Fireside Chat: Mike Novogratz - TOKEN2049 Singapore 2022

what a phenomenal ride has been for cryptocurrencies that slide in crypto prices have been phenomenal breathtaking to say the least two trillion dollars wiped out from a peak of three trillion dollars and along with it crypto hedge funds crypto lenders Tara Luna for those of us waiting to see the end of the crypto winter well you may have to wait a little longer Mike nevergreatz in July you said we've seen the worst of cryptocurrencies you said it was time for Bitcoin to rise here we are two months on Bitcoin is down 60 year to date versus the SMP which is down 22 percent in the same period what happened well since July Bitcoin is pretty much at the same level um we went from 18 000 to 22 we've come back tonight volatile you know in context it's a very young asset and volatility is coming way down uh I like to look at the bright side in this past month really with the s p getting crushed after CPI you know bitcoin's only down five percent with the s p down 10. um the story for Bitcoin right the story of Satoshi was that Satoshi saw populism coming what is populism populism is when governments want to spend more money than they have what just happened in the United Kingdom they've got an energy crisis and the new government said you know what let's pay for everyone's Energy bill and let's cut taxes on both the poor and the rich what did the markets do crush the currency crush the shape of the yellow curve of the bond market that's this the Bitcoin story and so what we're seeing in live time is the reason all the Bitcoin maximalists and all the crypto people got involved in the first place we're seeing the debasement of fiat currency um if you thought about Bitcoin this year not just first the dollar but versus the Yen the Chinese currency the Euro the you know pound sterling the Mexican peso you know the Korean Won if you looked at Bitcoin versus a basket of currencies it's done about 20 better than versus the dollar right and so I kind of think this is a really interesting time can Bitcoin rally if stocks are getting crushed probably not a lot but as soon as you hit some equilibrium in stocks I think Bitcoin is going to take off because I don't think it's possible in this environment with debt to GDP at 130 percent in America for good stewardship of government for politicians to say we're not going to spend we're going to tighten our belt in tough times are you talking about an asset that was set to be a hedge against inflation yet here we are well listen Bitcoin went up because central banks were printing money at infinitum and that was going to cause inflation that's why Bitcoin went up from 6 000 pre-covered to 69 000. so it's a pretty damn good hedge and what happened since then chairman Powell and his other Central Bank you know brothers and sisters said this is a problem I'm going to act like a central Banker I'm going to find my Central Bank suit and Hike interest rates and Hike them aggressively so that's deflationary right and so it worked perfectly as a hedge versus deflation it went from six thousand to sixty nine thousand when the Central Bank decided to beat inflation with a stick of course Bitcoin came down as did many assets the central bank has to beat inflation with a stick because it's surging at 40-year Highs but having said that where do you see the bottom how much more downside this is a central bank as you said is committed to Bringing inflation down the whole slide has been exacerbated by a central bank that is tightening monetary policy and that will persist yeah so what's complicated right inflation is always complicated uh it comes from Supply shocks so right now we have this massive Supply shot going on in London what I mean by Supply shock it means Ukraine and Russia go to war Europe relies on Russia for gas and oil there's a monster energy squeeze in Europe and it's creating unbelievable European inflation that's not natural inflation right it's not going to go away until either the war ends or they get new sources of energy but that creates inflation it also created food inflation right Ukraine is the bed bath bread basket of Europe lots of food produced and so all of a sudden you saw food go up fertilizer went up and so you had some what I'll call artificial inflation Supply shot you had a lot of demand-driven inflation right when you give free money forever people are buying stuff they're getting wealthier they're then they come back from covet and they want to spend they want to travel and so price of Labor went up you know price of rent went up in the U.S that stuff has to get Unwound and pal is raising rates I think what he'd like to do and he told us this in July he's raised raised him a bunch and then wait to see how it happens the market took him on with that com comment and now he's in this very awkward place where he needs to put the economy in a recession the economy is going to go into a recession right rates just went from you know two to four and a half in the UK from two to four in the U.S mortgage payments uh you know where companies borrow money all radical shift we've had the single largest drop in wealth in America ever in the last five months nine trillion alone out of the stock market the bond market far bigger than that when you add corporates uh and government bonds and so the wealth effect is going to happen and so our economy will slow and it'll slow a lot it's just in the short run you still have a Services economy that's pretty hot so what does it mean are you then saying that the bottom is going to come but not for a very long time I don't know when the bottom is going to come the bottom could listen we're in a you know I was laughing this conference feels so good and everyone's having fun and I'm like do these people in the audience not know that the world is blowing up outside right the bond markets are in complete collapse this is a 2008 financial crisis going on in financial markets Bond markets are having the biggest moves I've ever seen in my career uh Equity markets getting killed and so you're really having a breakdown um usually that energy can't last forever we'll hit a parabolic top it might hit it this week you might hit in a few weeks but moves like we've seen in the last four weeks three weeks two weeks don't last forever what are the risks yet to suffice currency fall well let's talk about the real markets first then I'll switch to crypto people don't know they're fired yet you know when companies are getting hammered like they are there is going to be a response demand's going to fall for their products people will get laid off and so there's a there's a recession coming and that then needs to get priced in right so do Equity markets have Equity markets sold off a lot enough uh so you're saying it's not been priced in fully yet I think Equity markets probably in the U.

