Mike Novogratz, Galaxy Digital Founder and CEO, sat down with Yahoo Finance's Zack Guzman at Bitcoin Conference 2021 in Miami to discuss the world of cryptocurrency, including the issue of sustainability, the importance of institutional involvement in crypto, meme coins, DeFi, and the future of crypto.

Video Transcript

ZACK GUZMAN: So, we're here with the CEO of Galaxy Digital, Mike Novogratz. Appreciate you taking the time to chat with us.

MIKE NOVOGRATZ: Excited.

ZACK GUZMAN: Bitcoin 2021, very big times down here in Miami. The talk of the town has been all about sustainability. And obviously, Elon Musk keeps talking about it. It's a big thing. How big of an issue is it, really though, when you dig into it?

MIKE NOVOGRATZ: Well, listen. First of all, sustainability is a big issue for the whole planet, not just for the crypto industry or the Bitcoin mining industry. And when we look at it in context, I think our community needs to do something, just like every other community does, traditional banking.

You know, YouTube uses 2 and 1/2 percent of all electricity. That's a crazy statistic. YouTube, we're not going to ban YouTube. YouTube is awesome. I will literally bow down at the altar of YouTube. There's unbelievable utility from it.

There's also unbelievable utility from the Bitcoin blockchain. It cost a lot to mine. It uses a lot of electricity, because it was designed that way. If we want something to secure trillions of dollars of wealth, you don't want a guy with a popgun, right? You want a robust system.

And so, I think it's inherent in the communities-- the community to be responsible to move our industry, like all industries, towards a greener future. And I think you're going to see all kinds of initiatives come out soon.

ZACK GUZMAN: All weekend, I've been hyping you up as the Warren Buffett of crypto, which is ironic, because we all know his take on crypto. But you're involved in so many different areas. I don't know if it's a fair comparison.

MIKE NOVOGRATZ: Well, I am the oldest guy in crypto. And so, maybe, you know, Warren is maybe the oldest guy in traditionally-- well, Charlie Munger.

Listen, we decided at Galaxy that we wanted to be an ecosystem company. And the thesis was, let's take our own money-- and it started as my family office and is now a public company-- our own money and invest in the coolest projects, the cutting edge technologies in coins, you know, in custody solutions. You name it, we're trying to invest in it. And we want to take the understanding we learn and then transmit that to our clients. Our clients from the investment banking division, our asset management division, our sales and trading clients.

And so, what I found is everybody enters a space goes on a similar journey. They start with bitcoin and it's like, whoa, this is pretty cool. You know, they might have different opinions. Is it going to be digital gold or decentralized money?

And then they're like, well, what's that Ethereum thing? And as they go down this path of understanding how this ecosystem lays out, you know, we couldn't have any NFTs without Satoshi Like, a lot of the artists don't think they're Bitcoiners. They are. Everyone is a Bitcoiner in this whole ecosystem, because Satoshi's white paper gave us this brilliant, kind of one sentence take away. It was the first digital signature you couldn't counterfeit.

ZACK GUZMAN: Yeah, it was a spark that kind of lit the whole fire there. And it's an onramp for a lot of different technologies. But you similarly, I guess, have built Galaxy as the onramp for a lot of institutions. And you're also kind of, in the way that this, you know, billion deal, more than $1 billion deal, with BitGo really increases your guys' connections with some of those more established investors.

I mean, talk to me about how that changes the landscape? Because some people might say that we got to 60,000 in Bitcoin or above it because of institutional money coming in. How important is it?

MIKE NOVOGRATZ: Institutional money is wildly important. So, let me give you some numbers. Total crypto market cap, that's Bitcoin and everything else, is about a trillion and a 1/2 dollars. That's 30 basis points of total global wealth. 30 basis points, nothing.

Listen, for that to shift to 2%, 3%, which I'm fundamentally in belief that it will, you need institutions. They own all the money. And so, Bitcoin is still a 95% plus retail dominated ecosystem, maybe a little less, maybe 90%. But as institutions are slowly moving in, they take time. They don't wake up one night and say, uh, buy me three yards of Bitcoin, I mean, unless they're Elon.

Right? They put a little in. They do the same thing everyone else has done on this thing. They put something on the board so they start understanding it more. Then they get more confidence. And what you'll see is you'll see higher prices beget more people entering the market.

