there was no conspiracy, you know, it's not great that people were in the middle of a trade and suddenly they weren't able to buy GameStop shares, although ultimately that probably saved them a lot of money. But anyway, you know, it was a rare instance in which the rules sort of were not ideal for a lot of people. It seems to me that with crypto, you might avoid rule changes and the system might be transparent.

but the day-to-day experience is not nearly as smooth. I mean, Bitcoin transactions are slower. Maybe I assume with like stable coins and stuff, some of that can be fixed. If you have your crypto wallet hack, you could lose all of your coins. Even if, you know, if you have it on a private wallet, you can lose the key, the password. If you have your money in, say, Coinbase and someone logs in, those transactions are irreversible. So it seems to me like, you know, There's a trade-off where it's like, okay, you don't have these edge cases where suddenly the rules change per se,

but the day-to-day experience seems inherently clunkier and riskier for many things. So listen, when I was your age and it was probably 2001 and I'm logging onto the internet to try to listen to a song, I get, you know, like, you know, buffering. That was pretty good. You know, years later, I'm downloading any song in the world instantly or I'm doing full movies and I'm downloading 3D movies. And so it takes time for systems to be built to perfection, right? Like the UXUI is a huge deal in crypto, but it's accelerating at an amazing pace. And so the user experience is getting better by the day. But remember, we say it's a 12-year-old industry.

It's really not, right? Bitcoin started 12 years ago, but it was a little backyard experiment. Ethereum started, what, in 2014, so that's seven, six and a half years ago. Like, we're really call it four years of having tons of developers pouring and working on this stuff. But if I could just push back a little bit, to me it seems like there's more than just a UI or UX question because the block, you know, like one of the selling points of blockchains of the Bitcoin blockchain, the Ethereum blockchain is, it's irreversibility.

And what that, it seems to me that that means you are sacrificing sort of like legal protections for the software. And so ultimately, like, that transaction can't, no matter how good the UI gets on Coinbase or how good the UI gets on a, you know, a USB wallet, you can't reverse that. There's no law that could ever reverse a coin. Whereas I have so many protections in my bank account, fraud protections. If someone steals my credit card, I call up the bank, and most of the time that can get reversed. Like, it feels like for many day-to-day things, we're giving up a lot in terms of sort of legal protections and guarantees and comforts that can't necessarily be fixed just with better UI. Well, I mean, part of it is the app start idiot proofing.

Are you sure this is how much you want to say? You know, double check. You know, so, yeah, if I think I'm going to send you because you're my buddy, you know, $10 worth of Bitcoin and instead I send $10 Bitcoin. I'm like, Jesus, I just send that guy $1,000, right? And so I do think part of that is building in an idiot-proof system to consumer, you know, crypto apps. The other stuff is interesting, right? we are going to see regulatory frameworks built into the financial system. So, like, why is government regulators worried about defy?

It's because of K-Y-C-A-M-L. If I want to trade with you, I want to make sure you're not a drug dealer or a North Korean agent. There will be a project built on the blockchain where the transaction goes to it first. It just validates that you're a blue check. We know who you are. You're a decent character. And then it disappears. And so I think defy will run through another protocol that really becomes the compliance protocol.

And so again, this all stuff is being dreamed up and built on the run. And so I can't participate as a U.S. citizen in a lot of staking in defy on shore because of KYC concerns. And so I've got a vested interest given I want this system to flourish to invest in projects. They're going to solve those KWC concerns. And I'm telling you, if they're out there already, they're being built. And so the system is evolving really quickly. It's not ready for, like, we couldn't shut off traditional finance and move everything to crypto today. Right.

Like this is a 10-year journey of eating away and eating away. But the reason it's so important, and you've felt it with GameStop, is that we need to do something to change the system because the system isn't working so well. Certainly for the little guy. And that's felt emotionally. It just resonates. And so crypto is trying to build a system that's more efficient, more transparent, more egalitarian. But it's not going to happen overnight. So I have a related, but different question, which is it feels to me like the user experience is improving primarily as more traditional financial institutions get into the space. So, I mean, you mentioned PayPal. The PayPal wallet is incredibly easy to use, and you can just log in and start buying Bitcoin right away. But I wonder if this increased participation from traditional finance, the increased interest, is that at odds with the spirit of defy? Do you give something up in exchange for having traditional financial players involved in the space?

