Mike Novogratz on Crypto's Crash and AI's Wild Bet

And he created AI Lucy that scanned and scanned the phone book and then figured out who my targets were, figured out who to talk to at that target, sent them an email, started the conversation. Start to finish

Little context, right? Crypto was a storytelling business. I mean, I think I was well suited for it cuz I'm a storyteller by nature. And we told the story of this is an important technology, it's going to change the way the world processes information, moves value around, right? Like, this was going to be the new plumbing for both the financial markets and the consumer markets. And that was the story and some very bright and creative entrepreneurs, you know, Arthur Hayes starting created this idea of the leverage perpetual future on crypto tokens. And that really created the crypto markets cuz it allowed young people especially, but all people to gamble leveraged on these stories. And it created a tremendous amount of excitement and capital into the system, especially after COVID when everyone was sitting around at home with nothing to do. And really kind of crypto chapter two, that grand move that brought Ethereum to 4,000 and all these these tokens you never heard of into multi, you know, tens of billions of dollar market cap was really fueled by a gambling mania of young people wanting to get wealthy. They didn't want 12% returns, they wanted 12,000% returns. The other thing that's happened is we've got sports betting and same-day options. And so and now betting on Korean stocks, right? Every young kid that used to buy Solana is buying Hynix or some memory, you know, company. And so a lot of the oxygen of that speculative frenzy shifted. And you just like in macro you saw it, you know, there was a gold and silver bubble it popped, right? That was the top, that's what tops look like. Uh crypto had that same topping pattern. It doesn't mean these things go back to zero. I think Bitcoin probably holds 60,000 and if the Clarity Act passes, it's probably a 60/40 that it does. Uh we head a little bit higher. There's too many people that have bought into the Bitcoin story as its own store of value for it to go away. Uh but someone asked me what crypto was like this year. I was like, 'MBH, meh.' You know, people just aren't as excited about it because there's other things to be excited about. So, the only really big one has been stable coins and with cross-border payments, right? So, there's we have invested in a lot of different businesses that in Latin America and in the rest of the world that do cross-border payments and make that much more efficient. And those are if you just look at stable coin usage, it's mostly out of the United States. And so, some of it's store value just in dollars instead of Bitcoin, but a lot of it is in transaction value. And so, I think stable coins is the first. We're seeing the very beginning of tokenized equities.

You take Galaxy in tokenized form and it's the exact same thing as owning it. So, there are 8 billion people on the planet, probably 5 and 1/2 billion don't have access to a brokerage account, maybe 6 billion. And so, if you're the kid in Bahrain and you want to have some savings, you want to buy a fraction of an Apple share, you're going to be able to buy it. Now, I said earlier most crypto kids want leverage. And so, what's been interesting is the product that has grown faster than tokenized equities is perpetual futures, tokenized perps on real-world assets. And so, if you think about like this company XYZ, uh my friend Jeff Lo built, it was doing it's doing over annualized a trillion dollars of volume for a 6-month-old company, but the SpaceX pre-IPO, it got all the volume and it literally predicted the price to the to the dollar of where it was going to open, right? And so, 24/7 trading, non-KYC. So, anybody in that 6 billion just shows up for with an account and starts buying and selling. And so, listen, I've spent a bunch of time with Michael Saylor. What I think I'd say about him is he believes everything he says. Which I agree. Sometimes I'm like, 'Michael, that sounds insane.' But he he literally

Right. And I think listen, he did a lot of good things in pulling Bitcoin in and now it's, you know, one of the weights on Bitcoin is he's got this he put too much leverage uh onto a big pile of coins and he's got to dig himself out of this over-leveraged position.

To be fair, and you can call me a wimp, I haven't had a really hard conversation with him post this. The last time, you know, I saw him for at length was a year ago summer when it was all working well. And I I I did say, 'Mike, I'm skeptical.' Uh he believed he was going to buy so much Bitcoin there was no way it could go down. I said, 'That's just a tautology that doesn't work with me.'