S the s p can probably go as low as three thousand thirty three hundred and it's a 3600 now so that's another 10 to 15 percent will it go there in a straight line absolutely not it'll bounce everyone will feel good and then it'll roll over again you know what does it mean for crypto crypto is pretty freaking interesting why didn't crypto go down in the last few weeks when we have the big deleveraging with Celsius and and you know Voyager and three arrows and all these providers of Leverage that went Belly Up if you had a cell you sold and so crypto had a massive sell-off right and then it bounced they're not a lot of force sellers left and so we're in this weird equilibrium where there are a few buyers there are a few Sellers and there's not that energy in the market like you're seeing in the equity Market or the bond market where you have to sell right The Leverage is way out of the system in crypto um there's also something that I sense from my travels from my meetings both with institutions with young people the word inevitable keeps coming up there's a sense of inevitability that we're in the right space inevitable that Bitcoin will have its day because at one point with 120 debt to GDP the US will not be able to really not monetize its debt that web 3 in time will be a big part of the gaming space uh Brands nfts like web3 will be a thing um ethereum did the merge that was an unbelievable accomplishment of a community getting together to attack and and solve a stunningly complicated computer science problem you talk about inevitability and cryptocurrencies were at the very start targeted at the unbanked yet where we are right now only 12 14 of the unbanked have adopted it and when you take a look at demand for cryptocurrencies over the last 12 months perhaps you're seeing a decline when it comes to cryptocurrencies as a form of payment but perhaps for gaming you see an increase I mean how do you make sense of that what inevitability are we looking at listen we had a speculative Mania in 2017 right bubbles if you study bubbles Financial market bubbles they always happen around technologies that change the world right think about the internet bubble in 1999 it went crazy right pets.com and all these you know crazy companies and then it clap crashed and we didn't really get the internet for years later right if you think about Facebook and the iPhone that was two thousand five six seven um six seven years after the first bubble so in crypto we had a bubble in 2017 because the story is so powerful it's the story of people not trusting the center people wanting to have a decentralized system where you don't need to trust the government we don't need to trust if you're in Canada you know Trudeau decides he doesn't like you protesting the truckers and he freezes your bank account right or the Privacy Invasion that you're going to see if you're using the cbdc in China or you know I can give you 15 different examples and so people said hey this is my movement I don't trust old people in lots of ways right it was a gen Z Millennial Revolution uh and it was global that's a powerful story um so in the 17 run it was mostly story I think I made a good living because I'm a Storyteller um and then we had the collapse we had a monster collapse remember it collapsed 90 95 in the 2021 run right it was really generated by covet after covet and the monetary response people said oh my God now I get why Bitcoin is important but we also got what we call the digitalization of everything and so ethereum and all the other level ones started really accelerating the work to build a shared blockchain that we could build companies on top of and I would tell you that the price action in 20 2021 was probably 80 percent story and 20 utility hmm this next Bull Run is going to have to be 50 story 50 utility and so and I'm seeing it's people building applications people Building Systems a that are fast and scalable and B that are user friendly we don't have them yet that's why we're where we are but in the next few years they're coming I want to talk about the Fallout we've not seen Max Payne and you have said that you foresee two-thirds of the 1900 crypto hedge funds will disappear we'll dissipate we'll go into thin air where are we now are we close so hedge funds normally work on an annual basis right they have Redemption some every three months some every year uh and most people will stick along stick around longer than they think because they're hoping it comes back um I don't think there's a bailout coming for lots of funds that are down 60 70 percent I just don't and then people look at the math and they were like I'm not making enough money it's a long way back in the high water mark and so I think a lot of hedge funds will go out of business a lot have we'll know a lot more in March post year end when people decide what am I doing for the next year listen that's the natural part of any evolution of a business what's kind of more exciting is how many institutions are lining up to get in the space if you had asked me on Christmas Eve last year what I went to bed what present I was hoping for what prayer I said please Santa Claus bring me a present it would be that BlackRock put crypto on its Aladdin platform right BlackRock is the largest asset manager in the world seven trillion dollars down from ten