Interview with Galaxy Digital Founder: How to Navigate Cryptocurrency Market Volatility?
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Interview with Galaxy Digital Founder: How to Navigate Cryptocurrency Market Volatility?
Mike Novogratz believes that recognizing and acknowledging the bubble nature of the crypto market helps effectively manage risks.
Navigating Web3 tides with focused insightsCompiled & Edited: TechFlow
On the June 8, 2023 episode of the 1000x Podcast, Avi Felman and Jonah Van Bourg welcomed Mike Novogratz, founder of Galaxy Digital, to discuss how he developed his market intuition, his approach to macro trading, the current outlook for cryptocurrency, and his favorite trades.
Key highlights from the conversation:
Guest Background
Avi Felman (Host) – Head of Digital Assets Trading at GoldenTree Asset Management
Jonah Van Bourg (Host) – Global Head of Trading at Cumberland
Mike Novogratz (Guest) – CEO of Galaxy Investment Partners
About Mike Novogratz
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Mike Novogratz believes his wrestling background was one of the key factors behind his success, teaching him resilience and mental toughness.
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Novogratz also mentioned that he was fortunate to transition into macro investing, an area where he feels naturally skilled. He describes macro investing as combining an understanding of economic, political, and social trends with market behavior—centered largely on intuition and narrative, areas in which he considers himself naturally gifted.
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Jonah Van Bourg probed further into Novogratz’s macro trading process. Novogratz explained that it is non-linear and involves gathering and processing vast amounts of data from diverse sources.
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Novogratz outlined his personal investment process, which includes pattern recognition, fundamental analysis, political analysis, and informed speculation about market direction. He emphasized the importance of discipline, having a clear set of rules, managing risk, and understanding the potential consequences of losses.
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Novogratz advocates maintaining three notebooks to improve as an investor: one to track needed information, one to document how you process that information, and one to record the rules that best align your portfolio with your views.
Navigating Cryptocurrency Market Volatility
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Avi Felman asked Mike Novogratz about the differences and similarities between crypto trading and other asset classes.
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Mike Novogratz noted that crypto is far more volatile than any other asset he has traded. Operating a heavily long fund in such an unstable environment, he said, resembles gambling. Proper fund sizing and expectation management are critical in crypto trading.
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He added that many crypto funds take on excessive risk. While these high-risk positions can yield substantial returns during bull markets, they can also lead to massive losses. Recognizing and acknowledging the bubble-like nature of crypto markets helps manage risk effectively.
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Drawing from past experience with market cycles, Novogratz said he tends to take profits earlier than younger, less experienced traders. He stressed the importance of securing gains and adjusting position sizes according to market volatility.
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Novogratz advised taking significant risks during unexpected events and shifting cash positions into options when volatility is low. Understanding volatility is crucial in crypto trading, as it directly impacts position sizing. For example, different volatility levels across stocks, currencies, and cryptocurrencies lead to different optimal position sizes.
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Novogratz warned against viewing crypto as a separate asset class or identifying solely as a crypto trader. He believes portfolio management principles apply universally, and a skilled fund manager should apply them consistently across all assets.
Mike Novogratz on Managing Volatility
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Jonah Van Bourg asked Novogratz about his perspective on cryptocurrency and how he navigates its volatility.
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Novogratz responded that the crypto space sells a vision of the future. He believes Bitcoin emerged at a time when trust in centralized institutions like governments and banks was eroding, amid rising populism and soaring debt-to-GDP ratios in the U.S.
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He stated that the trend of government fiscal spending is unlikely to reverse soon and expects it to continue for another 10–15 years. He anticipates significant cyclical swings: Bitcoin rises when interest rates are near zero and falls when rates spike to combat inflation.
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Although he expects institutional investors to eventually enter the space, factors such as bad actor behavior, unclear or stringent U.S. regulation, and high interest rates have dampened enthusiasm. Still, he finds comfort in sustained retail investment and maintains confidence in Bitcoin and Ethereum.
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Novogratz emphasized the need to develop real-world applications to reignite excitement in crypto, especially with competing technologies like AI emerging.
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He also suggested that AI could become an even larger bubble than crypto, as its potential is easier for people to grasp. This perceived potential could fuel a prolonged price bubble in AI markets.
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Novogratz highlighted the importance of cryptographic technology in identity verification, particularly given the rise of deepfakes. He stressed the need to craft compelling narratives around practical crypto use cases to shape its future.
The Future of Crypto
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Avi Felman believes the crypto market needs an accessible product akin to ChatGPT to achieve mass appeal. He sees Bitcoin's store-of-value narrative as central and is constantly searching for the most promising opportunities in the space.