And sorry, one more thing that makes me think about that is, you know, last week during the GameStop phenomenon, Robin Hood curbing in some meme stocks, but also curbed trading in cryptocurrencies. So it felt like on that day maybe, you know, Bitcoin wasn't so Defi if you were trading it on a Robin Hood app. Yeah. Listen, Robin Hood curb trading and all the things that people were piling into because of regulatory capital. So it's like, okay, where is all this new money coming from? We need to slow it down. And so they were entering, they were opening up new accounts to trade crypto as fast as they were to trade game stock. And you're right there. I think, listen, I'm sure they'll get their regulatory capital issue to solve pretty quickly. We call ourselves a bridge between the traditional financial world and the crypto world. And that's a hard road to walk. On the one hand, I'm pitching business at a big bank like Mortgage Stanley or J.P. Morgan. On the other hand, I'm saying, hey, this stuff is going to put these guys out.

of business. And they're like, why are you talking about us being put out of business? Right. I say I wear a hoodie one day and a suit the next. The spirit of crypto is to change the rules and smash the rules down. And so lots of the rebel companies operate outside of the regulatory framework. They're like, and the way regulation works, Gary Gensler, who's the new head of the SEC, gave a great lecture on this. He said, if you're a smaller company, you're allowed to break the rules a little bit, you're not going to get in that much trouble. We didn't exactly say that that's what set. But if you're a big company, you got to play by the rules. And so it kind of gives these new companies a leg up on getting set. And that, you're seeing that happen. You saw that with Uber,

right? Travis broke every rule known to get Uber set up. And then all of a sudden, people got in trouble and he said, I don't care. And all of a sudden, then the law has changed to allow Uber. And so sometimes change happens, you know, not by people playing by the exact rule set. But big institutions have to. I think tech is going to to be a bigger threat to crypto companies, you know, being the dominant players than finance because the tech world is more used to, you know, chewing off their arm to grow a new arm, where finance wants to protect what they have. And so I think you're seeing companies like Visa and PayPal and, you know, Facebook getting into this space. And when they get into the space,

they get in with a tremendous amount of resource, right? So you've got crypto companies that are raising capital in new ways and, you know, that are small. And all of a sudden you have, you know, Facebook say, okay, here's our 1100 people or whatever they have working on. I love 180 people. And so, yes, they're going to be threats. That'll help and accelerate it. And I do think there's a middle stage in the evolution, right? We're not going to snap our fingers and have a whole different financial architecture and ecosystem. And so I think it's just a part of the process. Ethereum is not fast enough for the world to build on. Right. When you talk to the guys at Tara, why they did the,

their own blockchain, they were like, well, Ethereum was too expensive and too slow for us. Since we looked at others, we decided to build our own. You'll see over time with the ETH2, the Ethereum blockchain grow and grow and get faster and faster. And in the long run, it'll be a public utility, you know, that it's worth a whole lot. We will be talking about blockchain or defy. We'll be talking about fintech. And then it'll be just a user experience.

Like, I always think of it as like the back of the TV. Not always know how the guy that has the TV works. We just turn it on and we watch TV and it's pretty cool. Like most people will care less that it was built on a blockchain or that it's, they'll care that it's cheaper, more transparent and easy to use. I think we're just early in that innovation cycle. It's clear we're moving that way. It's not going to be linear. It's not going to be straight line.

People with vested interests are going to fight like crazy to stop it. Right? You see all these people saying, oh, we've got to be careful that Bitcoin's used for illicit purposes. Bitcoin is used for like this many illicit purposes, right? Tiny. chain analysis just did a report on it. You'll see some other reports coming out. A little bit of a sphere of change from older people.

