The Pomp Podcast - #1334 Mike Novogratz | Billionaire Reveals Why Bitcoin Keeps Going Up

Starting point is 00:00:00 What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Mike Novogratz. Mike is a billionaire. He's the founder and CEO of Galaxy, and he is one of the most famous macro traders in the world. This conversation was

Starting point is 00:00:42 recorded at Bitcoin Investor Day. It was an annual meeting for sophisticated Wall Street investors who are interested in Bitcoin. Mike led the day off, and he did not disappoint. We talked about the macro environment. We talked about Bitcoin. We talked about the political overlay, regulation, what Galaxy is doing, and how Mike sees the next couple of months playing out. Mike always has interesting, unique thoughts. I learn something every time I talk to him, and this conversation was no different. I am very excited for you all to listen to my conversation with Mike Novogratz. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect

Starting point is 00:01:22 the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by BASE. BASE is making it their mission to bring a billion people on chain. What exactly is BASE? It's a layer two offering a seamless experience for both builders and users. With near zero gas fees and rapid transaction speeds, BASE is shaping the future of the on-chain world. BASE is a canvas for everyone with hundreds of apps in the ecosystem, whether you're an emerging creator, a seasoned developer, or someone exploring the on-chain

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Starting point is 00:02:45 optionality here. PropyKeys is part of the Propy ecosystem. Their mission is to make home ownership more efficient, affordable, and user-friendly. PropyKeys is a fun entry point to placing title on the blockchain. Now, anyone can start their on-chain journey by minting home addresses via PropyKeys and staking them for profit until they are ready to sell their home. Visit PropyKeys.com to learn more. Again, that's PropyKeys.com to learn more. We have Mike Novogratz. He's upset that I made him sit on the sidelines for five minutes while I did that little talk. But Mike is the founder and CEO of Galaxy.

Starting point is 00:03:24 They have a very, very big business, publicly traded company in Canada, hopefully to be publicly traded in the U.S. soon. I'm excited to talk to Mike. So, Mike, come on up. Thank you, Anthony. Good morning, everybody. I thought a great place to start our conversation is you've been investing for a while. You have a lot of experience. You have traded currencies.

Starting point is 00:03:54 You've traded macro. You've traded, I'm going to guess, almost every asset class in the world. You've been very early to Bitcoin and crypto. Today, what are the similarities to some of the other things that you've seen in terms of allocating to this asset? And why spend so much time building an asset management firm and kind of galaxy in the form that it is, rather than sit at home with your Bitcoin and just watch the price go up? That's a great question. Let me get to the first one. Listen, Bitcoin is a macro asset. Like what got me into Bitcoin in 2013, when it was trading at 98 bucks, was somebody called me

Starting point is 00:04:32 and said, look into this thing. And I was like, hmm, macro asset. And I was a macro trader. At that point, the story was inflation was coming, right? We had 2012, the European financial crises, and everybody was worried about inflation. It's funny how the consensus can be wrong sometimes. Paul Singer, anyone who knows Paul Singer, he might be one of the greatest investors in the last 30 years, runs Elliott Advisors. Tough son of a bitch. He took an ad out in the Wall Street Journal and the New York Times wanting Ben Bernanke, the chairman of the Fed, to go to jail for what he was doing with QE2. Not kidding. And it was signed by 50 really intelligent people. They were so worried about inflation. And so that's why I thought,

Starting point is 00:05:19 you buy it with Bitcoin, it's got an inflation hedge. China was buying it. There were a lot of people that had lost faith in governments, right, post-financial crises. And so I was like, macro asset, buy some. And I remember looking at the chart and saying, this thing is going to go to a thousand. And sure enough, it went to a thousand. Matter of fact, I was on the cover of the FT, the only time I've ever been on the cover of the Financial Times where I was at a conference like this. I didn't know the press was there. And I said, oh, Bitcoin is going to go up because this, this and this, it's going to go to a thousand. And August 2013, you can find it. there I am. And then it went all the way back down. But I got hooked with this idea that,

