WEBVTT - Galaxy Digital Founder & CEO Mike Novogratz Talks Cryptocurrency, Bitcoin

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. I want to kick

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<v Speaker 1>things off now taking a look at shares of Galaxy Digital.

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<v Speaker 1>It's seeing it stock under pressure to start this week.

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<v Speaker 1>Shares down right now by about fifteen percent. This comes

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<v Speaker 1>as the company posted a loss of almost five hundred

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<v Speaker 1>million dollars during the crypto market's fourth quarter crash, with

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<v Speaker 1>trading volumes down forty percent compared to the prior quarter.

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<v Speaker 1>Joining us now for an exclusive interview is Galaxy Digital

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<v Speaker 1>founder and CEO Mike Novograts. Mike, good to see you

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<v Speaker 1>this morning. Thanks for joining us, especially on Earning's day.

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<v Speaker 1>You're fresh off the conference call this morning, and you

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<v Speaker 1>said that quote pain is part of the ethos of

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<v Speaker 1>this whole industry.

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<v Speaker 2>Unfortunately, unfortunately, unfortunately that's true.

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<v Speaker 1>How much more pain is ahead?

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<v Speaker 3>Listen, you never actually know where market's bottom, right crypto.

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<v Speaker 3>When Bigcoin went through one hundred thousand, that was a

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<v Speaker 3>major level it broke down on. And so you know,

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<v Speaker 3>I look at the chart, seven to one hundred is

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<v Speaker 3>probably the new range, and you know, we're at seventy six,

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<v Speaker 3>so I think we're towards the.

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<v Speaker 2>Bottom end of the range.

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<v Speaker 3>There's a lot of pessimism out there, A lot, a

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<v Speaker 3>lot of leverage has been taken out of the system.

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<v Speaker 3>Bitcoin was not supposed to act like this, right, You

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<v Speaker 3>had gold prices higher, the nansdak higher, rates going lower.

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<v Speaker 2>This was a yeah.

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<v Speaker 3>The Trump administration which very pro crypto, and so you know,

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<v Speaker 3>something went wrong. You know, the bitcoin, the crypto market

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<v Speaker 3>is still less than twenty years old, right right, I

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<v Speaker 3>think bigcoin oh nine, so where we're sixteen years old.

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<v Speaker 2>And it's immature.

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<v Speaker 3>We had had a huge run up from you know

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<v Speaker 3>where people bought at fifty one hundred, one thousand, two thousand,

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<v Speaker 3>ten thousand, all the way to one hundred hundred and

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<v Speaker 3>thirty thousand, and I think what ended up happening was

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<v Speaker 3>people finally started taking profits. After we crossed the high

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<v Speaker 3>it felt like the community had won, and it was

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<v Speaker 3>that side of relief, like we did it. We created

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<v Speaker 3>this amazing ecosystem, this amazing asset, and there's been kind

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<v Speaker 3>of like a seller's virus that got into the market.

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<v Speaker 3>People blamed it on quantum. I don't think quantum in

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<v Speaker 3>the long run is really the reason. I think there

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<v Speaker 3>was selling, and that selling is getting you know, executed

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<v Speaker 3>in the market.

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<v Speaker 2>There was buying.

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<v Speaker 3>Sure, lots of new institutions are coming in, but prices

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<v Speaker 3>are set on the margin, and there have been more

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<v Speaker 3>sellers than buyers. I think we're getting close to the bottom,

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<v Speaker 3>but we'll see. You always know a bottom after you

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<v Speaker 3>see it. And listen, there's a couple things that could help, right.

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<v Speaker 3>Market structure bill passing would be a big deal. You know,

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<v Speaker 3>people are really pessimistic on it right now. I actually

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<v Speaker 3>I'm a little more optimistic that things get done because

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<v Speaker 3>I think both sides want it done.

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<v Speaker 2>But we'll see.

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<v Speaker 1>So what is the catalyst that turns the tide right now?

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<v Speaker 1>You mentioned a market structure bill. Maybe that will bring

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<v Speaker 1>some optimism, but I don't know. Is there anything else

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<v Speaker 1>that could turn around this trade?

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<v Speaker 3>Yeah, that's a part of this acceleration recently downwards is

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<v Speaker 3>the thought that Kevin Warsh is going to be very hawkish. Listen,

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<v Speaker 3>what I think Kevin did is he took out the

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<v Speaker 3>tail risks for inflation.

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<v Speaker 2>Right. He's a man of integrity.

