Galaxy Digital Founder Mike Novogratz on Bloomberg Wealth with David Rubenstein

like what gives something value isn't the technology it's the social construct you say it's valuable I say it's value therefore it's valuable in the excitement of building this crypto industry we attracted a lot of frauds uh you know Bad actors criminals 180 million people around the world that without a gun to their head take their hard-earned savings and store it in this community of people that run this technology you know call Bitcoin [Music] yeah Galaxy digital founder and CEO Mike novogratz considers himself to be one of the crypto Industries Elder Statesman I was a joke I'm the oldest guy in the space um and I have been kind of an unofficial spokesman for Bitcoin but for crypto the billionaire investor led a decades-long career in traditional Finance as a partner at Goldman Sachs and president of private Equity Firm Fortress then came crypto I was learning Venture working with a ton of young people and had this role in the community as a senior voice that had been in institutional Finance November grads first bought Bitcoin when it was trading around 100 each by 2017 Prices rose roughly 19 000 and in 2018 he found a Galaxy an investment firm focused on the digital and crypto economy since then crypto markets have been volatile to say the least post covid with all the free money that the government was giving away everyone was trading these coins and they were trading on momentum and people made a lot of money and lost a lot of money after Bitcoin prices peaked in late 2021 2022 brought the collapse of a number of crypto firms including the high profile implosion of crypto exchange FTX and the rest of its founder Sam bankman freed tonight I spent a lot of time with Sam I didn't invest with them I always thought their valuation was too high but he was kind he was always helpful to me we lost money we we didn't invest with them but we used them as an exchange I just never assumed I'm dealing with a sociopath no regrets knows the past year has hurt the crypto industry but he remains a True Believer it feels like the crypto Community is tough and resilient I mean I have a tattoo of Bitcoin you know there is a religious Zeal to people in the Bitcoin community that you don't see in the equity community so you are one of the leading advocates in the world for cryptocurrencies you've made a fair amount of money it is reported in cryptocurrencies I assume you've lost some when it went down a little bit but uh what propelled you to be interested in cryptocurrencies when did you first get interested in it you know I got a call from Pete brigger who was actually my partner at Fortress who was probably the least likely to call you about cryptocurrencies but he had moved to California and everyone was talking about a thing called Bitcoin so he called me up he said what do you know about Bitcoin and at that point I knew nothing and so I did a quick dive into it and quickly realized it's a macro asset I spent my life as a macroeconomic investor so you got started and you bought initially what you know I bought uh it was trading about 100.95 you mean for a Bitcoin for Bitcoin we end up calling Dan Moorhead who had run a hedge fund that I had backed it's a day of looking at this like we're thinking about this and Dan came back and said this might be the most important innovation of our lifetime I was like oh that's and Dan was went to Princeton with us he put a lot of money into it and you know I was a lot richer than Dan at the time so I said I've got to put at least that much in and so we end up we bought us a substantial amount you know about three million dollars each three million dollars of Bitcoin and we Bitcoin was a hundred dollars at a hundred dollars and Bitcoin is now I think around Thirty One Thousand a Bitcoin roughly thirty thousand and it went as high as seventy thousand at one point so when it went from seventy thousand to sixteen thousand were you getting nervous you know it went from eight thousand to seventy thousand uh as a response to covet as a response to the reaction to covet right but when every Central Bank in the world just flooded the world with money as a macro asset it was supposed to go up and then come back down and it did it went further than it should have because in the excitement of building this crypto industry we attracted a lot of frauds uh you know Bad actors criminals well there's one person I interviewed once I met about a year or so ago named Sam bankman freed and were you shocked at what happened there you know yes and I spent a lot of time with Sam I didn't invest with them uh I always thought their valuation was too high but he was kind he was always helpful to me we lost money uh we we didn't invest with them but we used them as an exchange and people ask me well if you didn't invest you were a little leery I was like I just never assumed I'm dealing with a sociopath uh it's hard to risk manage against that but do you think that really hurt the industry for some time it certainly did and it wasn't just Sam right we had Celsius Alex machinsky who's now been arrested uh there are four or five three arrows capital of either guys that started off as frauds or that as the heat got turned on made really really bad risks so the ones that got hurt were I think three Arrow three arrows Tara right and um FTX obviously and Celsius Celsius block Phi has another one so you were a big supporter of Tara I was and I was told you have a tattoo on you somewhere I do good reminder of uh hubris uh at times can you tell us who the inventor of Bitcoin is well Satoshi Nakamoto is is who is that the inventor nobody knows and I quite frankly I think if we knew Bitcoin might not be where it is