Fireside Chat: Mike Novogratz - TOKEN2049 London 2021

and uh so uh well we've got two mics on stage mike butcher from techcrunch and mike novogratz from galaxy digital mike thanks so much for joining us um now uh well first of all how are you um how's everything going any any quick updates i get to wake up at 4 30 in the morning to get here i'm feeling good fantastic i'm so glad you're with us anyway um mike yeah you know you're um you've obviously um been an incredible investor you're uh you were uh you know quite a big name back in wall street back in the day went into crypto um and you are you know you're very much a very interesting market mover a lot of the things that you say move markets on crypto on bitcoin and on ethereum do you feel that um the power you've got the voice that you've got is um you know how do you feel that you're using that voice at the moment listen from the very start you know i i think i was first public about crypto in late 2013 and it was accidental i was at a conference i was talking about frontier currencies and i mentioned bitcoin the next day i was on the cover of the ft um which luckily said bitcoin was going to go to a thousand when it was trading about 200 and so i looked smart for a short period of time um my thought about my role was trying to bring people into the tent you know i just saw you had you know four of our competitors and soon to be one of our colleagues on stage and while we do compete right i remember trying to buy b2c2 getting god i wish i had bought back in you know early 2018. um we certainly compete i see most of our competitors as collaborators right this industry is so new right we are so small that all of our jobs is to bring people into the tent and i've had a unique pulpit um you know from cnbc or bloomberg or conferences partly because i'm the oldest guy in crypto uh partly because i had a hedge fund that was successful before i started um to try to bring people into the tent and so in a lot of ways that's my that's my role in the in the whole ecosystem you know i'm not using uh i kind of understand the difference between you know proof of history and proof of authority and proof of stake and um you know i'm not a computer science guy i really am a am a proselytizer yeah well you you're definitely doing very well and i noticed that you were recently quoted as uh saying that bitcoin had been overbought as a series of fundamental factors and positive news stories triggered hype um when you say overbought what do you mean by that um you know you say the market went long the hardest part about being on tv a lot and being quoted a lot is context right right what time frame are you talking about and so you know when something goes from 42 000 to 56 000 and i just i wasn't saying in this recent context markets usually pause right they consolidate they they hit a new range before they take their next leg up right trees don't grow to the sky in a linear fashion you know with with within an exponential fashion right they go up they come down they go up they come down in what i think is going to be a great bull market and so um there's times when markets get overbought you can see it in the premium futures trade at you can see it just in the general sentiment uh you know when when the basis when the futures premium trades at a giant interest rate you can be pretty sure that you're going to get a correction yeah absolutely you're correct um but you're also i think interesting that you observed recently that um you know companies like visa buying an nft um walmart on amazon looking at it um what are what are the kinds of things that you're seeing from these very large corporations for instance in an ft space let's talk about visa for a second because i think it's fascinating um we you know know those guys well and i brought the the guy that's running their crypto space into into just talk to our management committee one day and what was so interesting they're approaching it so smartly i said you know why'd you buy an nft they were like we understand crypto and this is about community and for us to go out and try to sell something first would be counterintuitive it's not counterintuitive to most companies but it is a counterintuitive company that understands crypto so their idea was let's participate in the community let's be a buyer let's symbolically show that we care that we're part of this because they really think that digital goods selling digital goods and people buying digital goods off their visas uh will be a huge part of their growth story we think about this is a half a trillion dollar company that is pivoting part of their business thinking digital goods is going to be 10x right the stats that he gave us where right now the average visa holder swipes their card 0.9 times a day and they think in the future it will be 10 times a day because we can collect so many more digital goods than we can you know amazon packages that show up at your house that your wife seems to keep ordering or your husband certainly in my case um tell us a little bit more about galaxy digital at a moment what kinds of um strategies are you looking at so what what's interesting you most as a company so listen you know tim grant is who our our new head of europe is in the audience today um we're expanding in europe big we're everyone should say hi to him at one point we're expanding in europe um our basic premise and we started from my family office way back was let's use our