Starting point is 00:06:01 and you talked about this, it was the first asset that started from the little people, right? It wasn't an institutional asset where at the end, the taxi cab driver buys it and it's time to sell. It was a global revolution and it was the first global asset, right? In 2017, when we had that great bubble, that was fun, right? It was more of an Ethereum-led ICO, Bitcoin to 20,000. I remember saying over and over, like, this is the people's revolution, right? Mr. and Mrs. Watanabe in Japan, Mr. and Mrs. Kim in Korea, people in India, in Africa, in Nigeria, all over the place participating. There are no global markets, really, right? Gold is a global market. But in the 1999 tech bubble, that was a US bubble, right? There was a few

Starting point is 00:06:53 people that participated in outside, but broadly Japanese people buy Japanese bonds, right? And so here's the first global asset. And it was people-driven. And so I started this way, way early, this tagline, the herd is coming. And boy, did I feel silly for years. I was talking about the institutional hurt, right? I was one of the first institutional guys, me, Dan Moorhead, there were a few of us to start telling the Bitcoin story to institutions. And most of them just said,

Starting point is 00:07:26 oh, that's really interesting, close. A few intrepid, you know, you guys had Fairfax County, you know, got in early, but very few institutions did. And so I look back, if I made a mistake in my Bitcoin journey, it was probably building an institutional business when I sort of started with retail. because it really was a people's business.

Starting point is 00:07:48 Let me answer the second question. Why did I start a damn company instead of just be a fund manager or manage my own money? Because it's so much easier to manage your own money, your own Bitcoin, Ethereum. I think the way you stay young in life is work with young people and learn new things. And while I'd been a macro investor my whole life,

Starting point is 00:08:09 I wasn't a venture investor. I'd made a couple of venture investments. and you can't be in crypto without being venture right pomp has become a great venture investor from being kind of a you know media celebrity now he's a better venture investor than he's a media celebrity right crypto is about venture and macro it's this weird hybrid so i got to learn a new business venture and i got to work with young people uh and my third box i needed to check to go back into the arena was that I needed to think I had something to add. And Wall Street beats you up and rings you out and slaps you in the face over 25 years, but you'd like to think

Starting point is 00:08:51 you gained some wisdom. And most of the crypto community was young, at times naive, full of big ideas, sometimes silly. And I thought I had some role to play in trying to bring some wisdom to this community and trying to get the older stodgy crypto institutional community to understand it. And so it, it checked all my boxes. So the herd is coming. I think now the herd is here. Talk a little bit as to institutions that are actually participating in the space. Obviously ETFs are a big part of the conversation, but how do you think about what institutions have done so far and what should we expect them to do over the next couple of years? Yeah, listen, we should all like give Larry Fink a standing ovation. You know, and there was a whole army of people that

Starting point is 00:09:41 orange pilled him. One day someone will write the book, The Orange Pilling of Larry Fink. Right. He was a Bitcoin skeptic and he realized, wait a minute, these guys aren't crazy. That is the process of how Bitcoin evolves. Every one of you has a responsibility in some way to do what you can for the community. All I can do is sell in life. And so my responsibility has not been coding, it's been selling, trying to convince people why this makes sense. Larry has a far bigger platform than I'll ever have. And I thank the guys that got him to see. I think that's staggeringly important. BlackRock's the largest asset manager in the world. He's one of the most recognized thinkers um but it's now not just bitcoin and the etf right they announced this

Starting point is 00:10:31 week they're filing with the sec to do a tokenized the digital assets funds what are they going to tokenize i mean larry said it they're going to try to tokenize money market funds and well that would be revolutionary right think about it right now stable coins don't pay interest the dollar doesn't pay interest. Anyone have a dollar in your pocket? No interest. Put it in a bank, it makes 5.5%. Well, actually, put it in a bank at JP Morgan, it makes zero. But you can get 5.5% in a money market fund, but in your pocket, it makes zero. So if we can start tokenizing, I don't think they'll get that through, but that's what they're going to push. And so you're going to see, not in the next three months, but in the next three years,

Starting point is 00:11:12 assets get tokenized, minority stakes in sports teams, funds, real estate maybe. And so I would tell you that every bank, every big bank has teams working like crazy on this idea because they're scared. If we move to a tokenized world, Goldman Sachs better be in it, Citibank better be in it, Bank of New York better be in it, state street better be in it and so there's a lot of activity and institutions around that piece there's a lot of activity around okay bitcoin's here the etf is here it had a greater start than any etf in history by a quantum uh i tweeted this the american people just voted right they voted they like crypto they like bitcoin they like digital assets and so bank ceos bank boards

