Galaxy Digital Founder & CEO Mike Novogratz joins Yahoo Finance Live to break down why he thinks young investors will spend their stimulus checks on Bitcoin and weigh in on the outlook for cryptocurrency in 2021.
Video Transcript
JULIE HYMAN: Take a look at Bitcoin going up again this morning, it's just under 35,000 at this point. And want to welcome back to the show Mike Novogratz. He's founder and CEO of Galaxy Digital, which has made a big bet on Bitcoin. So Mike, I guess you're sitting pretty this morning as you have been. As we look at what's happened with Bitcoin and there have been-- there's always talk about this, right? When you invest in Bitcoin about volatility, about potential pullbacks, about potential corrections. It hasn't happened this time and since Bitcoin has sort of a lack of correlation with most other assets, how do you figure out what might trigger that sort of correction? How do you prepare for it and defend against it?
MIKE NOVOGRATZ: Yeah. Lately that's the $64,000 question. I-- I got a couple calls when it was at 41,000 from guys I invested with literally six, seven years ago. And they're like, I've been really good at buying it but I haven't good at selling it. Is it time to sell? You know it's interesting, we certainly went parabolic. We had all the markings of a speculative frenzy, right? Volatility spiked to 130-140%, we had lots of call buying, retail leveraged way up, hard to get cash in the system. And so that usually is the mark of a correction, we had a pretty big correction rate from 41 to 30.
What's been interesting is there was a wall of money down buying it at 31. And what I would tell you is the institutions who are coming into this space now, that weren't in the space six months ago, that weren't in the space a year ago, don't have their fill yet. Not even close. We're in the first inning of a nine inning game with insurance companies, with asset managers, with the wealth channel. And so I think dips will be bought. It doesn't mean it's going to explode right to 50,000 right away. Right? There's still a lot of, you know, price to churn, right? If you bought it at 15,000 you made a whole lot of money. You might want to sell it and buy a car, you might want to sell it and buy a house, depending on how much you bought. And so there always are sellers in markets.
But what we're seeing is a transition from retail leverage players into much deeper pockets, much longer holding hands institutions. If you're an insurance company and you buy Bitcoin, you're not buying it for two months. You're buying it as a long duration asset with a four or five year horizon. And so I think we're going to continue to see volatility, I think you're going to continue to see dips bought.
MYLES UDLAND: Mike, I'm guessing you saw that story in "The Times" yesterday about some people lost track of their Bitcoin. And there was a stat in there from-- from a Bitcoin tracking firm that said they suspect 20% of all coins have been lost. No one either, like they don't know how they-- someone has a right to them but they lost the pass key, whatever it is. I'm curious just in your view what that role, if any, that plays in liquidity. If that matters to you at all, sort of the ability--
MIKE NOVOGRATZ: There were only 21 million Bitcoin that will ever, ever exist and our estimate is 3 million were lost. And how did they get lost? Well when Bitcoin was $0.01 or $0.04 or $0.20 people didn't really take it that seriously. And so most of the lost Bitcoins aren't happening today, they're happening-- they happened right at the early onset of this thing. People got excited about it and then forgot about it because it wasn't-- you know, it took a while for the-- the ecosystem to be birthed. And you know they were on computer drives, got thrown in the trash, people lost their keys, and so no one's losing Bitcoin anymore. Right? You know, just like no one's losing a-- you know, an ounce of gold or an ounce of silver. You-- Bitcoin are precious at $36,000 each. And so they're well protected for most people. But most of that stuff got lost, so it's just less supply. So when we say there are 21 million Bitcoin that I'll have to remind-- it's really probably closer to 18 million.
JULIE HYMAN: So Mike, I have a supply, follow-up question for you then. As you mentioned, 21 million is what all the Bitcoin that were out there. There are already financially settled Bitcoin futures and when you think about gold, there's more paper gold than physical gold. So there are some concerns over the Bitcoin scarcity, right? And what that does to trading in Bitcoin. Are those concerns warranted and how do you think about that?
MIKE NOVOGRATZ: Yeah. Listen, so like the Grayscale Trust, for instance, right? Barry Silbert's business. It buys Bitcoin and it literally puts them in a vault. I mean, figuratively and literally and they're gone for good. And so they're kind taken out of supply. Now there are shares in a trust that trade. Right now it trades at a premium and could easily trade at a discount if there was an ETF. In so some ways it makes the supply of Bitcoin even more precious, which is driving price.
