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Bubbles Always Surround Things that Fundamentally Change Our Lives

Updated: Oct 5, 2018


Michael Novogratz (left), Founder & CEO of Galaxy Digital, with Bianca Chen (right)

As cryptocurrencies and blockchain continue to develop and become more popular investments, it’s important to understand how and why to invest. There is money to be made from them once people learn to trust this new organization. It’s the new revolution. Let’s break it down.


Mike Novogratz is the CEO of Galaxy Investment Partners, a cryptocurrency investment firm based in New York City, and the biggest of its kind on Wall Street. He launched the firm in November 2017. Novogratz began his career at Goldman Sachs and has almost 30 years of experience in the industry. From 1992 to 1999, Novogratz lived in Asia as a salesman for Goldman Sachs in Tokyo, and then in Hong Kong. He later became the head of fixed income, currencies, and commodities risk in Asia. He was ranked a billionaire by Forbes in 2007 and 2008, and he revealed in 2017 that 20% of his net worth was in cryptocurrencies, from which he has made over $250 million. And despite recent losses, Novogratz remains confident in the ability to drive growth.


Here, Novogratz and Bianca discuss his buying strategy, how blockchain could reshape the financial industry, and how the bubble of Bitcoin compares to the invention of the railroad.


BIANCA: When you heard about bitcoin in 2012, what did you do?


MIKE: I bought it. I bought a lot. When you buy something at a hundred dollars in bitcoin, and it goes to $20,000, you don't have to be that smart to make a lot of money. Part of it was buying at good levels. I bought Etheruem [at] about a dollar. I bought bitcoin at 100 dollars. And then I was using the same skills that I had developed over 25 years on Wall Street as a trader--when things got too crazy prices I would sell them; when they would sell back off, I would buy. We diversified our portfolio into not just crypto, but to other coins that we thought we could get a good value to parts of the ecosystem. And so now there's a portfolio of probably 45 different investments. But I fundamentally always believe that this is a technological revolution and it's an economic revolution.


BIANCA: In an interview, you mentioned bitcoin will be the biggest bubble ever. If you thought so, why did you jump in?


MIKE: You can make a lot of money by riding bubbles. If you had thought about being a technology investor in 1994 by late 1999, you'd make a fortune. To understand Bubbles: bubbles have been around things that fundamentally change how we live our lives. The Internet bubble was all about the promise of the Internet. And oh my goodness the Internet delivered on that promise. Everything about life is different because of the Internet. The railroad bubble--the railroads changed the way we live our lives. And so bubbles have run stories that are easily told and around technologies that really are earth-changing. And I think blockchain will be that.


It was the people's revolution. They bought bitcoin, and they started buying into a frenzy, and then that popped. It popped for a couple of reasons: because buying pressure was a bit over, but also because regulators decided "we'd better start regulating." They were behind. They were worried that the little guy was going to get taken advantage of. There was lots of fraud coming into the system. And so I think rightly so, the regulators came in at the end of last year and said stop. And the bubble popped. Now we're rebasing, and lots of new money is coming into the space. We have this march of institutional money that is going to come in this space. And just like the retail, they're going to be different investors. They'll be a little more discerning.


But you'll have an institutional FOMO (fear of missing out) that brings lots of institutional money in. And once again, the prices will get pushed to levels that maybe don't make as much sense in the short run. Unlike the Internet bubble, which had one big pop, and then slowly ground back up. I think the cycle changes will be much quicker here. But I think that the direction is from the lower left to the upper right.


BIANCA: Do you think Blockchain can reshape the financial industry?


MIKE: Yes I do. I do I do. I think there's tons of applications, even private blockchain applications, that will make the financial system more efficient. Think of something as simple as foreign exchange trades and interbank that should be on a blockchain. You just got to get condensed to 25 or 30 banks that trust each other. And that makes sentiments much more efficient.


BIANCA: Blockchain is about decentralization and disruption. But mostly financial organizations in the ecosystem are very centralized--exchanges, hedge funds, also Galaxy. Do you think Galaxy can be decentralized?


MIKE: I look at it differently. I think our role to play in the decentralized economy is a little bit more centralized. That doesn't dismiss the whole movement by any stretch. It means that it's more effective for us to do things this way. Why we need Goldman Sachs to custody is to get the next level of people to trust the system. So you've got to bring in the Goldman Sachs, the JP Morgans, so people feel comfortable. As they get used to trusting this whole new system, they will need it. We don't have a blockchain that works yet. Fast enough to do anything on. So how can I tell you? Put all your personal data on the blockchain because it's going to be safe before we even have it? First, we need to get a blockchain that works and process as fast and as safe and doesn't get hacked. And people say OK it is, it does work. It's at that point the decentralized revolution can kind of take off. Right now the decentralized revolution is on paper. It's a beautiful idea. And now we're trying to put it to practice, and unfortunately, practice takes a long time.

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