Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I want to kick
Speaker 1: things off now taking a look at shares of Galaxy Digital.
Speaker 1: It's seeing it stock under pressure to start this week.
Speaker 1: Shares down right now by about fifteen percent. This comes
Speaker 1: as the company posted a loss of almost five hundred
Speaker 1: million dollars during the crypto market's fourth quarter crash, with
Speaker 1: trading volumes down forty percent compared to the prior quarter.
Speaker 1: Joining us now for an exclusive interview is Galaxy Digital
Speaker 1: founder and CEO Mike Novograts. Mike, good to see you
Speaker 1: this morning. Thanks for joining us, especially on Earning's day.
Speaker 1: You're fresh off the conference call this morning, and you
Speaker 1: said that quote pain is part of the ethos of
Speaker 1: this whole industry.
Speaker 2: Unfortunately, unfortunately, unfortunately that's true.
Speaker 1: How much more pain is ahead?
Speaker 3: Listen, you never actually know where market's bottom, right crypto.
Speaker 3: When Bigcoin went through one hundred thousand, that was a
Speaker 3: major level it broke down on. And so you know,
Speaker 3: I look at the chart, seven to one hundred is
Speaker 3: probably the new range, and you know, we're at seventy six,
Speaker 3: so I think we're towards the.
Speaker 2: Bottom end of the range.
Speaker 3: There's a lot of pessimism out there, A lot, a
Speaker 3: lot of leverage has been taken out of the system.
Speaker 3: Bitcoin was not supposed to act like this, right, You
Speaker 3: had gold prices higher, the nansdak higher, rates going lower.
Speaker 2: This was a yeah.
Speaker 3: The Trump administration which very pro crypto, and so you know,
Speaker 3: something went wrong. You know, the bitcoin, the crypto market
Speaker 3: is still less than twenty years old, right right, I
Speaker 3: think bigcoin oh nine, so where we're sixteen years old.
Speaker 2: And it's immature.
Speaker 3: We had had a huge run up from you know
Speaker 3: where people bought at fifty one hundred, one thousand, two thousand,
Speaker 3: ten thousand, all the way to one hundred hundred and
Speaker 3: thirty thousand, and I think what ended up happening was
Speaker 3: people finally started taking profits. After we crossed the high
Speaker 3: it felt like the community had won, and it was
Speaker 3: that side of relief, like we did it. We created
Speaker 3: this amazing ecosystem, this amazing asset, and there's been kind
Speaker 3: of like a seller's virus that got into the market.
Speaker 3: People blamed it on quantum. I don't think quantum in
Speaker 3: the long run is really the reason. I think there
Speaker 3: was selling, and that selling is getting you know, executed
Speaker 3: in the market.
Speaker 2: There was buying.
Speaker 3: Sure, lots of new institutions are coming in, but prices
Speaker 3: are set on the margin, and there have been more
Speaker 3: sellers than buyers. I think we're getting close to the bottom,
Speaker 3: but we'll see. You always know a bottom after you
Speaker 3: see it. And listen, there's a couple things that could help, right.
Speaker 3: Market structure bill passing would be a big deal. You know,
Speaker 3: people are really pessimistic on it right now. I actually
Speaker 3: I'm a little more optimistic that things get done because
Speaker 3: I think both sides want it done.
Speaker 2: But we'll see.
Speaker 1: So what is the catalyst that turns the tide right now?
Speaker 1: You mentioned a market structure bill. Maybe that will bring
Speaker 1: some optimism, but I don't know. Is there anything else
Speaker 1: that could turn around this trade?
Speaker 3: Yeah, that's a part of this acceleration recently downwards is
Speaker 3: the thought that Kevin Warsh is going to be very hawkish. Listen,
Speaker 3: what I think Kevin did is he took out the
Speaker 3: tail risks for inflation.
Speaker 2: Right. He's a man of integrity.
Speaker 3: He has worked alongside Stan drucken Miller for a long time,
Speaker 3: lily since he left the FED, and so you don't
Speaker 3: think he's going to do whatever Trump wants him to
Speaker 3: do that said, he's pretty dubvish right now, and I
Speaker 3: think once he gets in and starts talking, you know,
Speaker 3: looking at the environment that we see today, he wants
Speaker 3: rates lower, and I think once that market kind of
Speaker 3: rewrites him as a dove, at least a dove given
Speaker 3: the current environment, that also could help. You know, there's
Speaker 3: probably been an overreaction on how hawkish he's going to be,
Speaker 3: but I do think listen, he took out the tail risk,
Speaker 3: which is a good thing for a Manica and not
Speaker 3: necessarily a good thing for gold, silver or bitcoin.
