"I Don't Think We're in a Bubble. We Had a Bubble in ‘17; Now We're in a Movement:" Mike Novogratz
In this week’s episode we speak with Mike Novogratz, the CEO of Galaxy Digital. He started his career at Goldman Sachs and then led a macro hedge fund at Fortress, which was shuttered in 2015. He then went all-in on crypto, in part thanks to convincing from his college roommate Joe Lubin, and founded Galaxy Digital, an investment bank for digital assets. After grinding through the 2018 and 2019 bear market, Mike says he can finally breathe.
He is convinced that Bitcoin is finally derisked. To him there’s no doubt that Bitcoin is never going to zero, and there’s enough critical mass to say it’s an asset class. Novo, as he’s known, thinks we are going through a paradigm shift and we’ll see from Morgan Stanley and JP Morgan to Google and Facebook all announce big crypto projects in the next few months.
While Bitcoin is firmly established as digital gold, to him, Ethereum is a venture bet because it’s not totally finished yet. It's getting there, and so the bet is whether it's going to happen, not that it has happened. Novo is wildly bullish DeFi. He says the threat to the banking system and payments is DeFi, not Bitcoin. But that also means the big guys are going to fight back with lobbying and regulation because protocols like Uniswap and Aave are going after their business.
About the hype and rally in the crypto market, Novo says this time it’s different. Unlike in 2017, he doesn’t believe we’re in a bubble. He says we’re in a movement.
The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Owen Fernau and Dan Kahan.
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- Balancer, one of the leading DeFi automated market makers (AMM) for multiple tokens. Dive into their pools at https://balancer.finance/!
- Kraken, consistently rated the best and most secure cryptocurrency exchange, which can get you from fiat to DeFi
- Casper, an enterprise-focused blockchain which aims to introduce unprecedented security, speed and scale for businesses
Camila Russo: Mike is the CEO of Galaxy Digital. He's a former hedge fund manager at Fortress and a Bitcoin Permabull. I'm so really excited to hear all your thoughts about the current environment for Bitcoin and crypto, your thoughts on DeFi. But as always, I'd like to start with the beginning and what got you into crypto in the first place? I mean, going from traditional finance and starting your career at Goldman Sachs and then Fortress into starting your own crypto investment fund. How did that happen?
Mike Novogratz: Sure. So listen, I'm a macro investor. Macro investors look at trends in the world, politics, economics, psychological trends, political trends, and make big bets, bets in interest rates, bets in equities, bets in currencies. And I still do that. I, on the side, run a lot of macro risk. And Bitcoin, when it was first introduced to me in 2013, felt like a macro investment, a very fringy one, very speculative one.
But here, it was a piece of code that was claiming that it could be a decentralized currency, and that it would live outside of sovereignty, whether outside of US sovereignty or Japanese or Chinese. It would have its own sovereignty. And that appealed to a lot of people because it was a limited quantity currency at that point. It's still a limited quantity. I don't think it's a currency anymore, I think it's an asset. But then it was a limited quantity currency. And so I just quickly thought where people are really scared in 2012-13 about inflation because of quantitative basing.
So you've got people that are worried about inflation. You had a group of libertarians who were sick of the government from the great financial crises, and there was a backlash against all this spending. The cool Cypherpunks that had helped build this community were all excited about it and the Chinese were buying it. And so I thought, oh, perfect speculative asset.
And so I bought it originally with the mindset of a speculative asset, buy something at x because you think it's going to go to 4x or 10x. And because I became a Bitcoin TV personality, or a podcast personality, or I got invited to speak, it forced me to really start trying to understand how it worked more and meeting more and more people. And the deeper I dug, the more excited I got.
But it really wasn't until 2015, December ‘15, I had left Fortress, my hedge fund a few months earlier. And I went to visit my college roommate, Joe Lubin who runs ConsenSys, and at that point, I think I finally understood that this was really a revolution, that blockchain was a way of rebuilding the financial architecture of the world, and not just the financial architecture, the consumer architecture, the creativity architecture of the world in a more fair, egalitarian, transparent way. And it was the spirit of his office over at Bushwick where I was like, damn, these guys are playing for keeps, they don't care about the money, they care about change. And then I threw myself in a little further because I thought, well, this is cooler. Right? It was the big FU to the system. And there was a lot of young people involved. And it was global.