One reason why I never thought Bitcoin would be a currency, right? Fixed supply currencies don't tend to work. They-- they're too easily squeezed, they go up in price by definition as more and more people enter the ecosystem. We don't want to buy shoes one day with something that's $1 and it's worth $2 the next day. And so I've always thought Bitcoin would be a digital store of value, something like gold that people would buy and hold as opposed to transact with, right? There's going to be a lot of different payment coins from, you know, Facebook's new Diem coin, used to be called Libra, to stable coins. Lots of people working in that space. I think that will be the transactional currency of the blockchain. And I think Bitcoin will be gold and will just be held and partly because it's got that limited supply.
BRIAN SOZZI: Mike, earlier, you were talking about the rise in Bitcoin, the last block. But today we came into the session seeing reports that Gary Gensler may be nominated to lead the SEC by President-elect, Joe Biden. Is Gensler-- does he maybe make your job harder and will he serve as a wet rag to the crypto industry?
MIKE NOVOGRATZ: No, not at all. Listen, I think Gary Gensler-- first of all, I worked with Gary at Goldman Sachs in Hong Kong way back in the 90's. He is wildly smart, he's taught a class at MIT on blockchain and Bitcoin. And so he understands the space, he likes the space, he understands the nuance around the space. Listen, Gary is-- he was a tough commissioner at the CFTC. He is really bright and so there's no like, pulling the wool over his eyes. I think he's already commented that both Bitcoin and Etherium are not securities which is, you know, already law at the FCC. I think if you're a Ripple XRP it's not great news because he's commented he thought they were issued like securities. And so there'll be some nuance around the different coins but I think he will be pro crypto.
The last Jay Clayton didn't want to make crypto his issue and so kind of punted on all the-- the issues for the most part. And I think Gary will-- will address-- And the more clarity we get from the regulators, in a lot of ways, the better it is for the whole system. Right? People look for clarity. And so I think I'm hoping Gary gets appointed, I'm hoping he gets approved, and I think it'll be great for the system.
BRIAN SOZZI: Mike, do you think Gensler would be supportive of a Bitcoin ETF?
MIKE NOVOGRATZ: Yeah. I think whoever gets that space is going to be supportive of Bitcoin ETF. Listen, we have a de facto ETF in the Grayscale Trust. And if you think about what the SEC is supposed to do to protect the little guy, they've now allowed a $20 billion kind of fake ETF, right? It's a closed-end fund, a trust, to be retail's outlet where retail is buying Bitcoin anywhere from a 15% to 30% premium and paying high fees. And so it's kind of crazy that the SEC thought they did their job stopping an ETF when they actually allowed Barry's-- Barry's business to get started, right? This Grayscale trust. It should have been the exact opposite. And so I think you will see an ETF come soon. Again, what is soon? It's probably within the year because it takes a while when you get to a new job and, you know, process this whole thing. A lot of the discussion was around good pricing on the index. Right now the CME future trades with tons of liquidity. You can argue it's great pricing. And so I think we'll see an ETF, like I said, within the year.
JULIE HYMAN: Real quick, Mike. This doesn't fall under the SEC's purview, it's under Treasury, but what do you make of that new rule that is going to require more transparency? Although the comment period I guess is just closed but more transparency around ID's in digital transactions.
MIKE NOVOGRATZ: Well, listen. I think, you know, Steve Mnuchin shockingly, right? He spent his whole life as a-- as a real estate guy and you would have thought maybe he would go to Fannie and Freddie, instead he makes his last stand in crypto with a 15 day comment period instead of the normal 40 day comment period. There were 7,000 comments pushed in. We've got a president that's being impeached. I don't know if this whole rule is even going to go through or it's just going to die on the vine because there's chaos in D.C. right now.
I think everyone in the crypto community will acknowledge that you need some safeguards around KYC, AML, and understanding where crypto ends up going. There are far, far better ways to approach the issue than the ones that were pushed forward in-- in those rules and I think that's why you saw 7-- 7,500 comments, from really thought out comments show up. And so my hope is this thing dies on the vine and my guess is it does. And if it doesn't, you got a new administration, you'll start lobbying and-- and trying to make sure the-- the rules make sense. We don't want to kill innovation in this country and push it offshore. There is a-- an arms race in Central Bank issued digital currencies, China is way out in the lead. And if the United States wants to remain the Reserve currency for the world and the-- the-- the premier store of value for the world, it needs to be tech forward. And the Chinese are certainly do that-- certainly doing that.
MYLES UDLAND: All right. Always an interesting conversation. Mike Novogratz, founder and CEO at Galaxy Digital. Mike, really appreciate you taking the time to talk with us this morning and we'll be in touch.