Cryptocurrency early adopter and respected advocate Mike Novogratz joined us in Mizuho’s latest Speaker Series, where he discussed the rise of Bitcoin and Ethereum and how these digital currencies are intersecting with traditional financial services. Mike Novogratz is the Founder and CEO of Galaxy Digital, a diversified financial services and investment management company in the digital asset, cryptocurrency, and blockchain technology sectors.
John: Hello, welcome everybody to this month's Speaker Series. We've got a fascinating discussion tonight on a timely topic. We're going to be talking about Bitcoin and the digital asset landscape and there's no better person to opine on this topic than our guest tonight, Mike Novogratz. Mike is founder and CEO of Galaxy Digital, an investment management company that specializes in digital asset, cryptocurrency, and blockchain technology sectors. Formerly, the president and partner of Fortress Investment Group. He also spent 11 years at Goldman Sachs. Mike recognized the potential of Bitcoin early on and has been an outspoken evangelist of crypto for the better part of the last decade. Mike has also served on the New York Fed's Investment Advisory Committee on Financial Markets. He currently serves as the chairman of The Bail Project and is a founding board member of the REFORM Alliance, which you may remember from our discussion with Van Jones in February. He also serves as the chairman of the Hudson River Park Friends and sits on the Langone Medical Center board, the Princeton Varsity Club and Jazz Foundation of American Artists for Peace and Justice. Mike received an AB in Economics from Princeton University and served as a helicopter pilot in the U.S. Army. Thank you, Mike, for being with us tonight, you predicted much of the mainstreaming of Bitcoin that we're seeing right now, even through its ups and downs over the past few years, so we're really excited to pick your brain. We've got a lot to cover, so let's jump right in.
Mike: Let's do it.
John: So right away as an early adapter of cryptocurrency in Bitcoin and an outspoken advocate for the asset class, how would you describe it? If somebody, you know, my dad asked me the other day, "What is Bitcoin?" and how do you answer that question?
Mike: So it's a great question. Listen, I didn't mean to become the unofficial spokesman for Bitcoin, I actually answered a question at an investor day, you know, where I was on a panel about frontier currencies. And I just was trying to be funny, cause it's such a boring panel. And I said, "Screw frontier currencies, if you want a frontier currency, buy Bitcoin, these are the three reasons it's going to go to a thousand." And I didn't realize the press was there, the next day or the only time I was ever on the cover of the FT and yeah, my partners called me and they were angry because we had promised not to be public about our private investments. And it forced me to really, you know, starting to learn about it, because I kept getting called to speak. The Oxford Union asked me to come, TBS made a go. And so I was petrified that I wasn't going to really understand what was going on and what macro guys do in general is try to make things simple. And the great insight I had around Bitcoin was that it was the first digital signature that we couldn't counterfeit, right? Before the Satoshi white paper in the computer science breakthroughs, you could put a picture of John, a digital picture of John up and just copy it 10,000 times. And so the picture wasn't worth that much. We all know one picture of John will be worth a ton. And so it was the same thing with money. The idea of digital money didn't make any sense because you could just print your own. And so what the Satoshi breakthrough did was create this concept that we could have scarcity in the digital world. And it started with Bitcoin being the first peer-to-peer digital money. For lots of different reasons, Bitcoin morphed into just being a digital store of value, right? We don't buy Diet Cokes or really cool sweatshirts with Bitcoin, right? We buy them with dollars still or euros. And so, it's become a digital store of wealth, but it was the same concept that there's this scarcity, there are 21 million Bitcoin that will ever be mined, only 21 million, a bunch have been lost, 18 1/2 million have been mined. And so, you know exactly how many there are and you know exactly where each one is, because it's transparent and it is tracked on a public blockchain. And so that, that was an amazing breakthrough. For a non-computer science guy, that's the best I can do. Yeah, yeah, not at all, that's great. And so, you know, I mean they call it cryptocurrency, but more and more, I'm hearing you and others say, this is not really a currency.
Mike: I like to call Bitcoin a crypto asset and Ethereum a crypto asset. Listen, there will be some cryptocurrencies, right? We have these ideas of stable coins now, which is basically a dollar wrapped in a token.
Mike: Some of them are actual dollars wrapped in tokens or euros wrapped in tokens. The Chinese have an renminbi being wrapped in a token as we speak. And some are algorithmic that try to track the dollar pretty close. That's important for a couple reasons one is, governments don't want to give up the power to print money, right?