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<v Speaker 3>He has worked alongside Stan drucken Miller for a long time,

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<v Speaker 3>lily since he left the FED, and so you don't

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<v Speaker 3>think he's going to do whatever Trump wants him to

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<v Speaker 3>do that said, he's pretty dubvish right now, and I

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<v Speaker 3>think once he gets in and starts talking, you know,

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<v Speaker 3>looking at the environment that we see today, he wants

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<v Speaker 3>rates lower, and I think once that market kind of

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<v Speaker 3>rewrites him as a dove, at least a dove given

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<v Speaker 3>the current environment, that also could help. You know, there's

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<v Speaker 3>probably been an overreaction on how hawkish he's going to be,

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<v Speaker 3>but I do think listen, he took out the tail risk,

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<v Speaker 3>which is a good thing for a Manica and not

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<v Speaker 3>necessarily a good thing for gold, silver or bitcoin.

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<v Speaker 4>I appreciate you making the connection back to the macro

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<v Speaker 4>environment overall. I'm curious with this softness that we're seeing

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<v Speaker 4>in crypto and bitcoin, how does that change what Galaxy

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<v Speaker 4>is doing. Do you still plan to launch this one

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<v Speaker 4>hundred million dollar hedge fund, crypto hedge fund in the

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<v Speaker 4>first quarter that will bet on rising and falling prices.

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<v Speaker 4>Does it change your timeline? That's how you're thinking about it.

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<v Speaker 2>Yeah.

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<v Speaker 3>The great thing about this hedge fund, it's really a

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<v Speaker 3>fintech fund, and it's the broader ecosystem. So I said

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<v Speaker 3>on our call, this is a tale of two cities,

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<v Speaker 3>or really three cities because we have this, we have.

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<v Speaker 2>This data center business which is booming, thank god.

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<v Speaker 3>Like you know, if I didn't have the data center business,

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<v Speaker 3>i'd feel a lot worse. But our data center business

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<v Speaker 3>is now worth more than our crypto business. But within crypto,

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<v Speaker 3>there's still a bullmarkt and there's a bull market in

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<v Speaker 3>infrastructure right The traditional banks and finance companies are moving

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<v Speaker 3>into this space quickly, and you're seeing, we're seeing lots

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<v Speaker 3>some opportunities to partner with them around building wallets, around

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<v Speaker 3>staking and around really thinking about how tokenized real world assets,

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<v Speaker 3>you know, move into the world. And so I think

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<v Speaker 3>I haven't seen more excitement since I started from the

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<v Speaker 3>traditional players to get.

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<v Speaker 2>Engaged in digital assets.

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<v Speaker 3>And we've got the old version of crypto, the tokens

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<v Speaker 3>that exist today that just don't seem to have the

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<v Speaker 3>same the same support and the same appreciation, the same

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<v Speaker 3>energy in them right now, And so some of that

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<v Speaker 3>energy has shifted, and you see you see things like

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<v Speaker 3>you know, perpetual swaps on equities booming all of a sudden.

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<v Speaker 3>So using the crypto infrastructure for real world assets, the

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<v Speaker 3>crypto leverage system for real world assets, and so that

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<v Speaker 3>part of the business is really exciting where we're leaning

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<v Speaker 3>into it both in hiring and more and you know,

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<v Speaker 3>utilizing our engineering team to help others get in this game.

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<v Speaker 3>The other part is moving things more on Shine and

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<v Speaker 3>that is happening quickly, right. So you're going to see

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<v Speaker 3>credit on Shane and you already see the boom of

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<v Speaker 3>stable coins. I mean you look at the volume of

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<v Speaker 3>stable coins in the first month of the year. It's explosive.

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<v Speaker 3>And so we are moving into a digital world and

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<v Speaker 3>it's going to run on crypto, you know, blockchain rails.

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<v Speaker 2>Yeah, that's just.

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<v Speaker 3>Not correlating with the price of bitcoin, the price of ethereum,

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<v Speaker 3>the price of Salona, ripple, you name it.

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<v Speaker 4>So, Mike, with this excitement with the data center business,

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<v Speaker 4>would you consider a spin off to separate your crypto

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<v Speaker 4>and AI data center businesses. Would you be open perhaps

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<v Speaker 4>to selling your data center unit to any of the

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<v Speaker 4>hyperscalers should they come knocking on the door.

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<v Speaker 3>Listen, we are we're in the build mode on the

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<v Speaker 3>data center business. We just got five hundred and thirty

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<v Speaker 3>megawatts of power approved down in Texas. That's probably the

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<v Speaker 3>largest new power approval in the United States for a

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<v Speaker 3>while Uh, and so I couldn't be more excited about that.

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<v Speaker 3>We're we're engaging now with you know, potential tenants that

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<v Speaker 3>you can guess who they are.