Starting point is 00:12:06 Congress has to take note. So you've had some tussles on the regulatory front. You sometimes tweet some things and I say, okay. You also like to talk about politics. So how does Bitcoin fit into those two conversations, right? In terms of the regulatory conversation, you all are in Canada. I think that you'd like to come to the US. What's stopping that? And then how does Bitcoin play into an election year uh where politicians some seem very excited about it but others feel uh you know the people on the internet are stupid yeah that's a good question a i should tweet less uh um that's true for all of us the you know there's this interesting tension the crypto community is young and fun and full

Starting point is 00:12:56 of memes and and and so you want to participate in it and when you run a regulated company you got to be very careful uh because the amount of scrutiny that galaxy and i'm sure coinbase and everyone else gets is 4x what we got when we were hedge funds um and so even participating in meme coins i i i don't as much as i'd want to because i just fear if i like tweet god i love dog with hat like arthur hayes does i will literally be investigated two days later by the cfdc and so we we hold ourselves to a different standard uh and we've learned that as the process goes uh and i'm not knocking arthur i love the guy uh and i loved and i love dog with hat just the spirit of it um the

Starting point is 00:13:48 bitcoin got through the gauntlet it is now a non-asset it doesn't need to be regulated by the SEC. And so anything associated with Bitcoin, like Bitcoin miners trade publicly, and you can still get through the SEC if you just do Bitcoin. It appears Gensler and his SEC has drawn the line with Ethereum. And it's a little ironic. He spoke about Ethereum at a conference Galaxy hosted four and five months before he took the job at the SEC when he specifically said it is not a security right since he's been there and this is my supposition i don't know if it's true i think if you allow ethereum to not be a security it's a slippery slope what does that mean for cardano or polka dot or any one of the other you know level twos or side chains or base chains or

Starting point is 00:14:50 like what is the test if you let one and so it feels they've drawn this line between proof of work and proof of stake and i don't think that changes until the sec changes i think the sec will change no matter who wins the election democrats or republicans um if it's a republican and I think you'll get much faster pro-crypto changes than if it's a Democrat. You know, the Democratic thing, and I'm a Democrat, I raise my hand, has driven me insane because I've been going to D.C. a lot.

Starting point is 00:15:29 Hakeem Jeffries, Chuck Schumer, the guys that run the House and the Senate for the Democrats. Sorry about that. That's Gary Gensler calling them right now. God damn it, Gensler! um these guys want bipartisan legislation they see crypto as bipartisan it is bipartisan but a small faction right elizabeth warren uh you know sherrod brown unfortunately has kind of gotten on her bandwagon uh it feels like people in the white house

Starting point is 00:16:03 Lil Brainerd, have broadly, certainly Gary, have broadly said, we don't like crypto. And in D.C., you know, small factions can hold up the whole process. And I think the Democrats are getting the message I just said. The American people have just voted and they voted Bitcoin. Right. When you're in politics, you've got to be careful that you don't get so tied up on what you want versus what is. And so this is going to be a losing issue for Democrats. There are a bunch of PACs that have been formed, crypto PACs that are putting money against vulnerable Democratic senators.

Starting point is 00:16:45 The Democrats understand that and see that happening. And so it won't surprise me to see them pivot to at least a more neutral stance. So I think we get legislation, but it's an unbelievably frustrating last year has been frustrating. I think this year will be frustrating until the election. So as someone who's traded macro assets for a long time, you pay a lot of attention to what the Fed's doing, global liquidity, interest rates, many other aspects that go into that analysis. Are the institutions looking at some of those same drivers? Or do you think the institutions are basically saying, okay, we now want to allocate to Bitcoin, they're going to

Starting point is 00:17:21 allocate and those allocations are persistent regardless of the macro environment listen so bitcoin has has and always has had and probably always will have two vectors that drives price jesus meesus that was elizabeth warren someone heard me uh the two vectors have always been Macro. Right. Why? Why Bitcoin? Right. And so that's the same broad story as gold, silver, other hard assets and adoption. So right now, adoption is way overwhelming because we've just tapped into. So here are the numbers. There's eighty four trillion dollars of wealth, trillion owned by U.S. baby boomers. baby boomers are broadly 60 to 80 years old they are entering into their die-off phase they broadly invest through registered investment advisors you call your broker at you know dean