like what gives something value isn't the technology it's the social construct you say it's valuable I say it's value therefore it's valuable and I think if we knew who the inventor of Bitcoin was we'd be a little more skeptical than saying I I'm gonna buy into this as a place I store my value like there's something about the mystery of not knowing who Satoshi is so we don't know who Bitcoin founder is but uh we do know that Bitcoin is by far the leading cryptocurrency and you think we'll remain that for a while I do I think I think what's neat about Bitcoin is it's a finished product it doesn't have to change to fulfill its Destiny right the other parts of crypto we're we're in a a build and get better phase but bitcoin's done it it functions perfectly as digital gold and all we're in now is an adoption cycle I think the most important thing that happened this year in Bitcoin is Larry Fink he got orange pilled as we say orange pill is when you take a non-believer you make them a believer in Bitcoin and Larry was a non-believer now he says hey this is going to be a Global Currency uh people around the world all trust it well BlackRock is the biggest BlackRock is now doing an ETF or trying to do an ETF for Bitcoin is that a big change in the industry yes for for Larry in particular right who was the CEO of this iconic company to say I believe in this right that that's kind of huge because again like what Elizabeth Warren says well I don't believe in Bitcoin and I'm like well Elizabeth Larry fig does Stan druckler does Jeff Yost does uh the richest person in your state you know uh Abby Johnson does like Jessica's doesn't mean it's not real by the end of this year where do you think Bitcoin will be you know there are two major factors that I'll give you one is when the FED pivots the moment the FED starts cutting Bitcoin will go a lot higher and when we get this ETF adopted and so I think you could be substantially through the old highs once those two things happen let's talk about your background a moment uh you grew up in Northern Virginia I did and what did your parents do yeah my dad was a career army officer and my mom was a career Hustler a housewife antique you know selling at one point she was a waitress and you had a fair number of siblings I have I won a seven I'm the third of seven so four boys three girls uh we used to say four boys three girls two bathrooms uh and one was my parents or the Army's salary a military salary seven kids you probably didn't have a lot of money growing up we we were straight middle class so you were a star wrestler in high school and I think you were the Virginia state champion I lost in the finals with about four seconds left which I still wake up about once a month thinking about what happened to the person who beat you he presumably is not a Bitcoin billionaire no he's not he's not so so in the long run maybe I should stop thinking about him so much but so you did well in high school and you must have done well academically as well because you went to Princeton I did so when you graduated what did you do I went to the Army I was a helicopter pilot in Fort Rucker Alabama with a great year I'd done ROTC to help Finance Princeton we have to let the military did you say I want to be a Trader I'm going to go to Goldman or something I actually went to Washington DC I said I want to work in DC I met an ex-princident guy who had been the assistant Secretary of the army um and he said son go to Wall Street and make some money you can come back to DC when you're 40 or 50. I went to Wall Street I lived on my friend's couch and got a job at Golden Sachs as a money market salesman easy to get a job at Goldman Sachs you didn't have any background in this area you know I walked in and I made this pitch that I was a star wrestler and I was in the Army and the guy said well how do you know you're gonna be able to handle the pressure of Goldman Sachs and I said if you ever flown a helicopter and been talking to air support and shooting at people at the same time I was like no well I hadn't either but I said that and so they hired me and did you become a partner at Goldman I became a partner in 1998 I start before they went public that was right six months before they went public so it was a good time if you were a partner when they went public I was okay well that's pretty good I've had three IPOs Goldman Fortress and Galaxy so you became a partner at Goldman and then how many years were you there before you decided to leave only about a year and a half uh and took off it was one of the the least glamorous chapters of my life uh and uh I become the president for Golden Latin America and then got myself in trouble that I would refer to as too much wine women in song and so I I left with my tail between my legs Pete brigger my old partner from Goldman and classmate called me and said hey let's work together and so so you started Fortress Fortress Wes Edens it started it earlier but it was about a 40 person company so Pete and I bought into that partnership so you ultimately left Fortress to start your own firm is that right I started a family office and realized family offices are pretty nice way to make a living everyone comes they Shine Your Shoes they give you ideas and I wasn't going to go back to work unless I could find something that I could work with young people that I learned something new uh and that I could make a difference and crypto kind of blew up again and I was like blow up in a good way and I was like learning Venture uh working with a ton of young people and had this role in the community as a senior voice that had been in institutional Finance so today uh tell us what galaxy is how big is it we have a sales and trading business where we make