um trillion dollars and they have a platform that all their institutions can use and they said this year after having been skeptical in 2020 2021 we're gonna allow coinbase to have a product on it and we're gonna put our own product on it that's a big big deal and I'm seeing that with every Institution Citadel probably the greatest hedge fund out there right now uh or at least the most profitable hedge fund out there teamed up with a bunch of people to do an exchange a regulated exchange and so everywhere I go I see people moving into the space just in this trip alone I met you know the guy said Anna mocha I mean unbelievably talented people getting into the space and the investors that are coming to those businesses are the world-class investors from the U.S Europe and Asia needless to say Mike there's been a lot of pain on balance sheets including at Galaxy how are you how are you navigating ouch you haven't been spared but how are you navigating this uh crypto winter we were smart or Lucky in that we sold a bunch of stuff last year um you know there's two philosophies there's a philosophy that people get a lot of tokens they'll never sell the token it's just not the way I was raised I was raised you know as a Speculator as an investor and so when I buy something and it goes up 10x I take a little bit of profit if it goes to 100x I take a lot of profit and so we sold a lot last year um we've lost money this year because we have a big balance sheet and it's down uh we hedged with interest rates we hedged with equities and so the pain is not as bad as it could have been and when I add last year and this year it's still a pretty big pile of ships even though crypto's at a lower level um I would advocate for both individual investors for companies you have to risk manage when you're in 100 volt asset class or even if it goes to a 70 of all asset class you have to risk manage right trees don't grow to the sky and so if it's you name it ethereum that you you know went up from a thousand to four thousand you got to take some chips off the table buy your girlfriend a present buy your boyfriend a present put some in the bank pay your taxes are you hiring are you positioning for when we see the end of this winter we have about 395 employees right now and we started the year under 300. um and so I consider that a growth company uh are you playing too high in the next 12 months we're probably going to slow the pace of hiring down like listen business is slower than it was uh we're trying to build through right we've got a project to build Prime we've got all kinds of projects that we want for when the institutions come crypto will take off again the moment the Fed flinches right Bitcoin will at least and Bitcoin will drag the rest of crypto up but it's not really going to take off in a sustainable way until we get web 3 projects that are used by masses and that's coming that could be 18 months two years it's coming I met with a guy this morning who was brilliant who's building something for one of the biggest game companies in the world and I think you're going to see a lot of blockchain uses nft nfts are kind of the Trojan Horse of the blockchain they will lead the kind of crypto revolution in lots of ways and you're going to see them in in video games and in other places you've been looking to expand your reach institutional reach Geographic reach and you're looking at the deal with bid go that's fell through what's the story there you know bitco's a great company I liked Mike Bell sheet uh and it's a shame the deal didn't happen the regulatory environment in the United States is frustrating and it is slow and you know when a deal takes as long as it did we had a right to to break the deal and we chose we chose to because there was no confidence on on the timing of when this would happen and all of a sudden it's like getting engaged and he said we're gonna get married in June and then it gets postponed and postponed and postponed and at one point the energy goes away I bet you says that it has fulfilled its obligations you know we we can agree to disagree on that and you know listen in business there are plenty of things where you can like people and have a disagreement you can litigate it it's it's not the end of the world and we we're moving on regulation of course a huge issue within the crypto space with c dearest Warren for dokwon when you have that news what came through your mind listen you know the terrorist story is a is a is a great lesson for you know the community though is one of the smarter guys that I've met right he and I sometimes think that Cockiness or that that that intelligent success created Cockiness and a vulnerability that everyone bought into what's interesting is it was all public right it wasn't like he was hiding the algorithmic stable coin and how it worked and it was a lot of greed anchor protocol was offering 18 and people wanted that that money um people have a a overblown uh understanding of our our participation we were just investors I only met doe twice I had fun with them I liked them I was impressed I I invested uh very early and like we do with every token we sold along the way and so it was heartbreaking when the whole thing collapsed uh and you know I hated that people lost fortunes a lot of them had made fortunes and lost them um but it was