Article Rewrite:
Arranged & Compiled by: Deep Tide TechFlow
Host: Alex Thorn, Galaxy Digital Firmwide Research Director
Guest: Mike Novogratz, Galaxy Founder and CEO
Podcast Source: Galaxy Brains
Key Points Summary
In this episode of Galaxy Brains, Alex Thorn and Galaxy Founder and CEO Mike Novogratz discuss the latest developments in the cryptocurrency market. Following the Galaxy first-quarter earnings call, the conversation delves into the performance of different departments within Galaxy, including record-breaking achievements in mining and asset management. Mike shares his views on broader market dynamics, including the impact of ETF approvals and his predictions for the trajectory of Bitcoin in volatile market conditions. Alex and Mike explore the intersection of finance, technology, and regulatory environments from a unique perspective, shaping the future of digital assets.
Summary
Alex notes that the price of Bitcoin rebounded last week and the inflation data was lower than expected, which had a positive impact on the market’s reaction.
This interview covers Galaxy’s first-quarter earnings, cryptocurrency, the mainstream adoption of Bitcoin, and macroeconomics. It also touches on issues related to Japan and some political topics.
Mike states that Galaxy performed well in the first quarter, generating $400 million in revenue. The mining business, in particular, had its best quarter ever, and the asset management and trading businesses also performed exceptionally well.
The importance of cryptocurrencies in US politics is increasing and becoming impossible to ignore.
Mike believes that while prices may not rise every month or quarter, he remains confident that more institutions will get involved in the cryptocurrency space in the next 12 to 24 months. He thinks the next move for Bitcoin prices could be upwards, especially as the Federal Reserve may cut interest rates near the elections.
Mike views the cryptocurrency space as a narrative-driven industry that requires use cases and concept validation to drive development. Over the past six to nine months, institutional investors’ confidence in the cryptocurrency industry has significantly increased with the approval of ETFs. The narrative of Bitcoin halving has also had a positive impact on the market.
Alex highlights the importance of cryptocurrencies in US politics, particularly among swing state voters. More than 20% of swing state voters in the United States consider cryptocurrencies to be a key issue. This is based on a Harris Poll conducted by DCG and the Blockchain Association, involving five swing states including Ohio, Michigan, and Arizona. This demonstrates the widespread attention to cryptocurrency issues among voters, with no clear partisan bias between Republican and Democratic voters.
Both Mike and Alex believe that in the current US dollar-based world, the cryptocurrency market is somewhat similar to commodity industries such as oil companies, whose revenues and activities also depend on fluctuations in commodity prices. The Fed’s Money Printing
Mike is very concerned about the national debt and fiscal policy. He states that the two main issues he is concerned about are cryptocurrency regulation and national debt. If the US government (whether it’s Biden or Trump) can address the 26% federal budget deficit (should be 20%) as a percentage of GDP, it would be unfavorable for Bitcoin. Therefore, Washington’s poor policy makers and excessive spending are actually beneficial for Bitcoin.
The rise in both Bitcoin and gold prices is due to the same reason – economic uncertainty. Bitcoin has risen faster because it is a new technology and commodity with a faster adoption cycle.
While gold ETFs had net outflows this year, the spot price of gold is rising. Individuals have purchased $200 billion worth of gold, including companies like Costco.
Mike states that foreign central banks are buying gold at a record pace, especially China. Part of the reason is the US sanctions on Russia after the Ukraine conflict, and other countries are concerned that the US may freeze their dollar reserves, hence the increased purchases of gold.
Alex also believes that while gold ETFs have net outflows, the demand for physical gold remains strong. Individual investors and foreign central banks are buying gold in large quantities.
Regarding the US dollar
Alex believes that young people are more inclined to see Bitcoin as a hedge against the US dollar, rather than gold. They value the growth potential of Bitcoin, and its adoption rate is faster than that of gold, especially in times of economic uncertainty.