It's so interesting it's a double-edged sword. Like, Gensler and the Democrats were terrible on crypto and as a Democrat I was like, this is almost not American. Like, what what what they were doing. And Trump ran on I'm going to take care of crypto and he did. So, that initial surge was, okay, we've got an SEC and a CFTC that are going to be very crypto positive. And quite frankly to be fair to the head of the SEC, he said I even talked to him right before uh the inauguration, he said until there rules, I'm not going to enforce the rules. Like I'm not going to enforce non-rules. And so in essence he said go for it until the Clarity Act passes. And people did. And so companies like quite frankly hyperliquid and XYZ and non-KYC companies are growing and thriving not thinking they're going to have you know the same thing that CZ or Arthur Hayes did, right? The long arm of the US law getting them even if they're not US companies. Uh

His lips to God's ears. Listen,

Sure. We would need Clarity Act, we would need the Fed cutting rates, and we would need some buyer base to get re-ignited. Uh I'm not seeing those three things. I don't think we cut rates this year. I think we'll be good enough not to hike them. Clarity I think there's a 60/40, maybe even a 2/3 at this point. My gut feeling is somehow they find a way to get away across the finish line and that will help. Um I don't see where the new enthusiasm comes from. But the one thing I would say is every time crypto feels dead like something happens and you're like, 'Whoa.' And so I don't want to count it out, but I don't see it. And in the past, like the easiest crypto bull market of all time was COVID cuz you're like, 'Oh, that's my narrative.' And I feel like I'm an insider because I'm one of the storytellers and I I I figure out what's the story I can tell to get people excited, and it was, you know, the money printer goes burr, right? Like, we were going to throw tons and tons of money at the COVID problem, and you had kids that now had more time to sit around and do nothing but gamble.

I think 60's going to hold, and I think 80's going to be a top, and if we can get through 80, then 100's going to be a top. But, I would say we're 60 to 80 for the rest of the year, unless we get a real nice sale.

It's going to be a very quick-moving pendulum back and forth, and I tell you why. So, first of all, most of the power that you've talked about, like, of our 1.6 gigawatts, 200 megawatts is now up and running and producing, you know, AI stuff. Uh and so, it's just getting started, this power being brought online, but most companies aren't really using AI yet cuz they're scared to, they don't know how to. Uh, we don't have robots yet. Like, when you look at the exponential usage of compute when it starts really happening, like, it's hard to think of this, but we're in like the first out of the first

Let me tell you a story, a quick one. I invested, not through Galaxy, uh, PA investment in this young kid who was building an insurance company, a health insurance company uh, based in Texas. A brilliant kid. He was scientist of the year in the UK when he was like 16. Not not young scientist, scientist of the year. And, you know, he had a great thesis and he was going to use AI, but the thesis was more, can I incentivize people to get tested early on? And then if I do that, I'm going to give them no copay and no premiums because I can drive medical cost medical expense down 30%. And he's doing that. So, then he says, I'm going to use AI. First it was all the back office, right? There's huge amounts of paperwork pushing at at non-US healthcare, right? At non-US healthcare, uh, legally they can have a 15% charge. 85% goes to the providers, 15% to them. And they do 2 to 3% margins. Uh, and he said, well, I can AI all the paperwork. Then he said, let me create an AI salesforce. And I was like, what? And right there, hundreds of hospitals and insur- and healthcare systems that you're trying to sell this to. And he created AI Lucy that scanned and scanned the phone book and I figured out who my targets were, figured out who to talk to at that target, sent them an email, started the conversation. Start to finish, he got the he got the uh the DocuSign. And his sales force of 50 people uh did 90 clients. 90 in the two in the two-month sales period did 90 contracts. So, basically two each. Uh Lucy in her first 2 months uh did five times that by herself. And he was like, 'Oh my god.' And so, it's the first example I've seen of someone who's actually created a real superhuman employee. That's soup-to-nuts sale.