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<v Speaker 2>Uh.

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<v Speaker 3>And so I think we're going to run this data

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<v Speaker 3>center business, and we're going to grow this data center

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<v Speaker 3>business ourselves.

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<v Speaker 2>Uh.

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<v Speaker 3>The capital structure and galaxy is something we think about

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<v Speaker 3>a lot. And I said before, if you know, A

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<v Speaker 3>plus B is a bigger number an A plus B.

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<v Speaker 3>We should stay together, and if it looks like we're

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<v Speaker 3>getting penalized, we'll figure a way to you know, maximize

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<v Speaker 3>shareholder value. And so right now, you know, in this

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<v Speaker 3>short term, our stock seems to trade, you know, very

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<v Speaker 3>cheap relative to what I think the data center business

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<v Speaker 3>is worth, let alone the value of our our book,

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<v Speaker 3>in our in our our crypto business. And so yeah,

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<v Speaker 3>we're certainly looking.

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<v Speaker 1>At it, Hey, Mike, very briefly, and then we're going

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<v Speaker 1>to do some news and come back to you in

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<v Speaker 1>just a few minutes. Are we You've seen a lot

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<v Speaker 1>of cycle. You have the tattoos to prove it. Are

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<v Speaker 1>we in a crypto winter right now?

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<v Speaker 2>Yeah?

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<v Speaker 3>Listen, I mean we've read one hundred and thirty thousand

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<v Speaker 3>and we're now at seventy six thousand, and so that

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<v Speaker 3>is what a forty five percent drop if I did

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<v Speaker 3>my math right, or maybe it's forty percent drop. That's

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<v Speaker 3>way through bear market, and that feels awfully chilly. My

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<v Speaker 3>question is when is spring coming? And I think we're

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<v Speaker 3>closer to spring than we are to the start of winner.

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<v Speaker 4>Big picture when it comes to any kind of regulation

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<v Speaker 4>when it comes to crypto is what's going on with

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<v Speaker 4>the crypto market structure bill? And the big sticking point

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<v Speaker 4>at this moment is whether crypto companies can give some

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<v Speaker 4>reward points or yield on stable coin balances. You've said

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<v Speaker 4>that the crypto industry is going to lose the battle

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<v Speaker 4>against the banking lobby on this.

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<v Speaker 3>Why is that, Mike, Listen, there are a lot of banks.

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<v Speaker 3>They've done this a long time. They're good at lobbying.

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<v Speaker 3>They have community banks, their cousins, their poor cousins, very

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<v Speaker 3>poor cousins in every district of every congressman.

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<v Speaker 2>And the community banks are being.

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<v Speaker 3>Used very effectively to say, oh my goodness, oh my goodness,

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<v Speaker 3>we're going to have this terrible deposit flight and then

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<v Speaker 3>we'll not be able to give credit. It's you know,

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<v Speaker 3>it's not a real story, but it's working because listen,

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<v Speaker 3>if people wanted to take their money out of community banks,

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<v Speaker 3>they could have put it into galaxies eight percent offering

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<v Speaker 3>or sofis.

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<v Speaker 2>You know, there are so many neo.

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<v Speaker 3>Banks, and yet deposit flight is slow, right, Deposits in

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<v Speaker 3>general are sticky, and so over time, yes, there would

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<v Speaker 3>be deposit flight, but there should be because in most

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<v Speaker 3>of those banks, including JP, Morgan, Wells, Fargo, you name it,

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<v Speaker 3>Chase City Bank, you put your money in your savings

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<v Speaker 3>account and they pay you nothing, and they make a

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<v Speaker 3>whole lot of money leaving it at the FED at

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<v Speaker 3>three and a half or four percent, and so it

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<v Speaker 3>is terrible for the consumer. It's ironic that Washington, both

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<v Speaker 3>Democrats and Republicans are saying, hey, let's let's let's side

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<v Speaker 3>on the let's side with big banks and not not

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<v Speaker 3>the consumers, not our constituents. But that's exactly what's happening.

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<v Speaker 3>And so Brian Armstrong and and you know, the stable

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<v Speaker 3>point issuers who are saying, hey, we want to we

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<v Speaker 3>want to actually have an innovative, you know, security that

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<v Speaker 3>that allows us to pass on some of that interests

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<v Speaker 3>to our customers through rewards or actually, in the perfect way,

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<v Speaker 3>it would be through direct interests. But you know, banks

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<v Speaker 3>are strong in the lobby and they're you know, I

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<v Speaker 3>do think a deal gets done somewhere in between. But

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<v Speaker 3>right now both sides are kind of at a Mexican standoff.