“I think I finally understood that this was really a revolution, that blockchain was a way of rebuilding the financial architecture of the world, and not just the financial architecture, the consumer architecture, the creativity architecture of the world in a more fair, egalitarian, transparent way.”
And so my real second wind was 2016 where I kind of got committed, and I started speaking again, and going to conferences, and trying to really understand the space. What is kind of cool is a lot of those dreams of 2016 DeFi and IP on the blockchain, they didn't really exist until five months ago. DeFi has exploded in the last five months. NFT's are exploding in the last few months. And so Joe Lubin sounded like a maniac when he was first telling me this stuff and I was thinking of it like a trader. I'm like, hey, enough, alright. I'm going to buy bitcoin. I understand when bitcoin’s going to go higher.
But now the whole puzzle is coming together. And I think what's really important from a listener perspective, I said this on a Clubhouse recently, you know, for seven years people have been in this space, anxious, ‘oh, it could go away, like, I'm hodling, I get wiped out and it comes back.’ And there's been this anxiety in the space, ‘Bitcoin could go to zero,’ people would say, I never believed it could go to zero.
I think in the last two months, we can categorically say, Bitcoin and crypto has become an asset class. And it's not going to zero. It's not going away. It's going to have more people working in it next year than this year. It's going to have far more capable people moving from traditional finance. I just thought, I looked out my door, I walked in there, we have five new employees, all awesome. It was like the happiest day I had at Galaxy in six months, because I was like, wow, look at this talent we've got coming into our space. That's good for crypto and it's good for the world.
“In the last two months, we can categorically say, Bitcoin and crypto has become an asset class. And it's not going to zero. It's not going away.”
And so I think we are going through a paradigm shift. You're going to see Morgan Stanley and JP Morgan, and Goldman Sachs all announce big crypto projects in the next few months in their wealth management channels, in payments, in custody for banks. And you're going to see the tech companies come, and you've already seen it with PayPal and Facebook. You’re going to see all of them. Watch out for Apple and Microsoft and Google, like, no one's going to leave the space alone.
And so I told my guys we had good news and bad news. The good news is we made a bet and it was the right bet and our industry is safe. The bad news is the competition is coming. Because competition is coming. And so you got to work just as hard because now it's a real industry. But Bitcoin’s not going back to 6,000. Like it's not, it just isn't. There is a lineup of people that want to buy it on dips. Everybody feels sure, because now it's an asset class. If you're not on it, you're short the asset class. Right? Before it was a fringy thing, it was a maybe, it was a look at those weirdos doing it. Now, you got to be in it.
“The good news is we made a bet and it was the right bet and our industry is safe. The bad news is the competition is coming. Because competition is coming. And so you got to work just as hard because now it's a real industry.”
Critical Mass
CR: So what do you think has changed? You said in the past two months, so very recently, something changed to you that you think now this has become a real asset class?
MN: Critical mass, just a critical mass thing. And so there's a great TED talk. I said this before about what it takes to start a movement. And it's got a guy that walks out on a hill and he starts dancing like a maniac, arms and legs flying around, and everyone looks at him like he's a weirdo. And then a second person starts dancing with them, and they look at those guys like yeah, they’re kind of weird. The third person, and then the whole hill goes and then everyone's dancing and it's a fun dance.
In every part of the investment world, we saw it in hedge funds. Paul Tudor Jones, he got in and wrote a letter and then Stan Druckenmiller his friend said yeah, I invested in Bitcoin too. Every macro hedge fund now has some Bitcoin. We're going to see it in insurance companies, in real money, in bank wealth channels, in small groups of friends, in the hip hop community. Bitcoin is this infectious network where once enough people get in, enough people get in. And that's happened now at an institutional level. And so it's an asset class. That's Bitcoin.