Starting point is 00:18:32 or morgan stanley or aj edwards and say hey what's my portfolio put a little bit here that is the etf process and it has just started and so early big adoption a lot of the the the smaller platform regional brokers have been buying but a lot of the big platforms like morgan stanley and they they're still not selling yet they're going to they're getting prepared to you can buy it on their platform but the salesmen aren't selling it and one thing i learned about bitcoin it's always sold it's not bought somebody sits down and explains it to you right what's the macro story of bitcoin it's relatively simple our government can't keep its pants on and is spending too much money

Starting point is 00:19:22 and when you spend more money than you take in you depreciate your currency and And that went from a problem in the early 2000s, 2007, 8, 9, 10, 11, 12, to a crisis with Donald Trump, right? And then Joe Biden. Trump and Biden will go down as the two residents who destroyed our fiscal stability, right? Trump raised government spending a ton before COVID. And then when COVID happened, it was, you know, let, let, let the dogs, let the dogs out. Biden came in and said, huh, now I've got this cover to run my progressive agenda that helped me get elected. And I'm doubly panicking on the COVID, you know, relief. and so we went from and this is a little nuanced but it's important to understand we went from a government that believed at our core that the federal government is allowed to

Starting point is 00:20:31 spend 20 of gdp every year and we try to tax 20 my first job in life was working at the office of management and budget under ronald reagan uh 1984 and i learned that you tax 20 you spend 20 We did it one year in 1999 with Bill Clinton. Since I've been post-college, the budget has been balanced one year in America. But we got close, 2% deficit, 3% deficit. We're now running structural 5%, 6%, 7% deficits in a good economy. Keynesian economics says you're supposed to run deficits in a bad economy and run surpluses in a good economy. We've normalized spending 25% of GDP on federal government. That's this year's budget, next year's budget, the following year's budget. That happened like this. It happened between Trump and Biden, and that's insane.

Starting point is 00:21:29 If you take the Congressional Budget Office's predictions, which are always rosy, right? They always are more optimistic than they should be. In 25 years, it has debt to GDP at 250%. Like that is a recipe for housing prices going higher, Bitcoin going higher, gold going higher, silver going higher. And until you see a government, both Dems and Republicans that say enough, we are going to go back to a Simpson-Bowles balanced budget amendment. We are going to cut spending from 25% back to 18 or 19%. Bitcoin is going to keep going higher. What about countries that are adopting Bitcoin? We've seen El Salvador, or, you know, they're taking custody of their Bitcoin.

Starting point is 00:22:12 They've got 5,000 something Bitcoin. Argentina, we now have somebody who's stepping in, who's slashing, you know, spending and trying to really economically revamp the country. Is that stuff, one, going to work? And two, do you see some of these countries actually going on to like a Bitcoin standard? I don't think they'll go on a Bitcoin standard,

Starting point is 00:22:33 but I think they'll buy Bitcoin. Listen, if the whole world blows up, never know what comes next uh i go to bed every night and i pray the whole world doesn't blow up i actually quite frankly would rather have bitcoin go up slowly than go to a million overnight because you know it would make us all wealthier uh we would lose civil society like you can't have wealth shifts like that without revolution and so what what's happening in places look at the nigerian currency when you get back to your computer look at the nigerian currency the last week. So you have people that lose half their wealth. And so in places with terrible stewardship

Starting point is 00:23:16 of economies, Bitcoin should be a human right or some store of value. Most people would still rather have the dollar. And so it's insane that our government hasn't propagated a dollar-based stablecoin. I mean, we do with Tether, right? Tether is the global dollar-based stablecoin. USDC is a more regulated version of Tether. But the US government should be helping because if you're in Nigeria, we'd rather, as a US government, have them buy dollars than Bitcoin, right? We are so obsessed with who might be buying our currency than the fact that we've got the largest deficits in the history of the world to finance. Like we should let every Russian who wants to buy our currency, you know, fund our debt. And so I think this is a geopolitical

Starting point is 00:24:13 mistake in stable coins, but you're going to see a lot of activity around this. Because again, Argentina said our currency went to hell in a handbasket. We got to do something. So you've got this new right-wing president who says, okay, we're going to, you know, ban the central bank and we're going to go on, in essence, a hard money standard. My last question is around Galaxy. You guys have built a pretty big business. Seems like things are quite successful. You just announced $10 billion in assets under management