Mike: That's their sovereign rights. And well, if you said, "Hey, I'm going to try to create my own money and screw the dollar." The regulators would come down here like a ton of bricks.
Mike: And so, Bitcoin is kind of sliding through because yeah, the Fed doesn't really care about gold, right?
Mike: They did at one point in our history, but right now they don't. And so, I think it's given Bitcoin a wonderful lane as just a store of value and why do people buy it? They buy it for a couple reasons. It started as a Gen Z and millennial middle finger to the system, right? We don't trust J.P. Morgan or Goldman Sachs or the Fed or the Bank of England. And we want our own way to preserve our wealth. It's a millennial, Gen Z social currency. It is expanded to, you know, the likes of Stan Druckenmiller and Paul Jones and George Soros and BlackRock and insurance companies. Because people see this as this unbelievable system, where you can store wealth and people are worried about the fiscal state of the world.
John: So to move a little bit towards Galaxy and you worked on this from the sell-side and buy-side, you kind of have both the Galaxies. You mentioned banks, but where do you see them going?
Mike: It's not like banks are just going to sit here and say, "Ah, we're never going to do this." Certainly, you know, we're having conversations about it already. We ask this question all the time, when are banks going to kind of try to eat our lunch and what do we do about it?
Mike: I think most banks are going to follow a similar playbook. They're going to start with offering something to their wealth management clients. Let me offer a Bitcoin fund, then the Ethereum fund and maybe an index fund to our wealth management clients, so they stop calling and bitching, right? I mean I remember,
Mike: We had so many people calling Goldman Sachs and saying, "You'll sell me, Hertz claims." Claims in a bankrupt company that you know are worthless, but you won't sell me Bitcoin, like what gives?
Mike: And so that's all changing. You're going to see every one of the big banks get into the wealth management business this year. Then you're going to see them start custody and trading. It's not that they really wanted to. They're being forced to, right? As they listened to the same lectures I do, we are going to have a payments war and stable coins are going to be part of it. So a dollar backs a stable coin, either from USDC, you know, the Circle project, or Facebook's Diem coin, they are going to start trading more and more. USDC already exists. You saw that VISA announced a partnership with them, you can pay. And so, as the payments rails change into crypto and China's doing the same and Europe's doing the same and Brazil's doing the same. If you're running the foreign exchange desk at Bank of America Merrill Lynch, you're going to want to be able to arbitrage those prices and trade FX in the classic way or the new way. And so, all of these firms have to invest in the architecture to be able to move coins around and it's complicated. And so, you know, then you're going to see banking, right? Goldman's already in on the Coinbase IPO, or not an IPO, whatever the direct listing. We have a banking business. So I tell the guys all the time, I was like, "The only way you guys are going to survive in three, four, five years is be smarter than everyone else." And so, for us at Galaxy, we are trying to be the smartest guys in the room. We have a head start. It's a huge amount of work. And the trick and this isn't actually a trick is I am wearing a hoodie today. I wouldn't get yelled at by some of my partners that when I go on TV, they're like, "Dude, you should wear a suit." I'm like, "No, no, one day suit, one day hoodie, one day suit, one day hoodie." Like the genius of crypto is its insurrectionistness, right? Is its edginess, is its trying to remake the system and break the rules. Well, we're also trying to cater to conservative clients and walk them across the bridge.
Mike: And so, you know, there is this bridging function we're playing. How do we get someone comfortable that this is not crazy, knowing that they want to disrupt the same companies.
Mike: And so, I literally flipped from suits to hoodies metaphorically, but and in real life.
John: Yeah, yeah. Yeah, yeah, for sure. In terms of Galaxy, you also have a venture arm, where are you guys or technologies are you focused on right now?
Mike: You know, what sucked me back into actually having a company and instead of being fat, dumb and smoking cigars a family office guy, was venture. This is where all the new ideas, the new intelligence are happening to all where the DeFi and NFT stuff is happening. And so, we thought early on, for us to be able to sit and talk to people at big banks, we better know what's coming and we've put our own balance sheet to use. I said, we probably have a hundred different investments between traditional blockchain DeFi venture. And then, we have a special fund that does what we call a virtual worlds. That's where the NFTs and the metaverse stuff really are happening. Those worlds are converging. We're the only public stock, where you can actually get exposure to venture, right? So the big venture companies in our space, and there's some wonderful ones, right? A16z, Paradigm, Polychain. They cater to the 1%, if even, right? It's hard to get in their funds, where we're a public listed company. And so, in some ways, anybody can get exposure, venture through our stock. And one of the reasons we went public, because we wanted to give people a vehicle that they can participate in the whole crypto ecosystem, where long Bitcoin and Ethereum were long venture. We trade it, we lend it, we asset management, we bank it. And so, we're trying to be a holistic play on crypto.