Mike states that while the US dollar is stronger than other currencies, it is currently starting to weaken. The US has a coordination problem between fiscal and monetary policy, which has created the illusion of stability in the fixed income market. Treasury Secretary Janet Yellen has been criticized as the worst Treasury Secretary in her tenure because she supports large-scale deficit spending without balancing reductions.
Mike believes in the yield curve and market stability. Yellen has created the illusion of stability in the fixed income market through invisible yield curve control operations. Fed Chairman Jerome Powell, who works with her, maintains this artificial market stability. The release valve is reflected in the rise in gold and silver prices, which is also favorable for Bitcoin. Additionally, every stock market decline is an opportunity to buy stocks, as this policy will lead to nominal growth rates higher than inflation rates, masking the expansion of debt.
Mike believes in long-term asset allocation. In the current policy environment, hard assets such as stocks, real estate, Bitcoin, silver, and gold will have long-term investment value. Debt Issues
Alex points out the plight of the American middle class and working class. Middle-class and working-class Americans are struggling economically as they do not have enough income to purchase assets such as real estate.
Mike believes that if the US debt-to-GDP ratio reaches 250% within 20 years, as estimated by the Congressional Budget Office (CBO), it would be unsustainable. The next Treasury Secretary will face the most important challenge of addressing the US deficit problem, otherwise the country will fall into a vicious cycle.
Mike hopes that Bitcoin will gradually and steadily become more mainstream, rather than rapidly rising to a million dollars, as that would mean the collapse of society.
He points out that some countries like Nigeria and Turkey are in trouble due to their irresponsible monetary and fiscal policies, highlighting the instability in the global economy.
Alex believes that if the debt problem cannot be controlled, the United States will face hyperinflation or other serious economic problems, leading to the collapse of society. Trump’s Re-election
Mike believes that if Trump is re-elected, he will plan to increase control over the Federal Reserve, which is a bad signal. The complexity of Trump lies in his personal ethics that have caused social divisions, and his policies lack consistency. For example, he may claim to deport 20 million immigrants, but in reality, it may only be 2 million. Such policies could lead to rising inflation due to a lack of labor.
Mike points out that although Trump was not friendly to cryptocurrencies during his tenure, he now sees the political opportunity to use cryptocurrencies to counter the Democratic Party. On the same day Joe Biden announced that he would veto the SAB 121 bill, Trump declared his support for cryptocurrencies to attract supporters. Nevertheless, cryptocurrencies need bipartisan support to thrive in the United States. Senators and the Impact of Bills
Mike believes that while cryptocurrencies should be a bipartisan issue, currently in Washington, some Democrats are opposed to cryptocurrencies, influenced by senators like Elizabeth Warren who have a significant impact in the cryptocurrency field.
He also highlights the duality of cryptocurrencies, which benefit both libertarians as it represents freedom of choice, and progressives as it can eliminate intermediaries and achieve fairness.
Mike mentions the SAB 121 bill, which is an accounting rule that would require public companies to record cryptocurrencies on their balance sheets if they hold them. The rule has a greater impact on banks than cryptocurrency companies, as it would significantly inflate banks’ balance sheets. If the Democrats refuse to repeal the SAB 121 bill, it would be like saying they don’t like cryptocurrencies, similar to not liking dogs, and it would be a serious mistake. The United States has a significant number of single-issue voters on cryptocurrencies, especially young people, who may turn to support other parties if the Democrats continue to oppose cryptocurrencies. Japanese Economy
Mike starts by discussing the economic situation in Japan. Japan is facing issues of an aging population and low birth rates. It is a conservative country that is not welcoming to immigrants. They are the world’s largest savers, and the economy has been in deflation for many years until recently when inflation started to pick up, making the economy more active. Japan hopes that the Federal Reserve will cut interest rates to ease the pressure due to higher US rates. Bitcoin and ETFs
Mike points out that Bitcoin still performs well in risk-adjusted returns, second only to Nvidia and European stocks. Despite not going through the traditional “Bitcoin, Ethereum, and altcoin cycle,” Bitcoin continues to attract investors as it is seen as digital gold and performs well in the current macro environment.