The DeFi revolution, Ethereum, NFT's, that's happening at lightning speed as well. Partly because, think about it, selling an NFT project to someone, I was like, when I think about Satoshi’s genius, and I think she really was a genius, it was the first digital signature you couldn't counterfeit. That's how a simple non-computer science guy like me thought about it, and when I understood that I could explain it to people.
Well, if you think about what I'm telling someone what an NFT is, if I create a three dimensional fucking button, that's a fucking button, and I tell you, well, it's on a blockchain and can't be counterfeited, I've already convinced you that's true with Bitcoin. It's not that hard to convince you it's true with art. And so now I just got to convince artists that are great, both digitally native and traditional artists, to use this new medium because their art is safe, and that not only is it safe, but when it sells we can program in that every time it sells, they get a commission, so they don't sell a piece of art once and never see it again. And so the artists say wow, that's really cool.
“Every macro hedge fund now has some Bitcoin. We're going to see it in insurance companies, in real money, in bank wealth channels, in small groups of friends, in the hip hop community. Bitcoin is this infectious network where once enough people get in, enough people get in.”
And so we have this acceleration of the narrative, acceleration of the story of what blockchain can do for society happening. More people get into it. Then Clubhouse alone. I went on Clubhouse a few nights back, and it's like a podcast, but people are live. And I don't know how many people were on it, but a lot, and I'm thinking to myself, there are hundreds of these going on right now, everyone's getting educated. And so part of COVID, and maybe it's not going to exist as much after COVID because people your age are going to go out at night and get drunk and dance and have fun, right now you're on Clubhouse. But part of the COVID is we are educating people at a lightning speed about Bitcoin, about Ethereum, about DeFi, about NFTs. And so I'm optimistic that the time in between kind of first excitement and actual adoption is narrowing.
Crypto After Covid
CR: And speaking of COVID, I wanted to get your thoughts on how the current macro environment including COVID, including the potential rebounding of the economy because of the vaccine, how all of this will impact crypto?
MN: Well, it's confusing. So, listen, COVID gave life to crypto, right? Because COVID gave life to this crazy fiscal and monetary response that all governments felt like they needed to do to keep the economy from collapsing. And so we have pumped tons of money into the space and assets went up, including Bitcoin, all assets went up. So total asset value in the world went up, Bitcoin’s slice of that asset value grew. So you had two wins for Bitcoin.
What's happening now, COVID is coming to an end. Right? Praise to the…
CR: Scientists.
MN: The scientists who created these vaccines, this shocking mRNA breakthrough, and hats off. We're all going to get jabbed, the bulk of people, by beginning of summer. And we're going to wake up, and there's going to be the roaring 20s. I know people have told the story, but I've got three kids probably your age, and they are like bulls ready to travel and party and go out and shop and have fun. And listen, people my age are ready to do the same. And so you're going to see this explosion of consumer demand, explosion of activity, explosion of inflation. And that is not good for the macro story of crypto. It's not good for the macro story of assets. Right? It's okay, interest rates are going to go higher.
So I've been hedging a lot of my crypto portfolios with interest rates, selling long bonds, selling five years, selling US fixed income product, and even Japanese fixed income product. And so that's a negative. On the other hand, we have this giant adoption that's hit a tipping point, that's happening no matter what. And so that's a positive. And so instead of having two positives, we've got one giant positive and one medium negative, I still think crypto goes up. It doesn't go up at the pace it would have if the economy rolled over and we had another COVID, God forbid.
“And so you're going to see this explosion of consumer demand, explosion of activity, explosion of inflation. And that is not good for the macro story of crypto.”
CR: So walk me through that a little bit. Is that negative because instead of all this money that's being pumped into the economy going into different assets, including risk assets, and more volatile assets like Bitcoin, that stimulus is actually going to production because the economy's coming back to life?
MN: No, it's markets look ahead. It's people thinking, I know, they promise they're going to pump money forever and ever and ever, but that now sounds kind of stupid. They're going to have to change their mind in 18 months or 12 months or 6 months. Because when they look like there's an inflation fire, the central bank governor can’t say, oh, don't worry about it. He's going to move rates. And if they take the alcohol away from the punchbowl, the party is less fun.
