"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 JPMorgan 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.

🎙Listen to the interview in this week’s podcast episode here:

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🙌 Together with:

• Zerion, a simple interface to access and use decentralized finance
• 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.”

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?

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