Forbes Interview with Galaxy Founder: Traditional Finance Will Drive the Next Wave of Bitcoin
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Forbes Interview with Galaxy Founder: Traditional Finance Will Drive the Next Wave of Bitcoin
The influx of capital from traditional finance represents the next phase of Bitcoin's development and is expected to become a significant catalyst for its continued growth.
Navigating Web3 tides with focused insightsBy Maneet Ahuja, Forbes Staff
Translated by Luffy, Foresight News
Long before cryptocurrency became popular, Mike Novogratz, founder and CEO of Galaxy Digital, was already a recognized Wall Street veteran. Novogratz began his decade-long investment career at Goldman Sachs in 1989, becoming a partner while the firm was still privately held. Later, Novogratz led Fortress Investment Group, a macro-focused hedge fund and private equity firm, before returning to Goldman Sachs as its president.
Novogratz now leads Galaxy Digital, an investment and merchant banking firm focused on digital assets, and is one of crypto’s most vocal early adopters and staunch supporters. As of late January 2024, Galaxy managed $6 billion in assets, and as the company’s largest shareholder, Novogratz holds a stake worth approximately $2 billion. Novogratz hasn’t always been right—he was a major backer of Luna, the token associated with the algorithmic stablecoin Terra USD, which collapsed disastrously in 2022, wiping out around $50 billion in market value in less than a week. Novogratz was so enamored with Luna that he even got its logo tattooed on his arm.
In response to the turmoil caused by the 2022 collapse of FTX, Galaxy and other firms are seeking to expand the use cases for crypto assets. Last month, the U.S. Securities and Exchange Commission (SEC) approved applications for 10 spot Bitcoin exchange-traded funds (ETFs) listed in the United States—widely seen as a watershed moment for the broader crypto industry.
The following interview was conducted recently at the iConnections Global Alts Summit in Miami.
—Maneet Ahuja
Mike Novogratz, CEO of Galaxy Digital, Source: Bloomberg
Forbes: Mike, there’s been a lot of change since this time last year. Can you give us a comprehensive view from both macroeconomic and crypto-industry perspectives about where we stand today?
Mike Novogratz: In crypto, we saw a major shift in 2021 when the Federal Reserve changed course and began aggressively raising interest rates. Typically, one might expect hard assets like crypto and gold to decline under such conditions. But due to widespread fraud and misconduct within the industry—especially involving entities like Celsius—the downturn was exacerbated, casting a shadow of pessimism over crypto’s future. These factors eroded foundational confidence in the crypto market, leading to classic capitulation and extremely negative sentiment. Yet despite prevailing pessimism, moments of extreme despair often conceal lucrative buying opportunities. For example, in hindsight, Bitcoin hitting $7,000 in 2018 proved to be an excellent entry point for savvy investors. Now, as the Fed signals a pivot toward a rate-cutting cycle, the tide is turning again. Additionally, major developments such as Grayscale’s legal battle with the SEC and endorsements from influential figures like Larry Fink, one of the world’s most powerful asset managers, have helped restore confidence in the industry.
Then, concerns surrounding major exchanges like Binance were resolved, helping alleviate systemic risk and paving the way for a more stable environment. Looking ahead, although regulatory uncertainty remains, bipartisan consensus on legislative initiatives—except for a few outliers like Elizabeth Warren—suggests that a regulatory framework is imminent. Combined with the recent launch of crypto ETFs and the Fed’s anticipated rate cuts, this lays the foundation for increased institutional adoption. It’s very exciting.
Forbes: Last year, we saw Bitcoin rise 150%. Part of that rally stemmed from limited supply in circulation—over 70% of Bitcoin in existence isn’t changing hands. Why is that?
Mike Novogratz: I think you have to go back to Satoshi Nakamoto, the creator of Bitcoin, and the original white paper and code. Bitcoin’s anonymous creator initially wrote the cryptocurrency white paper in response to growing concerns about centralized financial systems.
The essence of the Nakamoto white paper lies in its vision of decentralization—a stark contrast to the monetary policies pursued by successive U.S. presidents. Under both Donald Trump and Joe Biden, government spending surged, particularly evident during Trump’s pre-pandemic spending spree. The federal government now consumes about 25% of GDP—an unprecedented normalization of excessive spending that marks a significant departure from historical norms. Reflecting on my time at the Office of Management and Budget during the Reagan administration, I recall adherence to fiscal rules, including targets for 20% government spending and taxation. Today, however, government spending exceeds 25% of GDP while tax revenues lag, resulting in ballooning budget deficits.