CR: Got it. Okay.
MN: Going to a sober party? Not nearly as fun as a party with a little bit of booze.
Adoption Story
CR: Yeah. Okay, got it. Right. So people are thinking stimulus is gone or reduced, party is over, there will be less money sloshing around the new economy, so less money to go into buying crypto?
MN: Yes. That's the negative, and the positive is this adoption is happening. That's why if you look at crypto, Bitcoin keeps going up and gold keeps going down. Because the story for gold is just the macro one, it doesn't have a new adoption story. Matter of fact, it has a negative because people are selling gold to buy bitcoin. And so I used to own a lot of gold and Bitcoin, and then I sold my gold a while ago, and now I’m short of gold. Feels like gold's going to go to 1500, I think it's 1670 or something today. So what's that? Another 10% down. There can be a world where gold goes down 10% and Bitcoin stays here or it goes higher, just adoption.
CR: In the case of the adoption story, that seems like it could be better suited for something like Ethereum or DeFi tokens than for Bitcoin. If you see Bitcoin as digital gold, or as like the digital store of value, and then you see Ethereum as the layer for Web 3.0, or decentralized finance, like things that are actually getting used, like for something other than just like…?
“And so you're going to see this explosion of consumer demand, explosion of activity, explosion of inflation. And that is not good for the macro story of crypto.”
MN: I think Bitcoin’s going to go higher, even though the macro is not as good. Because like the train’s going downhill, and there's a lot of momentum, and so people need some in their portfolios, and they have none, that alone. Bitcoin is such an easier story to sell to institutions because it's macro asset. Right? It's like 10 years or crude or S&P futures. It's a macro asset, where Ethereum is a venture bet.
Venture Bets
CR: In what way?
MN: Well, are we going to really rebuild on Web 3.0? You know, tell me 10 projects that are being used in the real world on blockchain? There’re not a lot. I like to talk about LUNA token because it runs on the Terra blockchain. It's the Chai payment system. People actually use it in Korea now for payment, it’s about 6% of payments. We don't have a lot of 6% of anything from the crypto world that spilled over to the real world.
And so it's a venture bet because while we're building this thing, ETH 2.0 doesn't work yet. It's just not scalable yet. It's not a product that's ready for primetime. It's getting there, and so the bet is it's going to happen, not that it's happened. Bitcoin’s happened, it's finished, like it's a finished product. You buy Bitcoin, you put it away, you hodl it. Like in a year, my experience with Bitcoin is going to look really similar to the way it looks today. My experience with Ethereum will look very different. My experience with DeFi is going to look shockingly different.
“[Ethereum] It's a venture bet because while we're building this thing, ETH 2.0 doesn't work yet. It's just not scalable yet. It's not a product that's ready for primetime. It's getting there, and so the bet is it's going to happen, not that it's happened. Bitcoin’s happened, it's finished, like it's a finished product.”
So I'm wildly bullish DeFi, because when I think about a bank, if I'm Jamie Diamond, I don't care about Bitcoin, it's another asset. I'm mad that I didn't allow my traders and asset management people to use it earlier because people cared about it, I could have made money. But it's not fundamentally altering what I do. When I look at DeFi, I say oh shit! When I look at stablecoins, I say oh, shit! JP Morgan makes $13 billion a year in cross border payments. Wow, that's a lot. Stablecoins payment currencies, that's why they're working so hard on JPMorgan coin. Right? They're hiring more blockchain engineers, they’re pouring more money into research.
And so the threat to the banking system and payments is DeFi, not Bitcoin. That's the threat. But that also means they're going to fight back, lobbying, regulation. They're going to push. Now you're going after their business. Bitcoin wasn't going after JP Morgan's business, that's why he was like ‘Psh.’ But Uniswap is going after the NASDAQ, Sushiswap is, Compound is, Aave is.
And so now we're still early in all those projects. There's a regulatory piece that needs to get figured out. But the moment these things get regulatory compliant, which I don't think is that far away, you're going to see DeFi grow so much faster than anyone else thinks it's going to grow. It’s like you say, oh, yeah, in 10 years time JP Morgan will be worried about, it'll be in 18 months.