also a great reminder that this is new technologies uh when trees grow to the sky in two years when a token goes from 20 cents to a hundred dollars and you don't take any profit that's lunacy like that's just it makes absolutely no sense and so you need a risk management methodology uh or you're going to have more of those things you know what was interesting is listening Korea they have a long history of throwing people in jail you know uh cheb all founders you know politicians um has gone to the Interpol though I'm sorry it's gone to the Interpol and we'll see I I wish him well um the you know there's there were other things that happened in crypto that I was much more frustrated with right three arrows Capital that seems more fraudulent uh yeah outright fraudulent uh or things like Celsius which might not have been fraudulable but was so uh aggressively irresponsible taking consumer deposits leveraging them up 30 40 times lending borrowing short and lending long and so as an industry we did a horrific job self-regulating it is no surprise that The Regulators want to come regulate because we failed the self-regulated test what's interesting to me and really promising to me is that true defy true Unchained protocols I saw Stony up here right if it's Ave or compound they had no issues you know people made or lost money the pro the protocols for the most part worked exactly like they were supposed to and so it's a real advertisement ironically for on shame right it was the centralized companies run really poorly uh that blew up is there a sense that investigations would lead to more people more countries is is that the sense you're getting in any frenzy right and both 2017 and 2020 one was a frenzy right it's not natural that you buy something and it's up 20x two weeks later and you're complaining that it's not up 30X right when you have that kind of energy coming into a space there will be bad actors there'll be frauds there'll be ponzis there'll be charlatans I hope they get weeded out I hope some end up in jail uh uh you know I I do think why I love crypto is at the core of crypto right when you meet with vitalik he's my hero in the whole Space there's a group of people trying to build a new Financial architecture a new consumer architecture uh that's more egalitarian that's more fair that's more efficient and that will take us into the new age and those people who I focus on not the frauds what would you say to Jamie dimon because he says cryptocurrencies a decentralized Ponzi schemes what is he not getting you know Jamie he's great on stage and he's a amazing CEO he's not alone though right Warren Buffett again I could put Stan drucken Miller and Paul Jones and Abby Johnson and Jeff Yas some of the people but what we're seeing we're seeing from the critic space right now kinds of justifies what he's saying well yes and no the day before covid happens I whisper in your ear you can buy Bitcoin this magical internet money or you can buy Zoom this technology that everyone on the planet is going to use eight times a day if you bought Zoom you've made no money if you bought Bitcoin you've doubled your money and so to say Bitcoin hasn't performed is just wrong right it has a 160 million people own a piece of Bitcoin it makes it the eighth largest country on earth right think about what that is that's in 13 short years 150 million people in every single country on the globe has decided they will take some part of their hard-earned savings which they toil for or they inherit from their parents and they will place it in the trust of this community that is stunning it's to some degree a miracle that a community can create a bond like that a brand like that so fast and so to judge it on its last six months or its last year or the volatility it's a 13 year old experiment that has become literally a nation-state and I actually think we'll look back uh in four or five or ten years when it you know regains momentum and it's and you'll be like this is one of the coolest things that's happened in finance we're out of time so it's just one funnel question you've said before that you're good at selling the dream you can get people to say hallelujah for those Hallelujah for those non-believers out there how are you selling this crypto dream listen you know they're crypto's not one thing right there is Bitcoin which I see as digital gold like nfts were amazing because all of a sudden you know you didn't have to be a Bitcoin person to participate in nfts Nike last year right the shoe company made 175 million dollars selling nfts so you're going to see every major brand uh I'm talking to them in the last few months Netflix the K-pop you know bands use this new technology right what Satoshi gave us was private property on the internet before Bitcoin there was no private property on the internet the internet was futile right if you studied history John Locke said there is no capitalism without private property right so you had an Internet that was non-capitalistic he gave his private property and so you're going to see this in so many ways what web 3 is is this ability to transfer value that starts with private property and so every single citizen on the planet is going to interact with an nft with blockchains it's just inevitable and it's a matter of time ladies and gentlemen Mike novogratz thank you