And it's what they call fun, you know, like bad, bad info from people who are trying to protect their vested interests. I want to push on this a little bit more, the question that Tracy asked about the hoodies versus the suits, the cypherpunks versus the bankers. I understand why the traditional finance industry does seem to be. embracing Bitcoin and perhaps other cryptocurrencies, but Bitcoin for sure, as an asset, as you described it as a store of value, something for people to invest in. But what happens if these sort of like censorship resistant payments, that I can make a payment to you, person A to person B, without

any person C saying, no, you can't do that. No, this person is bad. This person. This person, is on some list, the person is on an industry that we don't like, so you're not allowed to make this payment. What happens if that goes away? Like, is there a risk that the sort of like cypherpunk spirit of it all gets completely snuffed out as institutions take it on as an investment and institutions, regulated institutions that probably have zero interest in that, in that hoodie element? Yeah, listen, so let's start with like, what problem are we so worried about? Like, if you ask the average American, how many of their transactions, they really don't want anyone to see, it's probably only the cheating husband sending his girlfriend flowers and he doesn't want his wife to see.

Like most people aren't selling drugs or shipping arms to North Korea. Funding terrorists. Right. And I think there will always be pockets where the cypherpunks live off the space. But the bulk of the system, bulk of people that play in the system are pretty, rule-abiding people, right? They buy groceries, they buy tennis shoes, they want to save money. Bitcoin right now is a great place to put a store of value against the basement of currency. And so there's nothing nefarious about almost what all the money we spend. We love to let

our mind go to the fact that, oh, I'm going to go in the back alley and buy some weed. But now weed's legal. You can buy weed, you know? Like it pretty soon will have decriminalize most drugs. At least I think we should decriminalize those drugs. I think we will. And so we're really talking about a tiny little percentage of need in most Western countries. Now, in places with authoritarian regimes, a different answer to that. And so I think there's this balance between politics and the need for ultimate privacy. And I always think there'll be systems. The tech guys, you know, the guys on the tech frontier are too good for the regulators to get. They'll always be systems that if you really want to, you know, send your elicit, just like there is, I mean,

horrifically for for kiddie porn, right? People operate in this dark web and there's all these horrific images of like, no one wants that. I don't want that peer to peer. I don't want that to exist, right? That's crime against humanity in lots of ways. And that's where like my philosophy or ethos differs from the pure libertarians. I'm not a libertarian. I have some libertarian, you know, sympathy at time. But, but, you know, like, You asked yourself, do you think we should ban kiddie porn? Now, again, if it's a huge issue, it's a big issue. Most of the issues we're talking about are tiny, tiny issues.

I wanted to go back to your mention of Gary Gensler. So we have this new administration in place. And I think most people would probably agree that regulators have had a hard time keeping up with Bitcoin. Now you sort of have this opportunity potentially to reset. You have Gensler, who, as you mentioned, has given lectures, has done quite a lot of work or at least intellectual study on the crypto space. Do you think he's going to move the needle on some of the rules and regulations that have been held up? I think he will be a great SEC commissioner. He is.

I work, to be fair, full disclosure, I worked with him in Hong Kong at Goldman Sachs. I've stayed in touch with him. We are both political progressives. Listen, he's progressive. So if you're progressive, you're looking at the red. takers in the banks. I'd be more nervous if I was a bank than if I was a crypto company. I think he's intellectually really honest. And so where crypto might be nervous is, you know, if you look at the Ripple XRP, was it a security issuance or not, you know, Gary will say it failed the duck test.

Looks like a duck, quacks like a duck, smells like a duck. It's probably a duck. He's going to, might most likely think this was a security offering. And there's some other cryptos that were launched that way. And so it's not like crypto. we'll have a free pass from Gary, but he understands it, right? He taught a class on crypto at MIT and the blockchain at MIT. And so I think that's a big deal because what our experience has been, there are plenty of people on the staffs of the SEC, the CFDC of OCC, of Fener, that get it.