Rules and Regulations
CR: So interesting. I really want you to dig into that. I mean, the regulatory piece, for one. You think big…
MN: Let’s talk about regulatory, right? It's all about KYC and AML. For me to trade with you, if I know your KYC, I can trade with you. So I can be a peer-to-peer lender of money or buyer of assets on an exchange. But if I'm trading against a smart contract, I don't know who's on the other side of it. So if you can convince me that the person on the other side of it is blue checked, and you can convince the regulators that actually works and it makes sense, alright. Then who else is there to regulate? Because DeFi is like a piece of code. They're not people. Oh, let's talk to the code. Right?
This idea of driverless banks, that term was coined by Brian Brooks, it's a great term, or driverless insurance companies or driverless derivative exchanges, it's fascinating, because they can grow robustly and grow fast with a huge network effect. And so really, to me, cracking the KYC piece, really important.
CR: I mean, it's just so hard to do, because it's at the core of DeFi, the fact that it should be permissionless, that anyone can access it, that you're just interacting directly with code. So it seems to go just so directly against the idea of KYC?
MN: Yeah. But it literally will not work. It will be smushed if it doesn't meet the KYC. So you can literally see, I'm interacting with a smart contract that will only let me interact with someone who's got a blue check. So there's like a matching engine that only matches you with blue checks. I mean the blue check metaphorically, of course. And so we'll see. There's some projects being worked on, I'm starting to get above my pay grade. But we're a regulated entity and we play by the rules.
Gary Gensler was interesting. In one of his lectures, and I'm going to paraphrase, he said, the thing about regulation is you have two sets of rules. You allow little guys to break the rules a little bit, that's how innovation happens. But you don't let the big guys break the rules. And so when I first started this company, I was like, I wonder if we're big guys or little guys. And we decided we were big guys since we went public, and so we haven't broken the rules. But we have lots of friends and people I admire that are out there, they're pushing the edge of the rules. That's how innovation happens. And I think we're going to see that.
“...the thing about regulation is you have two sets of rules. You allow little guys to break the rules a little bit, that's how innovation happens. But you don't let the big guys break the rules.”
But I think Gensler will be good, because he understands this, he's smart, and he likes to be smart. He likes for people to understand that he understands, and I'm not saying that in a pejorative way. He will make things very clear, much more clear than the last SEC chairman, Chairman, Clayton, he didn't really care about crypto, he didn't want to talk about it. Gensler will want to talk about it. And so the more clear the rules are, the faster innovation will happen.
“The more clear the rules are, the faster innovation will happen.”
CR: So we could have a sort of middle ground between DeFi and institutions where there's this ”KYC-ed” area of DeFi where institutions are allowed to play or allowed to start getting into this space.
MN: And listen, in the long run, most people when they're pushed, want some pseudo-anonymous KYC. I am okay with people having to be legitimate players to play in an ecosystem. I'm not okay with you getting to know everything about them. And so that's the right balance that governments and regulators and the community has to find.
I was on a call with a central bank governor talking about their version of central bank-issued digital currency, and how centralized it should be. And that's a really, really complicated and important question. If it's China, it's completely centralized, and they have complete access to all your spending data. And so they know you're pregnant before you know you're pregnant. Or you're gay before you tell people you're gay. Or you're thinking about not voting. Right and so that's way too intrusive in people's lives, in my mind. But you're not going to get zero.
And so what's that right balance between privacy and the government's desire, and perceived need, to make sure that bad actors aren't ransacking the place.
CR: Yeah. It would just be so ironic if in the end blockchain is used by governments to infringe more on people's freedoms and privacy.
MN: I did a talk in 2016 or 17 with, I can't think of his name, it was at the Lion Tree Conference, and I've ruined the story because I can't think of the guy's name, he's a genius. And he made that prediction. He was like mark my words... Sam Lessin. Sam Lessin, great investor, smart as heck guy. He was like mark my words, there's as much of a chance that this shit’s used for invasion of your privacy than for protection of your privacy. And you see it in China.