own capital to understand these markets and let's invest across the full ecosystem from protocols to security to exchanges to coins uh let's trade them let's invest in them and now let's take that knowledge that we've learned out to customers so we have an asset management business that is growing quickly uh we've recently announced the partnership with invesco around etfs one of the biggest etf players uh in the game we have investment banking business right an advisory business we can't hire fast enough there broadly giving advice and capital formation to companies that are in the space we have a sales and training and a prime business i saw everyone up there is fighting over prime where our hat's in the ring um i think we've got the best derivative desk on the street you know we've gotten some really seasoned derivative traders uh and and you know kind of corporate restructuring type stuff if you think about it every one of the the token communities all of a sudden has a treasury that needs to get managed that needs to get to get hedged at times that needs to get traded um we've got a venture business by far the most exciting business from an intellectual capital spencer's venture right because you're seeing all the new projects uh and so that we we break that up into kind of web three and then the interactive space and nfts metaverse everything else now there's a big overlap between those things and they're kind of merging to one um and so and we've got a proprietary trading shop which which i actually also run uh which is you know long the right point coins and short the right coins you know it's it's a classic both macro hedge fund slash long short equity hedge fund uh combined uh we've got mining right we're proprietary mining we're providing services to miners that's derivative services and hedging that's fundraising that's lending we've got a lending business uh and most exciting we are at one point finally going to close our transaction with bitco once we get through the uh the rest of the regulatory checks uh you know checks and then we'll have the second biggest custodian custodian and the biggest wallet business um and so i think lots of synergies there couldn't be more excited uh were today if we look at the combined entities about 450 people uh we think we'll be over 500 by jan one if we can hire people you know it's that's the hardest challenge right now is can you hire people fast enough and committed enough there are so many uh opportunities yeah absolutely there's you're absolutely right there is a global talent war and uh certainly the move to remote working means that uh you know uh everybody's in play effectively to some extent and you mentioned uh your bitco uh transaction there um what's your view about the the um the regulatory aspect right now do you think that um the sec is just sort of making grunting noises to scare people no listen you know so i know gary gensler from my days of goldman sachs we worked together uh i know him from his time at cfdc and and quite frankly at mit i taught one of his classes i was a guest lecturer at one of his bitcoin classes or crypto classes he's very smart um he is very you know committed to what he does um and he wants to to regulate crypto he wants to be the sheriff of cryptoville i once said um he doesn't have full authority to right because of the newness of our industry uh is bitcoin a security it's not a security therefore can the sec regulate it well not bitcoin itself but if bitcoin is lent can they you know these are all really nuanced questions uh he's gonna push like any aggressive uh guy who wants to be in charge is going to uh the industry's gonna push back through lobbying and you know and i think this is going to be a period of a lot of regulatory uncertainty um what i know is true is that the crypto community at large myself included didn't do a good enough job lobbying domestic politicians educating them so they really understand what they're talking about right and so there's a huge push right now from ourselves and lots of organizations uh to try to let to try to educate and work with the regulators but more importantly the politicians right who sit on top of the regulators um i'm optimistic that we come to something reasonable listen i do think there are excesses in crypto that should be swatted down right a lot of the credit shops uh taken customer deposits taking huge amounts of customer deposits i.e feels like a bank uh lend them out at times with monster leverage on their balance sheet and borrow deposits short term and lend them long term like that's a recipe for disaster right it is it's the first thing i'd see if i was a regular i'd say i'm worried about that and it's an unregulated non-bank bank and so you know does gary have the authority to shine light on that of course you can shine light on anything does he have the authority to regulate well they're trying um and so what i hope is you don't throw the baby out with the bathwater right like you've got to leave room for innovation you can't you know dig into every last new innovation and try to regulate where it might be in in two years not where it is i think the big the biggest decision is stable points right the u.s is a big decision to make on how we approach stable points are is it going to be a central bank issued currency which i think is quite frankly a disaster i don't think governments are good at good at you know innovating um i don't think anyone in the u.