He also highlights new trends in the market, such as the launch of ETFs and the opening of wealth management channels, which are driving the adoption of Bitcoin. The concept of Bitcoin as digital gold has become deeply ingrained, and wealth management firms are starting to recommend Bitcoin to clients. With the potential approval of ETFs, other cryptocurrencies like Ethereum are expected to gain greater recognition and investment in the market.
Imagine if the Bitcoin ETF had been rejected on January 11th, it would have been very detrimental to the price of Bitcoin as the market expected its approval. However, the current market widely believes that an Ethereum ETF will not be approved, so the risk is biased towards an upward movement.
Mike believes that the current price of Bitcoin fluctuates between $73,000 and $57,000. The market volatility is low, and many people are selling call options. If positive news emerges, such as the Federal Reserve deciding to cut interest rates, the price of Bitcoin could break through $73,000 and experience a parabolic rise. The rise in Bitcoin prices only requires a small amount of capital inflow, as the price is determined marginally. If future inflation data (CPI and PCE) decreases and employment data declines, the Federal Reserve may cut interest rates in July, which would drive up the price of Bitcoin.
Mike believes that most new ETF buyers are not short-term speculators. They are first-time or second-time buyers of Bitcoin who usually do not sell within a week. Typically, there would be an options market one to two weeks after an ETF is launched, but Bitcoin ETFs do not have an options market yet due to SEC restrictions. Once the options market opens, it will attract a large number of retail investors, increasing market activity and trading volume.
Mike mentions the trading volume of MicroStrategy and Marathon. The trading volume of MicroStrategy and Marathon exceeds that of all Bitcoin ETFs, mainly because they have an options market that attracts a large number of short-term traders and day traders. MicroStrategy’s Michael Saylor seized the market opportunity by issuing stocks to purchase Bitcoin, increasing the volatility and trading volume of the company’s stock. However, he has been selling stocks every day in the past few months, which may raise concerns among investors, although there is still strong trust in him in the market. MicroStrategy’s stock is currently trading at a premium to Bitcoin, but this premium may not last. Over time, the premium may narrow and even become negative. SEC
Mike expresses dissatisfaction with the limited cryptocurrency investment opportunities in the United States, primarily due to the SEC’s failure to approve many cryptocurrency companies for listing. For example, companies like Bullish and eToro are waiting for approval, but due to SEC restrictions, investment opportunities are extremely limited.
Mike also mentions mining companies and stock dilution. Many mining companies raise funds by selling stocks to purchase mining equipment, and these stocks trade at a premium above their book value as they are considered momentum stocks. CEOs of Riot, CleanSpark, and Marathon have cleverly taken advantage of this premium to sell stocks and purchase more equipment.
Mike questions the SEC’s approval of Trump’s stocks (such as Truth Social), which have no actual revenues but have high valuations. He believes that this behavior by the SEC is detrimental to retail investors.
Mike also discusses whether the phenomenon of meme stocks will continue in the long term. He believes that meme stocks have their unique appeal and skill requirements. Although speculative in nature, they may continue to exist. Roaring Kitty and GameStop
Mike mentions the GameStop stock frenzy triggered by Roaring Kitty (Keith Gill) three years ago. He posted a picture in his basement, sparking a three-day frenzy that pushed GameStop’s market value to $17 billion. Mike appreciates Roaring Kitty’s performance in the GameStop stock event, believing that he beat the system.
Mike mentions the movie “Dumb Money,” which reflects the events of the GameStop stock frenzy, portraying its true representation and entertainment value.
Mike is concerned that many people suffered heavy losses after buying GameStop stocks at high prices, although early buyers may have made profits.
Mike believes that low interest rates and government money printing have fueled the rise of cryptocurrencies and meme stocks, which is a form of financial nihilism.
Mike strongly criticizes the current government’s exploitation of the younger generation, citing Scott Galloway’s Ted Talk, pointing out the difficulties young people face in terms of income, education, and housing costs, and their anger towards the current state of affairs.