ZACK GUZMAN: Yeah, it sounds like we're kind of stuck now in this $35,000 range when it comes to that. And some people might point to the ESG concerns that institutional investors have is maybe a problem to get back to where we were before. I mean, do you see that playing out, or how big of a deal?

MIKE NOVOGRATZ: So, what happens in markets is you get a new group of investors that come in, they get excited, and then they push the market higher. So, if you think about when Paul Tudor Jones bought Bitcoin, and he famously published that paper. I think Bitcoin was about $8,000 or $9,000. A lot of hedge funds got into that zone.

Well, you know, a year later, it's at $60,000. The urge to ring the cash register is such a deep seated human urge that that's what happens. People made a lot of money in something, they sell some. They sell some to buy a house, to buy their girlfriend a ring, to diversify their portfolio so they're not 90% Bitcoin, right?

And so, we see these kind of step function moves, and then we'll see a long period of consolidation. And what happens there, you're turning over, old guys selling, new guys buying, and you're waiting for the new narrative to arrive that brings the next wave of money in. And I think we're in one of those periods right now.

ZACK GUZMAN: When we look beyond Bitcoin to, obviously, there's a lot of enthusiasm in DeFiance, some other chains. I know you guys have invested in a lot of very cool projects. TARA is one that we've discussed to you before. I mean, how important is that maybe-- I don't want to say it's stealing the attention away from Bitcoin, but maybe the enthusiasm there for what the future looks like in attracting capital?

MIKE NOVOGRATZ: Listen, I'm one of-- the way markets work is when energy pushes them up, they-- supply responses happen. What happened in 2017 is everyone thought everything was Bitcoin. Litecoin was the poor man's Bitcoin, right? Ethereum was the better Bitcoin. Floyd Mayweather coin was the boxing Bitcoin.

And so, you had this giant supply response, which collapsed prices. This time around, we've learned some, but not enough, right? You can differentiate the type coins, right? There are store value coins. I put Bitcoin in that thing. But I'd also Litecoin and Dogecoin, and I think those things pull away from Bitcoin.

ZACK GUZMAN: Yeah, and I mean, a Dogecoin, I guess, is a good example to speak to that too, because you can debate what the value of Dogecoin might be, but you can't argue against the satire of it all to really point at the industry and say--

MIKE NOVOGRATZ: They've created a community. They have a brand. That community is proving to be more resilient than I would have thought, who keep buying in. You know, there are eight billion people on Earth.

There are-- I don't know-- six or something that got a cell phone. Like, the world is connected. You don't need that many people to have a monster community, as a percent of the people out there. And so, what we're seeing is lots of different ways where wealth or value has now kept.

Like, baseball cards, I talk about all the time, or basketball cards. The valuations of those have skyrocketed. And so, there's a community of people that say, hey, this is where I'm going to store a lot of my value.

ZACK GUZMAN: All of those things aside too, I mean, let's be real. Bitcoin is the one that attracts all the attention when it comes to big money. And we've talked about the SEC waiting on a Bitcoin ETF application and what that might do. Galaxy Digital, obviously, one of those applications on the desk right now. How big is that though in maybe retriggering some money coming into the space?

MIKE NOVOGRATZ: Yeah, it's big. Listen, I've always seen my job as trying to get people into the tent, right? And you know, some young people that got in the tent really easily. They set up their own wallet. They bought a treasure, originally, you know. They got a Coinbase account.

The big wealth in America is 50 to 80-year-olds. They typically work through RIAs, right, registered investment advisors. They're slower to buy in. That trend has started.

The ETF just makes it easier. And so, yes, if we had an ETF tomorrow, the price would go higher. In the long run, things like our funds, the ETF, might not even be necessary because we'll all get used to keeping things on our own digital wallet, right? But it's a transition period.

ZACK GUZMAN: For you, I mean, when you look out at it, maybe the younger investors, who might be more savvy, who are really into DeFi right now, who understand how these DeFi protocols work. I mean, you guys have invested in kind of both fronts, right? You can talk about BlockFi and being a centralized place where you can earn yield on your Bitcoin and other cryptocurrencies, or some more interesting DeFi applications, like TARA, that are building these things out. How do you look at the regulations around that, though, because you know, some follow KYC rules, and--

MIKE NOVOGRATZ: Yeah, listen, I think--

ZACK GUZMAN: --protocols.