All the young people get it. They trade it. They understand it. It's been the top, which is a little more calcified in their views. And so to get people that really understand it, I think he'll be a huge positive. to the space. A lot of short daily news podcasts focus on just one story. But right now, you probably need more. On Up First from NPR, we bring you three of the world's top headlines every day in under 15 minutes because no one's story can capture all that's happening in this big,

crazy world of ours on any given morning. Listen now to the Up First podcast from NPR. What separates good leaders from transformational one? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts. So you mentioned, and I've observed this too, this phenomenon. on of one of the rare sort of financial assets, I guess bubbles at times that really started with the little guy and then has grown and gotten more and more respectable. And now we have

the richest person in the world, Elon Musk, and his Twitter handle is just hashtag Bitcoin. So in this new world that everything goes in reverse, isn't he the new Shushine Boy that like now by the time even he is wrapping his identity in Bitcoin? What's left now? Where else is there to go? I'll tell you at a year. Listen, I would tell you the big, big group that hasn't participated is the Baby Boomer Wealth Channel in America, right? You can't go to Morgan Stanley, J.P. Morgan, Goldman Sachs, Charles Schwab, UBS, and call your

broker and say, I want to buy Bitcoin. You still can't. That's all going to change in the next two years. I can guarantee it's going to change because I'm. seeing it, we're working with companies, it's going to change. There's going to be offerings first out of their wealth management division and then out of their trading business. And so that's, those are the elephants that have it moved in. And that's where all the money is, right? Newsflash, all the money is old by the old people. 50 to 80 year olds own all the money.

You know, we keep talking about this giant generational wealth transfer that'll happen when they die off, right? The average baby boomer is Donald Trump's age. So it's Donald Trump, Bill Clinton, George Bush, they were all born the same year. It's a crazy stat, right? We had 20 years of presidency, 20 years of representation from guys born in the same year. I didn't realize that. Yeah. Right? That's because we had this, they had this population advantage, right? And so, listen, I think it's been the shittiest generation. I think they have polluted our country and our world. They have not been great stewards of the country. If you look at the amount of debt, we started with than what we have now, like, you know, you had the greatest generation in Fault World War II.

This was like the reverse boomerang, what we should call them the worst generation. Unfortunately, I'm a baby boomer by six days or 31 days. I was born November 26, 1964. If it was just Jan 165, I would not be a baby boomer. And I kind of hate it because I literally look at just the, like, there's this generational theft that has gone on, right, with all the debt, the guys in charge. And like, you can't say they haven't been in charge. same birth year. And now Biden, who's four years older, he's a little bit what they call

the silent generation, right? After World War II, the greatest generation, and he's a tweener. But really, it was that core. I'm sure we're only going to have about four or five more boomer president. And then another generation will get a chin. I think the next president will jump down in age, literally. I think, you know, my generation will get skipped from it. Yeah, you're probably right. I guess we had Obama. Obama's a baby boomer officially, but he really wasn't either in spirit. Yeah. The people listening to this can't see, but we're watching Mike, and he has a hoodie with a

dragon on it and a bunch of really cool pop art behind him. So he's definitely, he's definitely Gen Z. Tracy, where are we going to say? Yeah, that's fair enough. I was just going to say, to Joe's point, though, is there a particular milestone that if you saw you would think, oh, Bitcoin's finally made it? Like, is there one thing in particular that you're watching? You can't say it's for the baby boomers to die.

I think we've crossed that, right? So one of the most important things that happened this year was mass general, or mass life, one of the big insurance companies coming out and saying, we bought Bitcoin for our general account. So the general account of insurance company is like sacred money, right? It's what backs up all the people that are insuring. They need insurance regulator approval. They need Fed approval to do that. And I would tell you, it's not just one insurance company.