Mike: And what are, you know, there's now thousands of cryptos. Are there some that you're focused on that you would say as the new, new thing of, okay, of course, Bitcoin and Ethereum,
- I would break it
- but what else?
- into a couple buckets.
Mike: I think Bitcoin will be the definitive winner of store value. And so, that's my store of value bet. Ethereum and a lot of other coins are trying to become the base layer of trust. The blockchain that the world gets built on. Think of it as a decentralized giant supercomputer that processes and authenticates data. A blockchain is a database. If me and you shared a Microsoft Excel spreadsheet, the John Mike blockchain, there's two copies of it. Every hour, we call up and make sure we have the same stuff on it. And we and then, the next hour we do the same thing. That's not a pretty secure blockchain. I don't think anyone will pay a lot of money for our, the Mike John blockchain. Ethereum has got thousands and thousands of nodes that- And so, it right now is the leader, but it's not ready for prime time. It doesn't work fast enough yet to process all this data and authenticate it all. And so there are things called Level 2 solutions. There are other protocol blockchains like Ethereum that are trying. There's some chains, the THORChain is trying to connect them all. We're still early on in this experiment and how it's going to play out.
Mike: My bias is Ethereum will win, but we have plenty of bets in other competitors and/or collaborators in that bucket. The third bucket is DeFi. Stuff that's going to be built on top that really disrupts the world. And so that's payment coins, it's fixed income, it's lending coins, it's insurance, it's this whole panoply, and that's right now. If I was talking to a 25-year-old and say, "Hey, I do a bucket of those and I'd look and wait for the first dip and buy a whole bunch of them and put them away," because I really believe that space is the disruptive space.
Mike: And the fourth bucket are unique things, you know, NFTs or projects around NFTs. And that's still really early. I am positive, absolutely positive that in 2 years, 5 years, 10 years, 15 years, 20 years, intellectual property, art, collectibles, music is going to live on a blockchain.
Mike: And you can see, if you just go on Discord or if you go on Clubhouse every night, 24 hours a day, there's an NFT lecture. So people are understanding this space so much faster than it took them to understand Bitcoin. It's the same thing. If we could have a digital signature you couldn't counterfeit, whoa, now I have a digital piece of art. I just did a podcast with my Next with Novo series with Urs Fischer. Urs Fischer sells real art, you know, non-NFT art for millions of dollars. And he's launching an NFT project soon. And I was talking to him about it. And I was like, it shocked me. I always thought this would happen, but it would start with digitally native artists, guys like Beeple, it shocked me how fast real artists say, "Hey, I can use these new tools to create." And so, guys that are open-minded like Urs has said, "I got a whole new tool kit to do my art with," and it can be conceptual and it can be multi-dimensional and I could add music. And so, I think you're going to see an explosion of creativity. And so, again, hard to invest, we're investing to our venture bets in all the infrastructure of that space. And then, I'm picking a couple places where I'll buy an NFT. I think the jury's out on in the long run, what will have value in NFTs. My real bias is it's going to be same thing that has value in non-NFTs. Something that connects to your emotions, something that connects to a moment in time, something that is just awe-inspiring, right? Stand in front of, you know, Lilies, you know, in your Monet's Lilies. And you're like, "Yeah, I understand why that thing is so expensive," right?
Mike: And so, I don't think what we care about will change. It's just a different canvas and medium and how we collect it.
John: Yeah, I was actually fiddling around looking at the digital baseball cards. You know, I think Tops just came out with a new app that they're trying to obviously do the same thing here. It's not the same as Monet's Water Lilies, but in the same zone. What do you think in regulators? So Gary Gensler, what's your take on him and what he'll do to this market?
Mike: So I know Gary well. I worked together with him in Hong Kong. He is smart, he's tough, he likes to be seen as smart, right? And he's fair. I think he's a progressive at heart. And so, I'd be more worried if I was a bank than a crypto company that the new sheriff was named Gary Gensler. Banks are rent takers and progressives don't like rent takers. And I think, he's not going to give crypto a free pass, but I think he's pro-Bitcoin, pro-blockchain, pro-Ethereum. Jury's out on how he's going to see. There's a lot of debate on how these decentralized systems get launched. Are they launched to a process that looks like a security offering or is it Immaculate Conception launch? And now people are keyed in on how to launch a new protocol without violating securities laws. But, there was a three-year period, where it was the Wild West. And so there's a question, "Will Gary go back and clean that up or give people a pass?" I do think he will address crypto issues. The old chairman, Chairman Clayton, just didn't want to deal with crypto. He didn't want it be part of his legacy. And so, he just ignored them, until the bitter end. And I think Gary will address head-on. And so, any clarity is going to help the system.