markets derivatives lending kind of a classic sales and trading business for people in crypto we have an asset management business we manage other people's money and Investment Banking business and then an infrastructure business where we do mining staking as a service helping on the infrastructure of the company so today um you are the CEO and the founder you intend to do this for the foreseeable future for the foreseeable future you're younger than me but in the crypto world you're an older man compared to some of the teenagers that are doing this so are you the Grand Old Man of the crypto world I'm one of them I I joke around all the time that I'm the oldest guy in crypto but I think I've met one or two guys that are roughly my age Gary genser at the SEC has been saying over and over the rules are clear just follow the rules and we had a federal judge that said the rules are nothing close to clear foreign this year the Securities and Exchange Commission has ramped up enforcement actions against some of the biggest names in the crypto industry like coinbase Finance Gemini and Genesis since their Inception cryptocurrencies and digital tokens have existed in a regulatory gray area SEC chair Gary genzer believes most cryptocurrencies are securities meaning his agency has the power to regulate them one big argument the SEC is alleging many crypto tokens were never registered with the SEC and therefore many firms are selling or providing in exchange for unregistered Securities the crypto industry disagrees with Gensler that digital tokens should be classified as Securities and so does a federal judge at least partially in July the sec's arguments suffered a major setback when a judge ruled that in some scenarios Ripple Labs digital token xrp is not considered a security but the ruling was narrow and the SEC May appeal now regulatory uncertainty looms large over the crypto industry the SEC said that Ripple was a currency and or security I should say and therefore they sued a ripple arguing that Ripple should be able to do what it wanted to do and the SEC lost in federal court is that a big victory for the crypto industry or you think the SEC is going to appeal I think the SEC probably appeals I think it was a huge Victory and it's a victory mostly in that forget who was right or who was wrong Gary genser at the SEC has been saying over and over the rules are clear just follow the rules and we had a federal judge that said the rules are nothing close to clear but our our stance my no regrets as galaxies in the whole industry stance has been help us get clear rules because they're not clear and so I think loud and clear the message was Gary you've been wrong that the rules aren't clear and and Congress has to get its tail in gear to get us some rules now coinbase is one of the best known companies in the crypto industry it makes markets for people that want to trade in crypto but the SEC has recently taken action against uh coinbase and argued that it's doing things that are illegal what is your view on that listen I think Brian Armstrong is brave and and he's it's an interesting strategy to fight this in public he's like this is unfair and what he's saying in essence what I just said the rules weren't clear the approach from the SEC to regulate through enforcement and to really thwart our industry which feels like it's come from Elizabeth Warren and shared Brown and maybe Lil Brainerd and a few people uh we called it choke point 2.0 operation uh seems obvious and is just Un-American and it feels like the crypto Community is tough and resilient one of the things I learned is these communities don't go away they believe I mean I have a tattoo of Bitcoin you know there is a religious Zeal to people in the Bitcoin Community the U.S government is probably not a big fan of crypto I think it's fair to say the current U.S government so are you worried that the US government will impose regulations on crypto that might thwart the growth of the industry well the US government has been thwarting the growth of the industry right Gary Gensler and the white house uh Gary at the SEC has been regulating through enforcement in a really what I think is unfortunate and unfair way uh the tax that they've put on companies like ours is Extreme we'll spend 10 million dollars on our audit a normal audit should have cost three million dollars crypto should be bipartisan and it was heading that way until Sam magnan freed blew up and the Democrats felt stupid and that opened a window where Elizabeth Warren and Sherrod Brown and the few anti-crypto progressives decided crypto wasn't Progressive which is crazy because I can't think of anything more Progressive it seems to me that the Republicans on Capitol Hill seem to be more supportive of the crypto industry than Democrats much clearer much more is that because they like free market economics or what what's the reason you think you know crypto's complicated right Bitcoin is a freedom right it's Freedom it's keep the government out of my business uh and so we even when we think about stable coins we will have stable coins in every country in the world so stablecoin is a digital representation of the national currency you can have them like China where the central government knows every penny you spend on what you spend it on or you're going to have them very decentralized where the government where they look look and feel a lot like just digital cash in anything in between and so it's a real important debate uh the Republican side has more freedom but outside of the United States a number of countries are encouraging uh crypto companies that come there because they say we have better regulation or less regulations and you think the U.S will lose itself as a center