No one on Wall Street embraced cryptocurrencies with as much gusto as legendary trader Mike Novogratz. After Jamie Dimon called Bitcoin a “fraud”in September 2017, Novo, as he’s known, predicted, correctly, it would hit $10,000 and keep climbing. The former hedge fund manager and Goldman Sachs Group Inc. partner became an unlikely hero of the crypto movement and a billionaire on paper. Emboldened, Novogratz announced he was starting a cryptocurrency merchant bank, Galaxy Digital Holdings Ltd. But as he was raising money for the firm in January, Bitcoin began its historic plunge. Galaxy has since reported $136 million in trading losses. Novogratz is undeterred.
You’ve become something of a poster boy for the crypto bubble and the bust. What’s that been like?
For a while, I had a series of tremendously good calls. I was the pretty face of crypto. Now I’m the ugly face.
You told me three months before Bitcoin peaked that crypto was going to be the biggest bubble of our lifetime. Did you think it was going to be the worst bear market in modern history?
It’s a fair question. We thought it was a bear market. I went into it thinking in the long run crypto is going to be a real structural shift in the world and I can just hedge my portfolio. And to be fair, we did a really great job not losing money the first 60 percent down. What you forget is that a market like Bitcoin that’s down 84 percent has dropped 60 percent—and then another 60 percent. That’s where the pain happens. You start buying Ether again, because it’s only $400 after being at $1,300. But then it drops to $100, and you’ve lost 75 percent of your money. We haven’t done horribly in that context, but we’re still down.
You should have made money on the way down?
One hundred percent, instead of lost money. I did think Bitcoin was going to hold at $6,200. It stayed there for four months. It felt like the selling was finished. But then Bitcoin Cash decided to fork again. [Bitcoin Cash had broken away, or “forked,” from the original Bitcoin in August 2017 over a disagreement among crypto developers.] At the same time the SEC came out and sanctioned a few ICOs [initial coin offerings] and said, “Oh, by the way, your investors can sue for damages.” That scared the heck out of a lot of people.
After an entire career as a “macro” trader—betting on currencies, interest rates, economic policy—you became an early investor in Bitcoin. Why?
For me, crypto was interesting because what macro guys do is try to make complicated things simple. It was macro markets on steroids. I’d never seen something go parabolic on a log chart before. I thought, my God, this is the single craziest chart ever.
Many in the crypto community, on Reddit and elsewhere, treat it almost like a religion. Coming from Wall Street, how are you different?
While I believe in the underlying technology and believe in the crypto movement, when prices get stupid, I sell. A lot of my friends in crypto just couldn’t let go. They were saying, “This is going to change the world.” Revolutions don’t happen overnight. I’d be walking down the street, and people would come up to me wanting to take selfies. That’s when I started to think, OK, this is weird. It’s got to be close to the top.
For a while, ICOs were the hottest corner of crypto. They also were a hotbed of fraud. Will they ever come back?
The ICO market is pretty much dead right now. There was a lot of fraud, and there was a lot of hype, and people lost money. The SEC was behind the curve, so they slammed on the brakes. But the SEC doesn’t want to kill this innovation; we’ve spoken to them at length. I think you’ll see a market for security tokens—a real estate portfolio that gets tokenized, for example. These aren’t things that go from $1 to $1,000. They’re things that yield 14 percent, and they’ll be sold to qualified buyers. That sounds a heck of a lot less sexy, but you’re going to see that business grow.
Should we think about crypto the way we think about commodities?
Yes and no. I do believe Bitcoin is going to be digital gold. That means it’s the only one of the coins out there that gets to be a legal pyramid scheme. Just like gold is. All the gold ever mined in the history of the world fits in an Olympic-size swimming pool. You’re out of your mind to think that pool’s worth $8 trillion. But it is because we say it is. The fact that David Swensen [Yale University’s chief investment officer] put an investment into Bitcoin, with his reputation on the line, his endowment on the line, tells you something. Some of the smartest people in the investing world think it’s a store of value.
What’s next for cryptocurrencies?
We’ve invested in a company called High Fidelity, which is a virtual world. Me and you, we’ll sit down, and we’ll have virtual beers. People think I’m crazy when I say that, but Second Life does $500 million a year of GDP, real money traded back and forth in a virtual world with old technology. That’ll be the first use case where blockchain really works.
How has your strategy for Galaxy evolved as crypto imploded?
Not as dramatically as one would think. We have a business that we think can break even next year, if not make money. We’re not nervous; we’re frustrated that our investors have lost money. We’ve got plenty of cash to run the business for a long time. I keep telling my guys we’re a surfer getting ourselves in shape for when the next wave comes, and when the wave comes we’d better be the Laird Hamilton of crypto.
Back when Bitcoin was on its way toward $20,000, there was a sense of inevitability about crypto. Is there still that sense?
That was a drug, and I don’t say that lightly. When you’re in the speculative mania, testosterone is boiling over and there’s a lot of greed. The audience is more sober now—the drug is gone. If anything we’re on the other side, at the stage where there’s the pessimism, and the fear, and the “Oh my God, it’s going to zero.” But it’s not going to zero. We’re at the methadone clinic.