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Mike Novogratz mentioned that Bitcoin and Ethereum form the core of their investments due to their supply-demand dynamics. He advised slowing down venture investments in the last cycle and noted that his firm’s lending business offers a more conservative way to engage with crypto.
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Novogratz sees potential in the gaming industry due to its close ties with crypto and growing interest in Web3 gaming. He pointed to Mythical’s NBA-themed game as an example gaining traction.
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He believes Bitcoin’s sustained rally won’t begin until the Federal Reserve signals a pause in rate hikes, which he estimates will happen around late summer. He attributes ongoing service sector strength to lingering effects of COVID-era stimulus and predicts an eventual economic slowdown.
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Felman and Novogratz agreed that inflation targets may be revised upward post-pandemic. Novogratz said the official goal remains 2% inflation, but there’s a quiet hope that 3% inflation could help reduce national debt.
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Novogratz explained that hard assets should appreciate as fiat currencies depreciate. He cited Bitcoin’s performance during the 2019–2020 pandemic as evidence of its effectiveness as an inflation hedge.
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Novogratz acknowledged that regulatory scrutiny and lack of institutional support pose challenges to Bitcoin’s growth. However, he noted that consistent small retail purchases continue to underpin the crypto market.
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He speculated that Bitcoin and Ethereum could see further reductions in volatility over time.
Position Sizing, Narrative, and the Growing Influence of NFTs
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Avi Felman emphasized the importance of position sizing, noting that losing trades ultimately make room for more attractive ones. He observed that institutions remain hesitant compared to retail investors and expressed curiosity about what drives retail participation and paths to broader adoption.
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Mike Novogratz believes much of crypto adoption will come from outside the U.S., citing Hong Kong’s allowance of crypto purchases through regulated exchanges. He highlighted the popularity of gambling and crypto in Asia and predicted their continued relevance.
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Novogratz underscored the importance of narrative in explaining and promoting crypto, especially when using Bitcoin or other cryptos for savings, which requires trust. He praised Bitcoin’s growth and brand-building over the past 12–13 years and stressed the need to expand narratives for other crypto ecosystems.
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He acknowledged figures like Vitalik Buterin and Joe Lubin as important to Ethereum’s ecosystem but insisted that new voices are needed. Novogratz warned that yesterday’s heroes can become today’s villains, emphasizing the need for fresh perspectives to reinvigorate the market.
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Jonah Van Bourg agreed that narrative drives demand for crypto products—such as block space. He pointed to high demand for Ethereum’s block space as proof of strong underlying demand and robust fundamentals.
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Novogratz noted that Ethereum has outperformed other projects in both CeFi and DeFi worlds, evidenced by MetaMask’s sustained growth and usage. He also emphasized NFTs’ role in explaining and enabling digital private property—a key component of Satoshi’s original vision.
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Novogratz predicted that NFTs will play a pivotal role in connecting consumers with brands and building infrastructure, potentially triggering the next hype cycle in crypto once the space takes off.
Mike Novogratz’s Crypto Journey
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When discussing his journey into the crypto world, Mike Novogratz explained that he founded Galaxy Investment Partners as a new chapter, believing he could help guide others into the crypto ecosystem. He admitted he isn’t skilled in every area and has built a team with diverse expertise to complement his own.
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Avi Felman invited Novogratz to reflect on his trading career and share his favorite trades.
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Novogratz recalled his most memorable trade during the 1997 Asian financial crisis—an event that marked a major turning point in his career, allowing him to place larger bets and accumulate wealth. Another standout was his investment in Ethereum, which he described as a once-in-a-lifetime return.
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Jonah Van Bourg asked how Novogratz resisted the urge to sell his Ethereum holdings during their meteoric rise. Novogratz shared that he sold part of his position during the surge but regretted not holding onto all of his initial purchase. He credited his ability to hold long-term to already being financially secure.
Strategic Profit-Taking in Crypto Markets
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Avi Felman believes regularly taking profits in crypto markets helps avoid catastrophic losses. He acknowledged the difficulty in determining when a trend ends and noted that many investors aim to buy at the bottom and sell at the top.
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Mike Novogratz agreed, stressing that knowing when to exit is challenging, especially given the unpredictability of Federal Reserve decisions. He revealed his company sold over a billion dollars in assets but admitted they could have sold more. He recognized the difficulty of making such calls as a public company.
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Novogratz admitted that if he were running a family office, with less public scrutiny, such decisions would be easier to execute.
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Jonah Van Bourg asked how Novogratz reinvests capital into communities in need. Novogratz recommended allocating a portion of generated wealth back to oneself and the community. He views money as energy, and sharing it creates positive momentum.
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Novogratz observed that giving enriches his life, providing meaningful experiences and learning opportunities. He believes giving is selfish in the best sense—it connects givers with new perspectives and deeper fulfillment.
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