Podcast Notes | Conversation with Galaxy Founder Mike Novogratz: Where Is the Crypto Market Headed Next?
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Podcast Notes | Conversation with Galaxy Founder Mike Novogratz: Where Is the Crypto Market Headed Next?
Alex and Mike explore the intersection of finance, technology, and regulatory environments from a unique perspective—areas that will shape the future of digital assets.
Navigating Web3 tides with focused insightsCompiled & Translated: TechFlow
Host: Alex Thorn, Head of Firmwide Research at Galaxy Digital
Guest: Mike Novogratz, Founder and CEO of Galaxy Digital
Podcast Source: Galaxy Brains
Original Title: Where Crypto Goes Next with Mike Novogratz
Release Date: May 17, 2024
Key Takeaways
In this episode of Galaxy Brains, Alex Thorn sits down with Galaxy Digital’s Founder and CEO Mike Novogratz to discuss the latest developments in the crypto market. Shortly after Galaxy’s Q1 earnings call, the conversation dives into the performance across various divisions within Galaxy, including record-breaking achievements in mining and asset management. Mike shares his views on broader market dynamics, such as the impact of ETF approvals and his outlook for Bitcoin’s trajectory amid volatile market conditions. Alex and Mike explore the intersection of finance, technology, and regulation—key areas shaping the future of digital assets—with unique insights.
Summary
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Alex noted that Bitcoin rebounded last week, while inflation data came in lower than expected, prompting a positive market reaction.
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The discussion covered Galaxy’s Q1 earnings, cryptocurrency adoption, Bitcoin, macroeconomic trends, Japan's economy, and political issues.
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Mike said Galaxy had a strong first quarter, generating $400 million in revenue. Mining achieved its best quarter on record, while asset management and trading also delivered solid results.
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Cryptocurrency is gaining increasing importance in U.S. politics and can no longer be ignored.
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Mike expressed confidence that despite potential short-term price fluctuations, more institutional participation in crypto is likely over the next 12 to 24 months. He believes Bitcoin’s next move could be upward, especially if the Fed cuts rates closer to the election.
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Mike believes crypto is a narrative-driven industry that requires real-world use cases and proof-of-concept to grow. Over the past six to nine months, institutional confidence has significantly increased following ETF approvals. The Bitcoin halving narrative has also positively influenced the market.
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Alex highlighted the growing political significance of crypto in the U.S., particularly among swing-state voters. A Harris Poll conducted by DCG and the Blockchain Association found that over 20% of voters in five key swing states—such as Ohio, Michigan, and Arizona—view crypto as a critical issue. This shows broad voter interest across party lines, with no clear partisan divide between Republican and Democratic supporters.
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Mike and Alex both believe that in today’s dollar-based financial system, the crypto market resembles commodity sectors like oil, where revenues and activity levels depend heavily on underlying price movements.
Federal Reserve Money Printing
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Mike is deeply concerned about national debt and fiscal policy. He identifies two major issues: crypto regulation and the national debt. If the U.S. government—whether under Biden or Trump—were to successfully address the federal budget deficit (currently around 20% of GDP, though he mistakenly said 26%) it would be negative for Bitcoin. Thus, poor policymaking and excessive spending in Washington actually benefit Bitcoin.
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Both Bitcoin and gold are rising for the same reason—economic uncertainty. Bitcoin rises faster because it’s a new technology and a new commodity with a quicker adoption cycle.
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Despite net outflows from gold ETFs this year, physical gold prices continue to rise. Individuals have purchased $200 billion worth of gold, including large buyers like Costco.
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Mike said foreign central banks are buying gold at a record pace, especially China. Partly due to U.S. sanctions on Russia after the Ukraine war, other nations fear their dollar reserves could be frozen, leading them to increase gold holdings.
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Alex also noted that despite outflows from gold ETFs, demand for physical gold remains strong, driven by both individual investors and foreign central banks.
On the U.S. Dollar
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Alex believes younger generations increasingly view Bitcoin—not gold—as a hedge against the U.S. dollar. They value Bitcoin’s growth potential, and its adoption is outpacing gold, especially during times of economic uncertainty.
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Mike said while the dollar is stronger than other currencies, it’s beginning to weaken slightly. There is a lack of coordination between U.S. fiscal and monetary policy, creating an illusion of stability in fixed-income markets. Treasury Secretary Janet Yellen has been criticized as the worst Treasury Secretary in history for supporting massive deficit spending without implementing offsetting cuts.
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Mike believes the yield curve and market stability are artificially maintained. Yellen, through implicit yield curve control, works with Fed Chair Powell to create a false sense of stability in bond markets. The release valve appears in rising gold and silver prices—which bodes well for Bitcoin. Moreover, every stock market dip becomes a buying opportunity, as these policies will result in nominal growth exceeding inflation, masking the true burden of debt.
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Mike advocates long-term asset allocation. In the current policy environment, hard assets like equities, real estate, Bitcoin, silver, and gold offer enduring investment value.
Debt Issues
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Alex pointed out the struggles of America’s middle and working classes. Middle- and working-class Americans are suffering economically because they lack sufficient income to invest in assets like real estate.
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Mike warns that according to conservative estimates from the Congressional Budget Office (CBO), the U.S. debt-to-GDP ratio could reach 250% within 20 years—an unsustainable path. The next Treasury Secretary will face the most important challenge: addressing the deficit, or else the country risks falling into a vicious cycle.
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Mike hopes Bitcoin grows slowly and steadily, rather than skyrocketing to $1 million overnight, which would signal societal collapse.
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He cites countries like Nigeria and Turkey, whose irresponsible monetary and fiscal policies have led to crisis, highlighting global instability.