John: Yeah, definitely. And in terms of, you know, this, whether it was born in Japan or you know, that's a Japanese person wrote that initial article, what kind of opportunities are you seeing in Japan?
Mike: So for clarity's sake. No one really knows who Satoshi is.
John: Right, right.
Mike: I like to think she's a really smart old woman hidden away somewhere just with a big grin on her face. Could be a group of people. What I'm happy about is, there is no peep, no one knows. And in some ways, that mystery and magic I think gave Bitcoin it's chance. If we knew that John Buchanan created it and was holding all these coins, it might feel like a scam.
Mike: Selling us all this crap and then he's going to dump it on us. And he's going to be the richest man in the world. If you think about where gold came from, the gods. If you were an ancient Aztec or Egyptian, you thought this precious metal had invested properties from the gods. It was magic and therefore, we vested it with value. And so I think the Immaculate Conception story of Bitcoin is really important in the how it became. I mean, think about it, it's the single greatest brand in the world that's been created in 12 years. We've never had a brand like Bitcoin that no one owns.
Mike: That's just a pretty damn good competitor, but Bitcoin's market cap is now much bigger than Tesla. But Tesla, you know, Elon goes off the reservation one more time and who knows what Tesla's worth?
Mike: No one controls Bitcoin. I'm not the CEO of Bitcoin. Some little girl asked me if I was the president of Bitcoin, I was really flattered. I wanted to say yes. And I had to tell her a no.
John: Yes, exactly.
Mike: Sorry, I'm just a cheerleader. And there are hundreds, there's a cheerleader in every village in the world. And so it's a pretty cool brand. Listen, Japan, if anyone of you had, I lived there, my generation used to love to punt FX. The younger generation sees crypto as their FX. And so there is a booming market there, it's well-regulated, there were a couple mistakes that happened out of Japan that embarrassed the Japanese regulators. And so, the regulation is probably tougher in Japan, but clear. And I kind of think, as an investible and tradable asset is only going to grow. We're not seeing any innovation come out of Japan, right? None of the new protocols or projects are being developed there, but SBI is a big player, both in mining and in the crypto ecosystem. And so, there's a public stock there that gets a lot of attention. And so we'll see.
John: Yeah. Are you willing to venture? I guess we had a Cathie Wood talking to some of our clients recently and she thought institutional adoption could, you know, add $200 to $500,000 to Bitcoin's price. She'd say a timing, but-
Mike: You know, listen, these predictions are like pulling a feather out of your ear and smelling it and then, yum, tasting it.
- You know, like the soothsayer.
Mike: I like to think of Bitcoin as a percentage of gold, because right now, it's replacing gold. And so, currently, it's about 10% of gold. I think we could end the year, 15% to 20% of gold. Originally, when I started this six months ago, I thought I'll get to 10% of gold and Bill Miller, the legendary investor, who's a big Bitcoin bull. I didn't realize he was the largest owner of Amazon, whose last name isn't Bezos. And he told me his Amazon stories, well, we'll get there. And I was like, "Well," and then I would get to there. And he says, "It's going to get to 10% of gold, and you're going to say, it's going to go to 15%. And at 15, you're going to say 25. And at 25, you're going to say 50. And at 50, you're going to say "It's going to be more than gold." And I think he's a hundred percent right. With the thought that it got a 10% faster than I thought it would because the adoption curve just exploded.
Mike: I see what's coming. Not what I think's coming. I know what's coming and the adoption curve is going to continue to accelerate. And so I think we could end the year, 15% to 20% of gold, but I think we could be all of gold. So Bitcoin, $500,000, you know, by 2024 and two years ago,
Mike: I would've told you that was going to take 10 years. I think we'll do in four that I thought what we would do in 10, can it get bigger than gold? Well, I ask you this, when you first took a picture on this camera, did you ever think that we would take more pictures in two hours on this camera than we're taking in the entire 20th century?
Mike: Everything that has gone from analog to digital explodes in usage. And so, I don't want to put a cap on it and I don't want to be,
Mike: You know, coming up with some crazy, you know, stock-flow model. I'm just using my gold yardstick in measuring that.