MIKE NOVOGRATZ: So, we-- we invested a lot of these protocols, yeah, but we don't use them ourselves because of the KYC issue. And it's a really simple. You've got to know your customer. And so, if I'm acting against the smart contract, how do I know who's on the other side of that smart contract?

One argument you make is, does it matter? It's a smart contract. You know, the more conservative argument is, I got to do the best I can to find out who's on the other side.

There are lots of smart people. I mean, when I say lots, lots trying to solve this, right? Think about the blue check. I don't care who you are as long as you got a blue check. And I would bet within 12 months, this gets solved.

Then I think DeFi is going to really explode because think about it, there's no one else to regulate. It's just code. And so, the regulators can regulate who uses it, but they can't regulate the code. And so, I actually think one of the big surprises of the next five years is just how fast DeFi takes off.

ZACK GUZMAN: I would be remissed if I didn't ask some of the risks that we've seen. And I know it's a Bitcoin conference and not a lot of people are very excited to talk about risks. But there is one that stood out to me.

When we think about Tether and the way that that's always been weirdly something that people return to, because there is a bit of a trust thing there, where they had said, you know, it's one-to-one on the dollar. And they publish what they have there and the assets. It's big in terms of maybe the financial risk of trusting that you have something like that, a stable point of--

MIKE NOVOGRATZ: You know, Tether is a non-bank bank, if you think about it, right? They take in deposits. They now invest. And they used to say, we only investment them in dollars. Now, they're like, well, we mostly invest them in dollars. We have some Bitcoin. We have some other credit-- you know, credit yielding investments.

So, they're trying to get a portfolio return versus their zero interest rate deposits. They have convinced 80 billion people-- or $80 billion that they're trustworthy. And if they manage that portfolio well, they'll be fine. If they screw it up, they will be fine.

And I don't think that's systemic to our system anymore. It might have been in the past, but it's not. Well, A, they've been through the scrutiny, so now people know what they're betting on, right? There's no more lying. Oh, it's back one for one.

It's, this is our portfolio. They publish a version of it. It's not audited, but they've convinced huge amounts of people to trust them.

So, listen, it would be bad. Certainly for the Tether owners and for the Tether community, if one day there was a run on the bank, and they were like, oops, sorry. We don't have as much money as we said we did.

ZACK GUZMAN: But that seems like it would be a bigger issue, not just for Tether, but for the entire crypto space--

MIKE NOVOGRATZ: Well--

ZACK GUZMAN: --if it's the fourth largest--

MIKE NOVOGRATZ: It's going to be an issue in terms of regulators wanting to have some understanding. As these systems get bigger and bigger, they want to understand what the systemic risks are. I mean, if you think about even the big credit companies, Celsius and BlockFi, they take in deposits, and they lend them out with a lot of leverage. So, if I was the head of the SEC, first thing I'd say is, that feels like a non-bank bank that needs some oversight.

Listen, I don't think regulation is terrible.

ZACK GUZMAN: No.

MIKE NOVOGRATZ: I think we need good regulation. Gary Gensler is a smart guy. I trust that he's going to come out with smart regulation. If he doesn't, I'll drive up to Boston and headbutt the guy. But you know, I've known him a long time. He is very smart.

And so, and he's not going to be swayed, I think, by-- because the other side, right? Who's to lose in DeFi? The banks. They are going to lobby like crazy. Less against Bitcoin, but more against DeFi.

But Bitcoin is the Trojan horse to get everything in. And so, you know, it's not going to-- revolutions don't happen with a little bloodshed, right? There's got to be a little bit of someone's losing when someone's winning.

ZACK GUZMAN: It's been fascinating to watch too. And you're kind of in the in-between between these two worlds here as the man who's bringing a lot of people on. But Mike Novogratz, love chatting with you, man. We've got to continue this conversation.

MIKE NOVOGRATZ: Thanks so much.

ZACK GUZMAN: Have fun here in Miami.

MIKE NOVOGRATZ: I'm going to try.

ZACK GUZMAN: All right.

MIKE NOVOGRATZ: I'm having too much fun.

ZACK GUZMAN: [LAUGHS]