“...there's as much of a chance that this shit’s used for invasion of your privacy than for protection of your privacy.”
CR: Yeah. Well, maybe in authoritarian regimes that that's what's going to happen, hopefully not in the US.
MN: Let’s hope not.
CR: Yeah. About DeFi, I know that…
MN: What about Chile?
DeFi Activities
CR: In Chile, depends on where it's heading. I don't like the direction it’s heading in right now. But we'll see, we don't have to get into that. Okay.
On DeFi, you personally, because I know, Galaxy is a big guy, so you have to play by the rules. But what have you done on DeFi and what are your thoughts? Like, are you yield farming?
MN: We've invested in a lot of protocols, a lot. And we are deep in our regulatory exploration on things like yield farming and how to use the protocols and where we can use them. And so some we do, we stake on some systems. But we're not nearly as active as I think we will be once we get a little more regulatory clarity. But this is onshore versus offshore stuff. And so right now, the preponderance of what we do is investing in the best teams and the best protocols, and watching other people use them.
“...right now, the preponderance of what we do is investing in the best teams and the best protocols, and watching other people use them.”
CR: Which are your top DeFi investments?
MN: So we have lots of early-stage investments. Things like 1inch, which we think is going to be great. I also have a portfolio of the kind of DeFi blue chips, Sushi, Uniswap, YFI, Aave, Compound. I think that these are core portfolio investments now. And do they look expensive? Yeah, they look expensive. But the one thing I learned is stuff that really can grow at an accelerating rate can stay expensive a long, long time.
And I have LUNA token. LUNA is one of my favorites because it's being used in the real world. It's a payment coin. And Do, the CEO is a little bit like a Korean version of Sam Bankman-Fried, just a hustling entrepreneur that's building a whole ecosystem around him and has lots of followers and lots of excitement. And listen, this space is where, not just at Galaxy and at most firms, you find the most creative and smartest guys.That's where all the cool innovation is happening.
“...this space is where, not just at Galaxy and at most firms, you find the most creative and smartest guys. That's where all the cool innovation is happening.”
CR: And so from your kind of exploration on the regulatory front, you found that staking was okay to do? So you said you're staking on platforms?
MN: Listen, each situation is a little bit different. And so I hope and expect to be a user of almost all the different aspects of DeFi soon. Listen, of course, I want to trade on Sushi and Uniswap. We are more cautious than some because we're regulated like 16 ways to Sunday.
Mainstream Adoption
CR: Right. I wanted to ask you about your Ethereum funds that were just disclosed to the SEC. It was reported, there was $32 million invested in two different Ethereum funds. So this is interesting to me, because obviously, big institutional investors are the ones buying these funds, right?
MN: So listen, everyone goes on the same journey, learning from the newbie, or they call the news to institutions. They start with Bitcoin, and they're like, hey, what's next? Oh, tell me about this Ethereum? And you explain Ethereum, what it does. And then they're, like, tell me about this DeFi. And so everyone goes on that journey. And institutions are on that journey. And so Ethereum is the second place they land.
“They start with Bitcoin, and they're like, hey, what's next? Oh, tell me about this Ethereum? And you explain Ethereum, what it does. And then they're, like, tell me about this DeFi. And so everyone goes on that journey. And institutions are on that journey.”
We're launching an Ethereum ETF up in Canada hopefully this month. And so a lot of these funds will be sort of replaced in some ways with these ETFs. You'll run them side by side, but a lot of beta funds where you're just giving someone exposure to Bitcoin or Ethereum, they're like stepping stone funds, because it’ll be easier to buy in ETFs at one point. Some people will still buy in funds.
The future of asset management in crypto is not beta, it's alpha. It's can you do interesting things with the crypto? But again, crawl, walk, run. This industry is, you know, if we were a human, we're about eight years old; we're not even high school kids yet. We're so early. It's the first inning if you want to use a baseball metaphor. And so that's what's exciting.
“The future of asset management in crypto is not beta, it's alpha. It's can you do interesting things with the crypto?”