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Alex warns that failure to control the debt could lead to hyperinflation or other severe economic problems, ultimately resulting in societal collapse.
Trump’s Candidacy
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Mike believes that if Trump wins again, he’ll attempt to exert greater control over the Federal Reserve—a troubling prospect. Trump is complex: his personal ethics deepen social divisions, and his policies lack consistency. For example, he might claim he’ll deport 20 million immigrants but only end up deporting 2 million. Such policies could fuel inflation due to labor shortages.
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Mike notes that although Trump was not friendly toward crypto during his presidency, he now sees it as a political tool to counter Democrats. On the same day President Biden stated he would veto SAB 121, Trump announced his support for crypto to attract voters. Nevertheless, crypto needs bipartisan support to thrive in the U.S.
Senators and Legislative Impact
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Mike believes crypto should be a bipartisan issue, but currently, figures like Senator Elizabeth Warren wield significant influence, causing parts of the Democratic Party to oppose crypto. Warren holds substantial sway in the space.
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He also highlights crypto’s dual appeal: it resonates with libertarians due to its emphasis on free choice, and with progressives because it eliminates intermediaries and promotes fairness.
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Mike discussed SAB 121, an accounting rule affecting public companies holding crypto, requiring them to report those holdings on their balance sheets. This impacts banks more than crypto firms, as it would dramatically inflate bank balance sheets. If Democrats refuse to repeal SAB 121, it’s akin to saying they dislike crypto—just like disliking dogs—a serious misstep. There are many single-issue crypto voters in the U.S., especially young people. If Democrats continue opposing crypto, these voters may shift allegiance.
Japan’s Economy
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Mike began by discussing Japan’s economic situation. Japan faces aging demographics and low birth rates, is culturally conservative and resistant to immigration. It’s the world’s largest saver, and its economy has been deflationary for years—until recently experiencing mild inflation, which has stimulated some activity. With higher U.S. interest rates, Japan hopes the Fed will cut rates to ease pressure on its economy.
Bitcoin and ETFs
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Mike points out that Bitcoin still delivers excellent risk-adjusted returns, second only to Nvidia and European equities. Despite the absence of a traditional “Bitcoin, Ethereum, altcoin” cycle, Bitcoin continues attracting investors as “digital gold,” performing well in the current macro environment.
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He highlights new market trends: the launch of ETFs and access through wealth management channels are accelerating Bitcoin adoption. The concept of Bitcoin as digital gold is now widely accepted, and wealth managers are beginning to recommend Bitcoin to clients. With potential approval of Ethereum ETFs, other crypto assets could gain broader recognition and investment.
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Consider how detrimental it would have been if the Bitcoin ETF had been rejected on January 11, contrary to market expectations. In contrast, the market currently assumes Ethereum ETFs won’t be approved, so the risk-reward leans toward upside.
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Mike believes Bitcoin is currently trading between $73,000 and $57,000. Market volatility is low, and many investors have sold call options. If positive news emerges—such as a Fed rate cut—Bitcoin could break above $73,000 and experience parabolic growth. Because prices are marginal, only small capital inflows are needed to drive large moves. If upcoming inflation data (CPI and PCE) decline alongside weaker employment figures, the Fed may cut rates in July, boosting Bitcoin.
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Mike believes most new ETF buyers are not short-term speculators. They’re first- or second-time Bitcoin buyers who typically don’t sell within a week. Usually, options markets emerge one to two weeks after a product launch, but Bitcoin ETFs currently lack options due to SEC restrictions. Once options become available, they’ll attract retail investors and significantly boost market activity and volume.
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Mike mentioned the trading volumes of MicroStrategy and Marathon, which exceed the combined volume of all Bitcoin ETFs. This is largely due to their established options markets, attracting short-term and day traders. MicroStrategy’s Michael Saylor capitalized on market momentum by issuing stock to buy Bitcoin, increasing both share volatility and trading volume. However, Saylor has been selling shares daily over recent months, which may concern investors—though market trust in him remains strong. MicroStrategy currently trades at a premium to Bitcoin, but this premium may narrow over time and could even turn negative.
SEC
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Mike expressed frustration over the limited crypto investment opportunities in the U.S., primarily due to the SEC blocking many crypto companies from going public. Firms like Bullish and eToro are awaiting approval, but SEC restrictions severely limit investor access.
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Mike also discussed mining companies and stock dilution. Many miners raise capital by selling shares to purchase equipment. These stocks trade at premiums to book value because they’re seen as momentum plays. CEOs of Riot, CleanSpark, and Marathon have skillfully used these premiums to sell shares and acquire more equipment.
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Mike questioned the SEC’s approval of stocks like Truth Social—linked to Trump—which have no real revenue yet command high valuations. He believes this harms retail investors.
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Mike also discussed whether meme stocks will persist long-term. While speculative, he believes they possess unique appeal and skill elements and may remain a lasting phenomenon.
Roaring Kitty and GameStop
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Mike recalled Roaring Kitty (Keith Gill) and the GameStop frenzy three years ago. A single image posted from his basement triggered a three-day mania, pushing GameStop’s market cap to $17 billion. Mike praised Roaring Kitty for beating the system.
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Mike mentioned the film *Dumb Money*, which dramatizes the GameStop event, capturing both its authenticity and entertainment value.
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Mike is concerned that many people bought GameStop stock at peak prices and suffered heavy losses, even though early buyers profited.
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Mike believes low interest rates and massive government stimulus fueled the rise of crypto and meme stocks—an era of financial nihilism.
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Mike sharply criticized the current government for exploiting younger generations, citing Scott Galloway’s TED Talk on how youth struggle with stagnant incomes, rising education costs, and unaffordable housing—fueling widespread anger.
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