Now there are three insurance companies that are participating that I know of. maybe more. That's a big deal because that says the most conservative asset managers have now decided Bitcoin's a store value. It's a macro asset. And so I think we've checked the box. Bitcoin is around to stay. It's a macro asset. It doesn't always go up in price. It'll go up. It'll go down. But this idea, oh, it could go back to zero. You should only invest what you're willing to lose. It is wrong. Because now a natural asset, you should look, it's high volatility. It can trade, you know, it was just 20,000 eight weeks ago. And, and so could it trade back down to 24,000? Of course it could. But it's not going away. It's

part of our architecture now. And so I think it's a big, big deal. Portfolio managers are going to feel like it's irresponsible not to have some allocation, not that, oh, my God, I could get fired for having an allocation. And so we're in that shift. And so I kind of think, I don't want to, you know, George Bushet on that plane and say, declare. victory. But I think it's a really big deal that we're no longer, I'm no longer going in and explaining, you know, how Satoshi came up with the white paper and the Byzantine generals problem. And, you know, that, that's, that's where my conversations were seven years ago. And so I think we, you know, we've crossed that, cross that bridge. This week is actually a big one for crypto,

because we're going to see the launch of CME futures for Ethereum. And I know that's one of the cryptocurrencies that you're very big on. What do you think, or how is that going to change the space? Because I remember, you know, back in December 2017, when we saw Bitcoin Futures launch, some people were saying that that was one of the reasons why the Bitcoin price collapsed. So I'm curious how you see this one playing out. Listen, I think any architecture that we build around these systems to bring in new players is good for the ecosystem. Like in 17, it was unbelievably timed in this zenith of the market. And while it feels we're all excited right here and we're hype, I really feel it's different than 17. And so I think this is a

good thing, not the mark of a top. These futures always take some time to get up and running. But what's interesting is I was talking to Goldman Sachs who only participates new futures, right? And they went from like two hedge fund clients to 50 in Bitcoin futures. So if you're already trading Bitcoin futures, it's pretty easy to trade ETH futures. So I think the ETH futures contract will grow far faster than the Bitcoin futures contract did. And I think it's going to help ETH price. I'm very bullish Eath right now. I think if you look at the chart, it went through 14.

It took out the old highs last night after like four attempts. You know, that to me measures all the way to 20, 25,000. I don't love to give predictions because people always say, you said this and it didn't happen. but I give a lot of predicting. Longy. We would never do that to you. Longy. One more very quick question.

Obviously, we've been talking a lot in this discussion about the idea of retail pushing up against the big boys of the traditional financial system. Would Galaxy ever launch a retail fund or a fund aimed at retail investors? You know, we have looked at that a lot. I would never have ruled it out. You know, the, how do you get into the business you buy it? You know, exchanges really aren't exchanges. They're brokerages, right?

So, like, Quaybace is this amazing brokerage firm. I look back on it and was like, you know, what a knucklehead. I spent all this time building a brand, a personal brand and a firm brand. And I didn't have a retail outlet. And so it's certainly I think about a lot right now. It's quite expensive to acquire these retail outlets. And so we'll think of either build or buy at one point. But I think to be part of crypto in the long run, right, it's peer to peer to peer.

and it's touching as many people as you can. And so you found a kink in my arm, chink in my armor of not really having that accessibility. I also, though, believe, you know, do what you're good at first. And we understand institutions. We understand how they think. I was joking about half a suit and half a hoodie. It's not a joke, right? You literally need to walk institutions in a very calm way so they understand it and they feel comfortable with it.

very different than the 17-year-olds or the 19-year-olds. And so we're balancing that. All right. Mike Novigratz, thank you so much. That was a great conversation. I think the timing was perfect. And looking forward to seeing where you go next, what your next thing is.

Guys, thanks a time. Take care, Mike. Thanks, Mike. Really appreciate it. I really enjoyed talking to Mike. I really do think his sort of having been in both worlds made that a fresh conversation. You know, I'm going to say something a little rude. And this is not about any of our guests that we've ever had before. Okay. But I, talking to some

crypto people can get a little bit repetitive. No. Was it like the same thing. No, yeah, I know. The same lines about money printing and blah, blah, blah. And I thought that was super fresh. Do you remember when people used to say it's not about Bitcoin, it's about blockchain? And no one says that anymore. No, I know. I know. So that's progress, I guess. But people used to repeat that all the time. So I totally agree. Novagratt's or Mike's position sort of straddling crypto and traditional finance in the form of, you know, golden and fortress.