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<v Speaker 3>Why do I think a deal still gets done? Like

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<v Speaker 3>the Republican senators have put a lot of time in

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<v Speaker 3>this and have a lot at stake.

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<v Speaker 2>Right Trump is the quote crypto president. You you you've

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<v Speaker 2>got the House.

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<v Speaker 3>Hey, on the Senate, you better be able to pass

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<v Speaker 3>a crypto bill or you look pretty weak.

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<v Speaker 1>We'll give us your view on when you think that

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<v Speaker 1>market structure bill will pass.

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<v Speaker 3>And the Democrats have the same you know, the Democrats

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<v Speaker 3>don't want the crypto pack which just came out and

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<v Speaker 3>said we've had one hundred and ninety million dollars of

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<v Speaker 3>a bazooka ready to shoot at people.

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<v Speaker 2>That's stay out of the way of crypto.

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<v Speaker 3>And so the damage just want to pass this thing

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<v Speaker 3>and have crypto off the table. In politics, it never

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<v Speaker 3>should have been political. It always should have been a

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<v Speaker 3>bipartisan issue. Elizabeth Warren made it political. Agaensler made it

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<v Speaker 3>political well, and so listen, I think this is you know,

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<v Speaker 3>two weeks, it's six weeks, and I think my hope

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<v Speaker 3>is we have something done.

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<v Speaker 2>Okay.

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<v Speaker 4>I want to get your take on prediction markets as well.

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<v Speaker 4>The CFTC chairman Michael seeleggs clearly talking about the need

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<v Speaker 4>to come up with some kind of rules of the

0:11:54.640 --> 0:11:57.240
<v Speaker 4>road for this part of the market is growing very

0:11:57.360 --> 0:12:00.120
<v Speaker 4>very quickly. And I'm wondering, from where you sit, what

0:12:00.840 --> 0:12:04.560
<v Speaker 4>is the single most important legislation or rule that needs

0:12:04.600 --> 0:12:06.560
<v Speaker 4>to be put forth on prediction markets.

0:12:07.280 --> 0:12:09.520
<v Speaker 2>You know, it's a good question. I think.

0:12:10.760 --> 0:12:17.480
<v Speaker 3>The industry, not the prediction market industry, but the sports

0:12:17.520 --> 0:12:20.199
<v Speaker 3>betting industry, the gambling industry got caught off guard that

0:12:20.280 --> 0:12:22.959
<v Speaker 3>the CFDAC basically said, hey, this is a new form

0:12:23.000 --> 0:12:28.840
<v Speaker 3>of security, or a new form of a not security,

0:12:28.880 --> 0:12:32.640
<v Speaker 3>a new form of a platform for people to use

0:12:32.679 --> 0:12:34.320
<v Speaker 3>as a hedging to make bets on.

0:12:34.640 --> 0:12:36.520
<v Speaker 2>And they allowed it, right.

0:12:36.360 --> 0:12:41.440
<v Speaker 3>And so since then there has been a furious lobbying

0:12:41.480 --> 0:12:45.959
<v Speaker 3>effort by the casinos and the sports betting places to say,

0:12:46.000 --> 0:12:48.280
<v Speaker 3>that's not fair. We have all this, we have all

0:12:48.320 --> 0:12:50.520
<v Speaker 3>this compliance we need to do, and these guys don't.

0:12:51.200 --> 0:12:54.680
<v Speaker 3>And so I'm guessing the CFDC is trying to thread

0:12:54.720 --> 0:12:59.400
<v Speaker 3>the needle to keep the existing world happy to a

0:12:59.480 --> 0:13:03.120
<v Speaker 3>degree and not have to go back on this new

0:13:03.120 --> 0:13:05.760
<v Speaker 3>industry which is innovative as can be, which is growing,

0:13:05.800 --> 0:13:09.400
<v Speaker 3>which has captured the imagination of of not just the

0:13:09.480 --> 0:13:12.679
<v Speaker 3>retail users of it, but they had somebody like Ice, right,

0:13:12.720 --> 0:13:16.760
<v Speaker 3>Jeff Sprecker put two billion dollars into into poly marketing.

0:13:16.880 --> 0:13:19.559
<v Speaker 2>Yeah, and so I.

0:13:19.520 --> 0:13:22.720
<v Speaker 3>Mean this is another battle of incumbents trying to protect

0:13:22.760 --> 0:13:24.360
<v Speaker 3>their turf against.

0:13:24.040 --> 0:13:28.200
<v Speaker 2>An innovative, uh you know, new new upstart. Yes.