Despite America’s pressing fiscal crisis, there appears to be little political will to address it. Calls for measures like Simpson-Bowles-style commissions aimed at tackling budget deficits and restoring fiscal responsibility seem to have been shelved. This neglect of fiscal discipline poses an urgent challenge requiring policymakers’ attention and action. I believe addressing the swelling budget deficit and restoring fiscal balance must become a top priority on the political agenda. Failure to do so risks exacerbating the fiscal crisis, undermining economic stability, and harming the well-being of future generations.
Forbes: Why aren’t these issues on the agenda?
Mike Novogratz: We’ve experienced a prolonged period of low interest rates and seemingly abundant money supply—echoing principles advocated by Modern Monetary Theory. This era of seemingly endless liquidity appeared to function well, with low inflation and sustained economic growth. However, what’s often overlooked is the devastating impact of inflation on ordinary Americans. While attendees at conferences like this may have the means to withstand inflationary pressures, the reality for many Americans is vastly different. Over the past decade, we’ve witnessed a significant rise in the cost of living, especially in housing prices. For instance, the average home price was $289,000 in 2010; by 2024, it has soared to $400,000—nearly doubling in just ten years. Imagine being a young college graduate today, realizing your salary as a Goldman Sachs analyst hasn’t doubled, let alone wages for blue-collar or other typical white-collar jobs.
The rapid inflation of assets and goods has left many Americans feeling economically disenfranchised, fueling the rise of populism in recent years. There’s a strong perception that everything is stacked against them, along with deep skepticism toward institutions in Washington D.C. and elite circles. As we face this round of economic challenges, prospects for solutions appear daunting. While some may hope for revolutionary technological breakthroughs—such as widespread AI adoption driving unprecedented productivity gains—the likelihood of such outcomes remains uncertain.
Forbes: Let’s talk about Bitcoin and its role as a store of value. We now have newly launched spot Bitcoin ETFs, including one from your company. What kind of demand do you see for these products?
Mike Novogratz: The reality is that Bitcoin adoption has undergone a generational shift—millennials and younger generations view it as a tool to rebalance the economic scale inherited from baby boomers. As registered investment advisors (RIAs) cater to this demographic shift, the emergence of ETFs tailored to their preferences marks a significant milestone toward mainstream adoption of Bitcoin.
While some may argue Bitcoin’s value is merely social construct, it's important to recognize its significance as a store of value akin to gold. Despite skepticism from traditional investors like Ray Dalio, the growing acceptance of Bitcoin among RIAs and retail investors indicates its enduring relevance in the financial landscape.
Looking ahead, I expect gradual but steady increases in Bitcoin allocations within investment portfolios as RIAs recognize its potential for diversification and wealth preservation. The influx of capital from traditional finance represents the next phase of Bitcoin’s evolution and is poised to serve as a major catalyst for its continued growth.
Forbes: Let’s discuss outflows—what are you seeing, including what happened with Grayscale?
Mike Novogratz: Grayscale’s Bitcoin product faced scrutiny and criticism from the SEC due to high fees and structural flaws, causing investors to suffer losses when the fund traded at a premium. As arbitrage opportunities diminished, investors shifted toward ETFs offered by industry giants like Invesco, BlackRock, and Fidelity, attracted by lower fees and greater transparency. This shift underscores the importance of trust and cost-efficiency in investment choices, leaving Grayscale’s product less appealing.
Forbes: It’s a competitive market—you said there will be two or three winners. You mentioned BlackRock—who else?
Mike Novogratz: We’ve launched our own initiative with Invesco, but adoption has been slower than expected. We remain optimistic that over the next six months—with access to platforms like Salesforce and approvals from institutions like Morgan Stanley—we’ll see meaningful progress. BlackRock and Fidelity are also well-positioned to join the space.
It’s worth noting that while these businesses are crucial for asset gathering, they aren’t highly profitable due to low fees. Nonetheless, they represent excellent products with immense potential in scalability and brand recognition.
Forbes: Do you think the new ETFs will drive more retail demand? Which regions do you expect to see strongest growth in the next 12 months?
Mike Novogratz: Yes. ETFs, as stock-like products, not only offer more capital-efficient trading options but also open doors to leverage. We expect institutions to gradually enter the market—starting with IRAs, then expanding into pension funds and endowments. Crypto’s integration into finance is inevitable, and upcoming legislation expected within the next 18 months will further encourage investment.
Politically, bipartisan support for crypto legislation—evident in dialogues with figures like Hakeem Jeffries and Tom Emmer—indicates broader acceptance of digital assets. This regulatory clarity will encourage more investors to enter the market.
While growth may not be as explosive as in previous cycles, we’re observing steady increases in capital and clients across asset management. Over the next 12 months, as awareness of crypto’s long-term potential grows, we anticipate significant growth in retail demand.
Forbes: Do you think the SEC will approve an Ethereum ETF next? What about the outcome of the Coinbase lawsuit?