That's definitely an interesting position to be in. And I don't envy him in some respects having to pitch to bulge back bracket banks about a potential competitor. I will say one thing that I was thinking about, this is the second time this week in our GameStop series where we've heard people talk about this transition from a baby boomer-led economy into something new and the idea that we're in this transition period and it's throwing up all sorts of new opportunities. And I think Mike's analogy of the 2000s tech bubble was the right one, was the right one because people went crazy for the story of the internet. a bunch of internet stocks and of course a bunch of them lost value, but some of them didn't. So if you can recognize the turning point and if you can recognize the stocks or the companies or in this case the cryptocurrencies that are going to be winners from the transition, you do have this opportunity to make a lot of money, sort of like once in a lifetime type

money. You know what? I feel like also didn't really get that into it, but there were a couple things he said that I thought were sort of these like hints into what. makes a good trader or someone who is like a good trader's intuition. Like I liked his whole thing with a GameStop about the idea of like eventually gravity takes over. You know, you might talk.

It might be fun to ride the meme. But if you like suddenly made enough to buy a car overnight, a lot of people are just going to want it to even as fun as the meme is to trade it is going to want to buy the car. But then the other thing he said too, I love that point about like buying Bitcoin at 90. and it's like, oh, all these people thought QE2, hyperinflation was going to happen. And he sort of got the sense. It's like he understood it's like, you don't actually have to believe that hyperinflation is going to happen. You just have to believe that other people are going to believe that hyperinflation is going to happen.

And I feel like a lot of people overthink these things like, well, that doesn't make any sense to buy this on hyperinflation fears because QE2 is just an asset swap of long dated treasuries for short dated treasuries and blah, blah, blah. But it's like if you have like a sort of like good intuition about markets and stuff, it's like, yeah, a bunch of people are going to believe that I'm just going to buy Bitcoin at 90. Obviously it's paid off quite a bit. Yeah. This is my bullish on Bitcoin thesis, which is that, you know, I used to think that all these weird and different narratives around Bitcoin were a weakness in the buy case because people were pitching it as all different types of things, you know, like a hedge against inflation, but also a way to do transactions. which seems at odds with the store of value thing. But the more I think about it, it's actually like the more stories you have, the more appealing it is to a wide variety of people. So all those different narratives sort of appealing to different types of people,

ultimately, I think, increase the network and get more adoption. So, you know, some people are going to see Bitcoin as a way to undermine traditional financial architecture and they're going to buy it because of that to take a sort of moral stance. Some people are going to see it as a way to get rich and they'll buy it. Some people will see it as a store of value against hyperinflation or whatever and so on and so on. But the network gets bigger. Yeah, that's really well put. And that is why Mike is a massively successful career as a trader because he sort of has that intuition. And we don't. Okay. And we're podcasting. Should we leave it there?

Yeah, let's leave it there. All right. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Jill Wisenthal. You can follow me on Twitter at the stalwart. Follow our guest, Mike Novagrads. He's the CEO of Galaxy Digital. His handle is at Novigratz. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy at Francesca Today. And check out all of our podcasts at Bloomberg, under the handle at podcasts. Thanks for listening. Hi, I'm PJ Vote. My podcast Search Engine has a new two-part series for you.

Of all the new technologies coming out of AI, the most transformative one might be driverless cars. They're already on the road in 10 American cities, and they're quickly coming to more. We tell the story of how we got here. The secret team at Google that spent 15 years building what might be the safest vehicle on the road, and we cover the fights brewing in blue cities, where unions and politicians are working to keep those cars off the streets. Listen to search engine wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen and in season two of Leading By Example,

we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get. at your podcasts.