s certainly and i don't think anyone in the west wants to give up as much privacy as the chinese are willing to give up um i want i want to uh i want to i want to i'm so glad you you said that because i wanted to ask you about the stable coin issue um you know the big discussion especially conference like this is going to be about defy um so what's the what do you think is the world of d5 looks like with national stable coins working in the ecosystem what's your view of where that is now and where it will go to you know it's still early i i did a call with the central bank governor of uh big latin american country and he was pushing for a more centralized stable coin because it would give him so much great data on spending and velocity of money that would allow him a better dashboard to be a good central banker and i was like dude yes but like the country you happen to live in has a as a president who's got some pretty extreme views right now and that like all countries the politics swing back and forth i don't think at least half the country wants him to have the data on every last thing they spend and and so i am a giant uh alarm ringer and proponent alarm ringer about centralized stable coins and a proponent of you know what brian brooks came up with when he was at the occ which is those central banks should set guidelines uh of how stable points should behave and the private private industry should create them and they should run on public blockchains if it's ethereum or quite frankly they should be able to run on multiple blockchains um that's going to get debated decided in the us i think in the next you know three to six months and i think it's a huge decision i see um so yeah well it's definitely one to watch as you say um it's moving on to um ethereum it's already passed bitcoin in network transactions and usage a few months ago what do you think about ethereum passing bitcoin in market cap now listen i think the industry has to grow up and realize bitcoin has its role to play and a use case which is very disconnected from what ethereum says right bitcoin is going to be mostly used as a store of value as digital gold there is a chance that with lightning it is a it competes in the payments world but i don't think it in the long run is is actually helpful for the bitcoin ecosystem right i think digital gold is such a important role to play globally right we all have a right to save stuff and have our hard work not be inflated away in bitcoin perfectly you know fits that fits that role and so if you think of bitcoin as a finished product which it is right it's not going to change it works uh we should store that and we should compare that versus gold not ethereum ethereum is a technology play right i think one of the big wake-up calls the investor community and quite frankly the ceo community right the user community had with with the explosion of nfts was oh hell crypto's not just an asset play an asset play like bitcoin it's a tech play this is web 3. and so when i think about ethereum i think the more applicable uh comparisons are ethereum versus solana theory versus luna period versus polkadot how is the level one battle going to turn out right will level ones collectively be larger than bitcoin at one point maybe probably i don't know uh right gold's got a 10 trillion dollar market cap bitcoin can 10x from here just to replace gold i think it will um you know technology plays are harder to value right you're we're going to value them as as networks and i think the networks that grow the fastest that have the most developers that are most transactions are going to win now the last thing i'd say is you know a blockchain is not a blockchain it's not a blockchain ethereum is going to be you know and vitalik talks about the he called it the holy trinity or get that wrong uh right speed security and decentralization trying to get those three pieces to fit uh each of these level one solutions is playing on different straights there and so right now why people are loving things like luna and solana is you know speed wins because they're really easier to use in terms of transaction speeds uh they are you know and will will the market will decide and regulators decide are they secure and decentralized enough to allow the future of finance the future of commerce to be built on top of i think that would be the interesting question for regulators to think about they're so far behind that at this point that i think it's going to be the market that determines these things but so that's what i'm looking at bitcoin by itself level twos by themselves and then what gets i'm sorry level ones by themselves and then what gets built on top of those level ones right i see so um you mentioned actually just earlier and as we were chatting um uh things like the metaverse and that's coming up uh right now we also have a session on that today and also on gaming um nfts are playing a lot in that world now um we'd like i'm sure everyone here would love to hear your views on on the nft uh hype the uh but also you know its potential as an asset class um and and also as a technology perhaps as well what what are some of your thoughts well listen i think nfts are here to stay and we are early um that doesn't mean the prices of a ringer or odenza or a punk are going to stay at these elevated levels i was actually with a friend who was a bunch of punks yesterday and trying to convince him to take a little a few chips off the table he told me i was crazy i said i've looked at markets a long long time at one point markets don't go straight up forever they consolidate they go back down and even if in the long run these punks are going to be worth more uh 25 million bucks for a punk that was worth a million just you know four months ago seems to me like a pretty good time to at least book some profits and flip it back into bitcoin or ethereum are another token um and so i do think like any market the prices of you know crypto art crypto collectibles will go up and down but i think the adoption of using blockchains to to transfer and store ip uh is only going to go one direction