0:13:28.200 --> 0:13:31.760
<v Speaker 1>Well, our colleague Emily Nicole reported back in November that

0:13:31.880 --> 0:13:36.800
<v Speaker 1>Digital Galaxy Digital is experimenting in prediction markets discussions with

0:13:36.800 --> 0:13:39.600
<v Speaker 1>poly market and call shape what's the latest there?

0:13:40.400 --> 0:13:44.080
<v Speaker 3>You know again, we we didn't invest in those guys

0:13:44.120 --> 0:13:46.720
<v Speaker 3>way back. I wish I had I had the opportunity to.

0:13:46.800 --> 0:13:51.959
<v Speaker 3>And you know, I I quite frankly wasn't uh convinced

0:13:52.360 --> 0:13:57.920
<v Speaker 3>that without sports, but you know, they that just you know,

0:13:57.920 --> 0:14:00.560
<v Speaker 3>you weren't allowed to do politics back then. Sports betting

0:14:00.600 --> 0:14:04.080
<v Speaker 3>seemed off the table, and so I didn't see where

0:14:04.120 --> 0:14:08.520
<v Speaker 3>the where the tam was and you know, these guys

0:14:08.520 --> 0:14:12.240
<v Speaker 3>proved me wrong, and and the CFTC gave them the pass.

0:14:12.920 --> 0:14:14.920
<v Speaker 3>And so if you look at prediction markets, most of

0:14:14.960 --> 0:14:18.760
<v Speaker 3>the volume happens around sports betting, and so, uh you know,

0:14:19.400 --> 0:14:20.960
<v Speaker 3>they're not that many things you want to bet on

0:14:21.000 --> 0:14:22.360
<v Speaker 3>every day, but sports happen.

0:14:22.480 --> 0:14:27.160
<v Speaker 2>They have their defined outcomes. Uh right, politics which.

0:14:26.960 --> 0:14:30.320
<v Speaker 3>Again was illegal for us to us investors to bet

0:14:30.360 --> 0:14:32.760
<v Speaker 3>on politics. And you know, you have the whole rate

0:14:32.840 --> 0:14:37.200
<v Speaker 3>of of of polymarket. You know, this is a new regime,

0:14:37.400 --> 0:14:41.000
<v Speaker 3>new regime, it's a new administration with a very different view.

0:14:41.600 --> 0:14:45.480
<v Speaker 3>And so so what could we do. We want to

0:14:45.520 --> 0:14:48.080
<v Speaker 3>look at infrastructure. We want to be market makers. We

0:14:48.160 --> 0:14:51.640
<v Speaker 3>wanted to you know, be providers of liquidity, and we're

0:14:51.720 --> 0:14:52.640
<v Speaker 3>just getting started.

0:14:54.080 --> 0:14:57.000
<v Speaker 4>Other trading firms Mike have also considered getting involved in

0:14:57.040 --> 0:15:00.240
<v Speaker 4>prediction markets, like jump trading or sports betting. AQR Capital

0:15:00.280 --> 0:15:02.360
<v Speaker 4>Management has talked about sports betting. How do you see

0:15:02.360 --> 0:15:05.360
<v Speaker 4>this competitive landscape developing over the next year?

0:15:05.440 --> 0:15:08.320
<v Speaker 3>Yeah, listen, I mean there's if you think about sports betting,

0:15:08.360 --> 0:15:10.480
<v Speaker 3>you've got you Susquehanna has been a giant in it.

0:15:10.600 --> 0:15:12.760
<v Speaker 2>These these high frequency trade.

0:15:12.520 --> 0:15:17.240
<v Speaker 3>Ears with huge technology budgets will all they'll trade anything

0:15:17.240 --> 0:15:19.560
<v Speaker 3>that moves, and they're good at it, and so I

0:15:19.600 --> 0:15:22.480
<v Speaker 3>think there will be lots of liquidity provided from that

0:15:22.560 --> 0:15:26.160
<v Speaker 3>same group of people that provide liquidity in same day

0:15:26.200 --> 0:15:32.640
<v Speaker 3>options and that market making everything, and so if retail comes,

0:15:32.640 --> 0:15:34.920
<v Speaker 3>there will be plenty of institutions to pick up their pennies.

0:15:34.920 --> 0:15:38.840
<v Speaker 1>And Nichols Mike got to leave it there. Always love

0:15:38.840 --> 0:15:40.800
<v Speaker 1>it when you join us on Bloomberg Crypto. Thanks so

0:15:40.880 --> 0:15:43.360
<v Speaker 1>much for taking the time, especially on earning day that's

0:15:43.400 --> 0:15:46.840
<v Speaker 1>Galaxy Digitals. Mike nobergrats joining us from New York.