“Once you’ve wrestled,” Mike Novogratz quotes Dan Gable, “everything else in life is easy.”
Wrestling defined the CEO of Galaxy Investment Partners at a young age, he says, building the foundation for his success. “Wrestling teaches you how to lose and come back.”
The investor admits he “got lucky” pivoting into something he was “naturally good at.”
Novogratz explains what made him successful as a macro-investor in a recent episode of the 1000X podcast (Spotify / Apple). “It’s a combination of reading economic trends, political trends, social trends — in understanding how markets behave with those inputs.”
“There’s a lot of intuition in it,” he says.
The only silver lining
His intuition has not always hit the mark, he admits. “We thought institutions were gonna buy crypto. I’ve got 430 people in Galaxy all geared up to help institutions come in to buy crypto.”
A combination of bad behavior in the crypto industry, tough regulation in the US, no regulation outside the US and high interest rates caused institutional enthusiasm to wane, he says.
“Now,” he says, “the only silver lining is, retail’s still buying. It was always the people’s revolution, and they’re still out there.”
Novogratz says he certainly hasn’t given up faith in Bitcoin. The “big decentralized revolution” that is building a “whole new world” on networks like Ethereum is still moving forward, he says, “but the market now seems to want to see shit that works.”
“Unless you’re an early adopter, you’re not using Web3 in your normal life,” he says.
Novogratz says that to “suck people in,” the crypto industry will need apps that people can “sink their teeth into.”
One strong prospect for crypto’s appeal as a utility is authentication, he says. “With all these deep fakes,” he says, “how do I validate that this is actually my work?”
“But now I want to see people actually show me the app that does it — and even if it doesn’t get complete adoption — then we’re telling stories that people can sink their teeth into again.”
No better inflation hedge in the world
It could take some time for a return to a crypto bull market, Novogratz says. “We’re not going to get a sustained bitcoin rally until the Fed says we’re done and we’re cutting,” he says. “And that, in my mind, is probably [the] end of summer” but could take longer if stagflation settles in, he warns.
Pointing to America’s debt-to-GDP ratio exceeding 120%, Novogratz argues the “only way out” of the predicament is inflation. Last year, Novogratz says, the Federal Reserve did a “pretty good job” of inflating their way out of debt.
“We had seven percent inflation. We’re paying three percent for our debt, two and a half percent. That was the blended average. So you just inflated four percent of the debt away.”
“Of course, you can’t say that as a central banker, and you can’t say that as a treasury official,” says Novogratz, “but you’ll want to have higher inflation to get out of the debt trap.”
“If it gets too high, you’re screwed. And so it’s a really, really challenging dance for the stewards of your economy to pull off.”
Bitcoin and crypto in general were the best inflation hedges in the world during the Covid-19 pandemic, he says, when everyone was panicking about a rise in costs. But when the anticipated higher prices finally showed up, Powell “took a sledgehammer to the gonads of inflation.”
“That was painful. Crypto would’ve kept going higher.”
Still, Novogratz sees promise amid of market tumult and “regulatory assault.” He notes that retail “continues to accumulate” despite the noise.
“It’s surprising to me,” he says, “how much buying happens every day, in small amounts, that adds up to big amounts.”