Mike Novogratz: Recent legal disputes over Bitcoin ETFs highlighted inconsistencies in the SEC’s approach to regulating crypto assets. Courts criticized the SEC for rejecting spot Bitcoin ETFs while allowing Bitcoin futures ETFs, pointing out illogical reasoning behind the decision.
Moreover, the current political climate—characterized by a Supreme Court leaning conservative—is resisting excessive government expansion. This sentiment extends to regulatory actions by the SEC, which are facing scrutiny for allegedly overstepping authority.
Looking ahead, regardless of the political affiliation of the next SEC chair, many lawsuits initiated during Gensler’s tenure are likely to be dropped. This reflects a growing recognition of crypto’s inevitable integration into the financial system.
However, regulatory uncertainty around whether digital assets are classified as securities or commodities remains a major challenge. The outdated Howey Test, designed for traditional securities, fails to adequately address the complexities of blockchain-based technologies. This ambiguity not only hinders industry development but also imposes financial burdens on companies navigating the regulatory landscape. There’s an urgent need for Congress and the White House to establish clear guidelines to provide certainty and foster innovation within the industry.
Forbes: On that note, you’ve said you’d move much of your business overseas due to regulatory challenges in the U.S. Can you discuss what you plan to do while waiting for the regulatory environment to stabilize?
Mike Novogratz: Regulatory uncertainty plaguing the crypto industry is deeply frustrating—especially for conservative firms like ours that prioritize compliance. While some companies may take a more rebellious stance, we understand the importance of adhering to regulatory standards to protect clients and maintain integrity.
Yet, this commitment to compliance comes at a considerable cost, further amplified by unclear regulatory guidance. This uncertainty forces us to allocate substantial resources to legal and accounting expenses, weakening our ability to innovate and compete effectively.
Particularly concerning is New York’s regulatory environment, where stringent requirements add extra complexity and cost for crypto businesses. This additional burden further impedes our ability to thrive and stifles growth across the industry.
Ultimately, we urgently need clear, comprehensive regulatory frameworks at both federal and state levels to create a level playing field and enable sustainable growth within the industry. Only then can we fully realize the potential of American crypto innovation and ensure its continued success on the global stage.
Forbes: Finally, circling back to macroeconomic outlook—what are your thoughts on a soft landing? What’s your view on 2024?
Mike Novogratz: Discussions around potential Fed rate cuts amid easing inflation warrant a closer look at the broader economic landscape. Although speculation about March rate cuts persists, current data doesn’t definitively support them, indicating some uncertainty regarding the timing and necessity of monetary policy adjustments.
The underlying resilience of the economy can be attributed to several factors. First, unprecedented levels of government spending—particularly on infrastructure—provide massive stimulus largely unaffected by interest rate fluctuations. Ongoing injections of capital into the economy help boost growth, offsetting potential headwinds from monetary tightening.
Additionally, certain sectors like housing and automobiles continue to perform strongly despite broader economic challenges. A persistent shortage of housing units combined with robust demand keeps construction active, contributing to overall economic activity. Similarly, the auto industry’s ability to withstand labor strikes and maintain production levels highlights its importance as a major job creator and economic driver.
Notably, while these sectors remain resilient, concerns linger about the overall pace of economic growth and the persistence of inflationary pressures. The Fed’s decision-making process may hinge on a nuanced assessment of these divergent factors, focusing on maintaining price stability and supporting sustainable economic expansion.
Forbes: Can you comment on the current political landscape and your views on the 2024 election?
Mike Novogratz: Over the past 35 years, the U.S. debt-to-GDP ratio has surged from 50% to 125%, and is projected to reach a staggering 250%. Moreover, America has undergone profound social changes—the average American now weighs 35 pounds more, and life expectancy is declining for the first time in history.
Clearly, the baby boomer generation, which has dominated politics for decades, has failed to address critical issues, leaving behind a legacy of economic disparity and social challenges. When they came to power, 16% of elderly Americans lived below the poverty line; today, that figure stands at a shocking 70% for American children. This disparity underscores intergenerational injustice stemming from prioritizing short-term gains over long-term sustainability.
It’s time for a leadership change—moving away from entrenched politicians like Nancy Pelosi, Mitch McConnell, and Chuck Schumer. We need fresh faces with new perspectives, individuals like Dean Phillips who prioritize the greater good over personal interests. The current political stalemate and dysfunction on the global stage demand a new approach—one that transcends the divisive rhetoric of both Trump and Biden.
While the outcome of the upcoming election remains uncertain, it’s clear that our political landscape needs a dramatic transformation. Whether through new leadership or renewed commitment to reform, we must break from the status quo and forge a path toward a brighter future for all Americans.
Forbes: Thank you.
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