When I told my 140 employees, I was like, what I'm really excited about is I now know we're in a really awesome growing industry, and it'll be bigger next year and bigger the year after and bigger the year after. So if you're a 26 year old kid that just left normal Wall Street to come here, I can look you in the eye and say you got a great career. Three years ago, I'd look him in the eye and say, you're taking a lot of risk, more risk than me because I'm already rich. I think you're going to have a good career, but I don't know you're going to have a good career. And now I say no, you're going to have a good career. So it's a big difference in mindset. It's why we're able to recruit such great talent.
“So if you're a 26-year-old kid that just left normal Wall Street to come here, I can look you in the eye and say you got a great career. Three years ago, I'd look him in the eye and say, you're taking a lot of risk, more risk than me because I'm already rich.”
CR: I think you said recently that crypto or Bitcoin is becoming derisked.
MN: The careers are being derisked. Investing is being derisked. Listen, if you were a hedge fund manager two years ago and you bought Bitcoin at $10,000, and next thing you know it's down to $4,000, there's a decent chance your investors are like dude, how stupid are you? You bought tulips, what is a Bitcoin anyway, right? Now, if you buy Bitcoin and it goes down, it's just a bad trade. It’s a big difference in psychology.
DeFi’s 18 Month Trajectory
CR: But at the same time, you know that this industry is going to grow, and it's going to grow really quickly. I mean, you said earlier in the interview, it's going to be incredible how much DeFi grows in the next 18 months. So I'm curious to hear your thoughts on, what do you expect this space to look like in 18 months?
MN: I think you're going to have companies like ours be double in size. They're going to be more companies like ours. The traditional banks are going to be getting into the space. And so from an investing perspective, it's going to be another part of Wall Street. Now, I think the tech guys are going to go after Wall Street. There's a battle. This is the new bank account. And so I think PayPal, when they got involved, that was the message they sent. And so are you going to have your bank account on your iPhone? Maybe.
“...I think the tech guys are going to go after Wall Street. There's a battle. This is the new bank account.”
Apple wallet is a pretty cool wallet. Wait till they put Bitcoin and the rest of crypto on there. Are you going to trust Apple? They've been pretty good with privacy. Are you going to have it at Chase Manhattan still? JPMorgan? Like these are big decisions that people are going to have to fight over. But I think that's what you're going to see the world shifting to. And so I don't know who's going to be the biggest player in crypto, it might be Facebook. Right?
CR: Do you think it will be companies emerging in crypto from crypto, or do you think it will be outsiders coming in, like big web 2.0 companies?
MN: You know, we'll see who's better. I think a lot of the outsiders are going to try to buy the emerging crypto companies. They just are. They have just so much money and talent and whatnot. So you'll see banks try to buy crypto companies. You’re already seeing it! Right? Look at Coinbase was swallowing up people, Paypal is looking to swallow up people, VISA will look to swallow up people. These guys don't want to be left behind. And the tech companies are quicker to do that than the financial companies. But the landscape, we have an investment banking business, we think it's going to be really busy, because it just makes too much sense that people are going to say, hold on, how do I get involved? And how can I speed up getting involved?
Price Targets
CR: I want to talk to you about your price targets, because I know you said you predicted Bitcoin will get to 100k by the end of the year, is that still the case? And also what's your target for ETH?
MN: So at the beginning of the year, my bitcoin price target was $55,000 to 60,000, because I thought that would have been 10% of gold. And we got there in two months, so I changed my target to $100k. Listen, like I said before, there's positives and negatives. There's a macro negative, I think, this year for Bitcoin, but there's structural positive, so I do still think we can get to $100k. ETH, I'm guessing more, but it could get to $3,000. I think we could take out $2,000. And then we'll be at $3,000 or $4,000 faster than you think, and that probably is it, you know. But these are guesses based on charts, guesses based on seeing the demand coming into the space.
“There's a macro negative, I think, this year for Bitcoin, but there's structural positive, so I do still think we can get to $100k. ETH, I'm guessing more, but it could get to $3,000.”