and so we continue to invest in the infrastructure there um i've never seen a market move as fast as the the you know the degenerative art market or or or other parts of the empty space i mean i literally four months ago had a bunch of those artists at my house and i was going to buy some of their stuff and i was kind of getting set up and then i of course got distracted because i do a thousand things and the stuff that i could have bought for five and six thousand u.s is now in the millions um that's not normal in any way shape or form you know why is it happening it's happening for two reasons there's a lot of crypto wealth out there right there's two and a quarter two and a half trillion dollars of crypto wealth uh that's the community that's supporting crypto artists and crypto crypto projects right um what we've learned in crypto and this has fascinated me is that communities can form really quickly and they have so much more resilience than i ever thought they would it actually makes valuing things complicated right so i told you my my valuation metric early on was okay bitcoin versus gold i configure that as the store value but everything else i thought was going to need to have utility right the more developers the more activity on the blockchain the more i wanted to belong in well we have lots of things in the crypto community now that have value just because that are almost like bitcoins but they don't serve the same role as bitcoin think about dogecoin or think about cardano or think about you know even xrp um unbelievably passionate communities uh when i tweet something even mildly negative i get literally you know trolled incessantly at times death threats at times you know told on the stupidest guy in the universe um really passionate almost like british football teams you know you know you don't want to don't want to insult chelsea fans in chelsea or you get a beat down um it's just as well you're very far away right now but so that that makes the investment model that you have more confusing because identity and we're seeing that sense of identity in nfts feels like it could be a permanent feature evaluation going forward and it's so clear in the nfts right if it's a board ape or a punk or you know a chubby corn uh which is the latest one that my friends were looking at um you know you become part of the club and you know people that are 50 and above don't get that at all at this point they think this is crazy but when i talk to you know my kids and their friends they get it and so we'll see it's too early to say this is going to be a permanent part of the valuation framework but right now it is shocking how stubborn it has been and most interesting is you can look at gamestop in the equity world as in essence of crypto right it's people's identity there's not a valuation you know calculation that anybody can come up with to justify the market cap of gamestop but it's identity yeah and i think that's a really important change that's happening we're monitoring it really closely to be honest i haven't invested a lot of our capital in those projects you know like i'm not long uh blockchains that don't have a lot of activity on them with high market gaps but i used to be short them and now i'm not short them i'm washing them right i see that's a very interesting strategy but you're right it has definitely a lot of these things have definitely become part of identity in the same way that we might be football fans etc lastly i wanted to ask you um that um london listed bitcoin miner argo blockchain took out a 25 million dollar loan with galaxy digital recently to uh spend on green bitcoin mining in west texas using renewable energy what's your view on these uh renewable energy initiatives in mining what do you think crypto can do to to you know aid the the fight against the climate crisis well listen i think in a it was a real shame but the crypto committee was caught off guard in the original onslaught of oh my god this is going to be so anti-esg the real numbers um are tiny right crypto's contribution to total electricity or total power usage is literally minuscule but we kind of lost that story i think we need to keep telling that story you know uh the bitcoin mining council has amazing uh statistics on literally how a nada issue this really is but given that it's an issue in the public sphere now um and given that i think we all have some responsibility uh to trend towards uh a you know carbon neutral future uh i don't see any institutional player in the in the mining business uh doing anything but green money right it just it's gonna be untenable from an investor base and so we're looking at green mines you know uh uh so you're saying that there's push back from the investors into renewable energy yeah went out and said i'm going to raise a mine and i'm going to build it in kazakhstani coal uh people are gonna be like why i can't invest right and so there might be private capital or my lights went off uh there might be private capital that that finds its way in who have less either ethical or you know concerns but you're not going to find any institutional capital that finds its way in and so you know the other thing i'd say is the world is moving so fast towards a green future that this issue goes away in a few years right as we're bending the curves and solar is getting cheaper and and hydro is getting you know more accessible as people drill down deeper and find steam and nuclear showing up again like this won't be a long-term issue for bitcoin or for any other cryptocurrency space and so i think it's on us to tell the story to make moves in the right direction uh and defuse this as an issue because it's it's a red herring that's very interesting that's actually quite a positive and optimistic note to end on mike unfortunately that's all we've got time for but i'm so glad you could join us even if it was virtually and i think we got a we've got a lot of really fascinating insights from you there but for now mike novogratz from galaxy digital thanks very much for joining us at token token2049 thanks very much mike thank you very much