John: And it's like it, so Bitcoin basically, is it worth a trillion out of the 400 trillion in global assets right now?
- Bitcoin is 25 basis points of global wealth
- Yeah, and gold is 4% or something, right? Or something like that.
- Yeah, yes. And could you see Bitcoin being 4% of global wealth? Yeah, why not?
- Right? Apples, right? 2 trillion. Apples, 50 basis points of global wealth.
- Kind of interesting to me to think of it that way. That means including real estate and everything.
John: Yeah, yeah. How do we, or what should we look for to see a kind of expansion of holders? So, you know, concentration of users, it's a relatively small group, but-
Mike: Coinbase came out today with their preliminary first quarter. And I think they said they had 56 million users. That's a pretty big number
Mike: Because most are US-based, I think it's how many wallets, how many users, how many banks. So why this year is so interesting is again, ask your mother, if she's still alive, or anyone you know that's our age or older. If they have a Bread wallet or a Coinbase wallet or a MetaMask wallet and 9 out of 10, I'll say, "What are you talking about?" Right? Ask your kids or their friends or your grandkids, if you're real old, and they'll all say, "Yes." The wealth channels really focus on 50 to 85-year-olds, who own the bulk of the wealth in the world, right? All the wealth is owned by old people. And we're finally plugging in easier ways for them to buy. So Morgan Stanley clients, they could have logged on years ago and gotten a Coinbase account. It's not what they do. They're waiting for the broker to tell them to buy Coinbase. He's now telling him to buy Bitcoin. He's now calling them. And now they're going to buy Bitcoin and Goldman Sachs and J.P. Morgan and UBS and every other bank is going to do the same thing. And so, this is the year you're going to see baby boomers participate.
Mike: They have an income.
John: What should, if folks are interested, what should they be reading or looking at or read a book or watching to kind of get up to speed?
Mike: So on Bitcoin-specific, everybody, even if you're not going to buy Bitcoin should read "The Bitcoin Standard." It's just a great book on monetary policy, history of money and why Bitcoin matters. And so, it's a three hour read. It should be required reading to work at your firm.
Mike: And then, people who really care about crypto should open a Twitter account and start by following me. And then, it'll like suggest all the other crypto. And there's probably 150 crypto people you should follow and it will drive you insane because crypto Twitter is a huge sinkhole, but the amount of info on crypto Twitter is shockingly good. Same thing on YouTube. You want to understand Ethereum. Listen to a couple of Vitalik Buterin YouTube videos. But, I could make a living investing and trading in crypto with nothing, but a Twitter and a screen. There's that much good information that comes through. And so, that's what I tell you.
John: Yup, great. So here's my last question. I know you've been very active in your community and nonprofit organizations. Is there an intersection there, can Bitcoin help in the non-profit sector?
Mike: Yeah, maybe. So listen, everything in my philanthropy life or not everything, but most is about systems change. How do you help change crappy systems into better ones? It's the same ethos in the crypto community. It's about systems change. We haven't seen a lot yet of crossover. There's been some projects that are people working on funding. There can be crowdsource, you know, fundraising mechanisms. You could. I mean, I had a guy who came in yesterday, who was pitching this idea of putting a lot of prison interactions on a blockchain, right? Blockchains give sunlight to databases, right? Let me share the compensation database at Mizuho with everyone who works there. And there'll be a lot of-
John: That's a terrible idea.
Mike: There'll be a lot of angst for awhile, but then people will get used to, "Hey, I know where I stand." Or know how they think I know where I stand. I don't have to guess.
- Right there-
- Yeah, yeah.
Mike: It's a radical experiment in transparency.
Mike: So it's a place like a prison where there's lying, cheating and stealing all the time, right? The guards would say, "No, no, no, no, no, you can't put cameras in here. You can't put." In the same way, police officers didn't want body cams.
Mike: And so, there are lots of ideas percolating. We haven't seen them in practice yet, but I think you will see. I said early on, the blockchain's going to eat the world. Anywhere there's a database that makes sense to have eyes on it, because that could be powerful, you're going to see the old database is replaced with some version of the blockchain database and some will have tokens in some won't.
John: What's the saying? "Sunlight is the best disinfectant," right?
John: So, I really appreciate you coming on, Mike, it's fantastic talking to you and we're going to close it up. Have a great month, folks, and we'll see you in May. Thanks again, Mike.
Mike: John, thanks a ton.
John: Yeah, take care.