I know one thing, stablecoins are going to be used a whole lot more every week for the rest of our lives. So if you believe that, you've got to be long Ethereum. Listen, Ethereum might not win, but it's the lead horse of all these protocols. I'm having my team map out all Layer 1. And really, we're going to do a deep dive into truly understanding what are the permutations of what Layer 1 is going to look like.
“...stablecoins are going to be used a whole lot more every week for the rest of our lives. So if you believe that, you've got to be long Ethereum.”
Levels of Decentralization
CR: Oh, interesting, I'd love to see that report.
MN: Right? Because there's lots of things. Blockchain’s a big word that means a lot of different things to a lot of different people. You can have a small, tight federated blockchain that really just feels like a database controlled by six people and people can call it a blockchain. Look at what Flow’s doing, or Dapper Labs is doing with Flow. Because it's much more convenient to process on that, than something that's as decentralized and safe as Ethereum. And so what projects feel a need for safety and decentralization versus speed and less safety, like that's all going to play out in the next bit of time. If I had a crystal ball, I would tell you who's going to win.
But my gut is, at least in the next year, you're going to see so much built on Ethereum or tried to be built on Ethereum, or planning to be built on Ethereum that it drives the price of Ethereum up.
CR: Do you think actually decentralized blockchains will win in the long run?
MN: I think for big giant stores of value and stores of IP, yes. But I think there will be a lot of room for more centralized, faster, other blockchains. I don't think people distrust as much as the spirit of the revolution. If you think about the blockchain revolution was a general distrust for the system. You know, does Harvard need to put their grades on a blockchain? Not really people trust Harvard, they’re not going to change your grades. And we're even seeing it with all the NBA Top Shot stuff on Dapper, is that the safest and best blockchain out there? Of course not, on Flow. At one point, we'll see what consumers demand. I think they're going to more demand a better user interface and user experience than they are decentralization and security.
“At one point, we'll see what consumers demand. I think they're going to more demand a better user interface and user experience than they are decentralization and security.”
CR: Yeah, could be.
MN: But I’m just guessing at this. But that’s the conversation to watch, right, it will be interesting.
Different From 2017
CR: Yeah. So you have these very high price targets. And it does feel like this space is just heating up so much, it feels a little bit like 2017. And then, of course, after we got to the peak in late 2017, 2018, everything crashed back down. You said already that you believe the sector has been derisked, but do you think something like that can still happen and obviously still go up in the long run, but have these bear markets in between?
MN: Listen, markets go up and they go down. I don't think we're going to have a crash. This is different than 2017. In 2017, most of the projects were shit. And there was no differentiation between good projects and crappy projects. The market was too new to understand. And so you had a giant supply response, everyone issued tokens, too many tokens, and the price went down. The market’s much smarter today. It's harder to issue things and they're much smarter. It's not perfectly smart. I think we're going to see a bubble in NFT's, which will crash, but I'm still bullish NFTs, or the NFT space.
“I think we're going to see a bubble in NFT's, which will crash, but I'm still bullish NFTs, or the NFT space.”
And I think that there'll be like mini bubbles that crash and we'll come right back. I do think you're going to see more and more beautiful art, great artists create stuff on NFTs. You're going to see more people with brand, try to understand how do I monetize my IP? How do I protect my IP? Like, that story's not getting put back in the bottle. Oh, no, I don't want to do that. Now who's going to say that? Every single creative person I know has called me in the last two months. I mean, I didn't realize I know so many rappers. How do I do an NFT? And so people are smart. They realize this is a better way to protect my IP, better way to monetize things.
And so I think we're at the beginning of a really exciting path. It will be up and down in some, there'll be too much excitement. But I don't think we're in a bubble. I don't. We had a bubble in ‘17 and now we're in a movement and this is a secular bull market in crypto and blockchain and Bitcoin. And that's where I think we're allowed to breath, be less stressed, be more excited. Maybe I should end right there with that quote...
“I don't think we're in a bubble. I don't. We had a bubble in ‘17 and now we're in a movement and this is a secular bull market in crypto and blockchain and Bitcoin.”
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