of crypto industry uh to we are slowly but surely more and more I mean you see a16z is setting up in uh in a big office in London we are moving more people to Hong Kong and to London um and so it's frustrating I think in the long run crypto needs the US like it's hard to have a global system without the biggest economy but it is unbelievably unfortunate how long it's taking us now your company is headquartered in New York where we are now do you envision actually taking your company offshore and headquartering offshore because they're more favorable regulations to cryptocurrencies we're going to move parts of our company offshore but I just love this city and so I don't see us not being in the U.S or being in New York but we'll we will move substantial pieces now recently Sam Altman who's famous for his involvement with uh with artificial intelligence has his own new Bitcoin version I guess not Bitcoin but a cryptocurrency called worldcoin now World coin supposedly uses the the uh retina to identify the user do you think this is the future or you know digital identity is really really important and it hasn't been cracked yet there's lots of ways we can identify people we can buy attestation I know David Rubinstein therefore he's David Rubinstein I can attest to it right through government licensing problem but you have a driver's license right you have a digital version of that Biometrics is a piece it's scary to give up your Biometrics in essence just for free or for to be able to get this coin but it might work right we do it on Bloomberg every time we log into Bloomberg we put our fingerprint down there and and so how we decide how important privacy is and who gets the data and who gets to do what with the data is really important so you think there will be uh this this new uh World coin will take off or it's too early to know you know I think you don't want to bet against Sam Altman right now and so I think the price potentially could go a lot higher because there's an AI hype cycle I don't know if we will all use that as our identity the most common mistake is greed and everyone wants to you know hit the lottery ticket that's just not the way it works so for the average person who doesn't know much about cryptocurrencies but wants to participate in something that he or she thinks is going to be around for a while what do you recommend that they buy the the coin themselves the currency themselves buy your stock uh have somebody like you advise them what should the average person do yeah I think the average person should either stick to Bitcoin ethereum in my stock or do a whole lot of homework themselves or have an advisor it's a you know post-covered with all the free money that the government was giving away there was a casino and everyone was trading these coins and they were trading on momentum and and people made a lot of money and lost a lot of money uh in the long run for things to have value communities need to believe it and there needs to be utility so a couple final questions um if what's the best investment advice you've ever received it probably comes from Paul Jones and he talks about the pain of the game that most great fortunes are made in trend and so you see a big Trend and what happens think about Bitcoin if I had sold Bitcoin when it went from 100 to 200 I doubled my money and I would have been walking around like a rooster and high-fiving all my friends when you're in Trends stay in Trend and we call it the pain of the game I say sometimes you have to handcuff yourself to the chair so you can't hit the sell button what is the most common mistake you see investors making the most common mistake is greed it's you know they have a great return and they want 10x early on in crypto before I had a public company all these wrestling coaches would call me and I'd say hey you should buy this token I always want to know a token to buy and they'd buy a token it would go up and then I would sometimes call them and say hey I'm selling he probably should sell and they wouldn't sell and I was like you asked me what token I'm in the middle of the universe why aren't you listening to me well their friend Joey was telling them not to sell and I was like who the hell's Joey you know and I realized they had made good money but not enough it hadn't changed her life and everyone wants to you know hit the lottery ticket and that's just not the way it works where would you recommend person with a hundred thousand dollars take that money and invest it you know if they were young and had a high risk tolerance I'd be buying Alibaba stock I'd be buying silver gold Bitcoin and ethereum that would be my portfolio if they had a lower risk tolerance I'd say put 30 percent in a portfolio like that and the other 70 percent and you know the bonds and maybe an index fund you've obviously done quite well in the uh cryptocurrency world is there another world Beyond cryptocurrencies you're looking at something that's going to be the next great thing or not yet um you know biotech fascism fascinates me still uh you know what worries me actually from a societal perspective is we have these technological advances that are happening so fast in health and health care and biotech and Gene editing and yet we have cities like kinshasha where 13 million people don't have electricity uh and so we're hurtling to a world that looks like Blade Runner where this Elite group of people live this life we could never have imagined and they had the masses that are in this teeming soup but I think when I think of it those big changes biotech is still a pretty interesting spot

Channel: David Rubenstein

Views: 62,150

Keywords: Bloomberg

Id: UvyWXO7sFP0

Length: 24min 6sec (1446 seconds)

Published: Wed Aug 09 2023