Starting point is 00:24:43 for your asset management business. You're in Canada. I know that there has been a lot of talk online that the company trades at a lower book value. Talk a little bit as to how you think about the business. How do you guys make money? canada versus u.s markets so caveat we have earnings on monday uh so i gotta be a little careful what i say like our business feels great and the institutions are finally coming

Starting point is 00:25:10 in partnerships in activity uh in and so when i look at the forward roadmap we have an amazing roadmap our challenge of course is now to go execute it right we have three basic business lines. One is infrastructure. We've got a big Bitcoin mine down in Texas, 200 megawatts, 5x a hash with a lot of growth potential. It's probably the best piece of dirt in Texas when it comes to Bitcoin mining. And we mine Bitcoin cheaper than anybody. That's partly because of our power trading, partly because of our location and partly because of our cost. And so, great, check. If that was a public company in the US, it would trade like CLSK or Marathon or Riot at four or five times book. Our stock trades somewhere between book and 1.3 times book,

Starting point is 00:26:05 depending on the day. We are building out a staking business very quickly. We're going to make some announcements soon, but that business is growing really fast. And I think there's a synergy with that business uh and some of the other businesses that we have right um your trading businesses your galaxy wants to be the group that covers both people in the institutional world and and the big crypto players so you go to a protocol and you offer them staking and market making as a service and then asset management and you become their partner uh our trading what traditionally our markets business, which is sales trading derivatives. Uh, we are one of the biggest derivative players. Uh, there's a, there's a level you get to in total derivatives where you

Starting point is 00:27:01 have to become a, uh, a registered derivative player. There's a, the bad news is it's pretty costly. It's a, it's a Gensler tax in terms of compliance. The good news is you've gotten there and there's a barrier to entry for the rest of the people. And so our derivative business has gotten there. It's our best business in sales and trading. We've got a big lending business and our prime business is finally getting up and running and that's going to be growing really quickly.

Starting point is 00:27:29 And so those are the businesses that feel like what Goldman Sachs used to feel like to sales and trading in crypto. But at the same time, we're building the on-chain capabilities because we see that's where the future's coming. and so we've got a big on-chain effort going on right now that's both lending and on shane it's trading on shane and and so that's where i see a lot of the the next year optimism coming and then

Starting point is 00:27:56 asset management we just announced we've got 10 billion dollars asset under assets that's partly because assets have gone up partly because we've done a lot of this bankruptcy work for ftx and others um and so you know it's close to 500 or 450 people on our way to 600 um i feel like it's an undervalued franchise uh we are patient uh people give me on twitter all day long about you know he said he was gonna go to the s the nasdaq and he never did i was like hmm do you think that was our choice right we have an sec that has not allowed companies that deal with anything other than bitcoin you know through the process and that's not galaxy specific there's bullish there's e toro there's plenty of companies that we're trying to get through and so listen we

Starting point is 00:28:47 are engaged with them all the time uh we're engaged with all the regulators we want to be public but but we'll see. Leave us with your price prediction for this bull market. Well, you know, I was on CNBC last week and they asked me where we're going. I said, listen, I think you got to be careful. You've got a huge run. Markets rarely take out three-year highs that are 300% up and just keep going straight through, right? They correct. And I said, Maybe you could go to 53,000. I think I jinxed us. That's why I apologize. It feels like 53, 55 should be the floor. We're at 62 now. I hope 60 is the floor. And it's going to take some time before we take out that 73 again. I really do believe

Starting point is 00:29:42 that within 12 months, we're significantly higher. When you have a whole new world starting to buy, you go into price discovery and so i can draw a line and say like listen 100 was my target because it felt like a good round number um how do i even think about bitcoin conceptually i think of gold right market cap of gold is 13 trillion right market cap of bitcoin right now at 65 000 times 2 is what 1.4 trillion so we're like one tenth of gold could we be 20 of gold in two years of course course we could. What I say earlier, 85 trillion of wealth in the United States between 60 and 80 years old. As they die, that money goes to younger people who are much more comfortable with buying dog with hat or Bitcoin or Ethereum or Solana. Mike Novogratz, everyone. Thanks, guys.

Starting point is 00:30:49 We'll be right back.

The Pomp Podcast - #1334 Mike Novogratz | Billionaire Reveals Why Bitcoin Keeps Going Up

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