Speaker 4: I appreciate you making the connection back to the macro
Speaker 4: environment overall. I'm curious with this softness that we're seeing
Speaker 4: in crypto and bitcoin, how does that change what Galaxy
Speaker 4: is doing. Do you still plan to launch this one
Speaker 4: hundred million dollar hedge fund, crypto hedge fund in the
Speaker 4: first quarter that will bet on rising and falling prices.
Speaker 4: Does it change your timeline? That's how you're thinking about it.
Speaker 2: Yeah.
Speaker 3: The great thing about this hedge fund, it's really a
Speaker 3: fintech fund, and it's the broader ecosystem. So I said
Speaker 3: on our call, this is a tale of two cities,
Speaker 3: or really three cities because we have this, we have.
Speaker 2: This data center business which is booming, thank god.
Speaker 3: Like you know, if I didn't have the data center business,
Speaker 3: i'd feel a lot worse. But our data center business
Speaker 3: is now worth more than our crypto business. But within crypto,
Speaker 3: there's still a bullmarkt and there's a bull market in
Speaker 3: infrastructure right The traditional banks and finance companies are moving
Speaker 3: into this space quickly, and you're seeing, we're seeing lots
Speaker 3: some opportunities to partner with them around building wallets, around
Speaker 3: staking and around really thinking about how tokenized real world assets,
Speaker 3: you know, move into the world. And so I think
Speaker 3: I haven't seen more excitement since I started from the
Speaker 3: traditional players to get.
Speaker 2: Engaged in digital assets.
Speaker 3: And we've got the old version of crypto, the tokens
Speaker 3: that exist today that just don't seem to have the
Speaker 3: same the same support and the same appreciation, the same
Speaker 3: energy in them right now, And so some of that
Speaker 3: energy has shifted, and you see you see things like
Speaker 3: you know, perpetual swaps on equities booming all of a sudden.
Speaker 3: So using the crypto infrastructure for real world assets, the
Speaker 3: crypto leverage system for real world assets, and so that
Speaker 3: part of the business is really exciting where we're leaning
Speaker 3: into it both in hiring and more and you know,
Speaker 3: utilizing our engineering team to help others get in this game.
Speaker 3: The other part is moving things more on Shine and
Speaker 3: that is happening quickly, right. So you're going to see
Speaker 3: credit on Shane and you already see the boom of
Speaker 3: stable coins. I mean you look at the volume of
Speaker 3: stable coins in the first month of the year. It's explosive.
Speaker 3: And so we are moving into a digital world and
Speaker 3: it's going to run on crypto, you know, blockchain rails.
Speaker 2: Yeah, that's just.
Speaker 3: Not correlating with the price of bitcoin, the price of ethereum,
Speaker 3: the price of Salona, ripple, you name it.
Speaker 4: So, Mike, with this excitement with the data center business,
Speaker 4: would you consider a spin off to separate your crypto
Speaker 4: and AI data center businesses. Would you be open perhaps
Speaker 4: to selling your data center unit to any of the
Speaker 4: hyperscalers should they come knocking on the door.
Speaker 3: Listen, we are we're in the build mode on the
Speaker 3: data center business. We just got five hundred and thirty
Speaker 3: megawatts of power approved down in Texas. That's probably the
Speaker 3: largest new power approval in the United States for a
Speaker 3: while Uh, and so I couldn't be more excited about that.
Speaker 3: We're we're engaging now with you know, potential tenants that
Speaker 3: you can guess who they are.
Speaker 2: Uh.
Speaker 3: And so I think we're going to run this data
Speaker 3: center business, and we're going to grow this data center
Speaker 3: business ourselves.
Speaker 2: Uh.
Speaker 3: The capital structure and galaxy is something we think about
Speaker 3: a lot. And I said before, if you know, A
Speaker 3: plus B is a bigger number an A plus B.
Speaker 3: We should stay together, and if it looks like we're
Speaker 3: getting penalized, we'll figure a way to you know, maximize
Speaker 3: shareholder value. And so right now, you know, in this
Speaker 3: short term, our stock seems to trade, you know, very
Speaker 3: cheap relative to what I think the data center business
Speaker 3: is worth, let alone the value of our our book,
Speaker 3: in our in our our crypto business. And so yeah,
Speaker 3: we're certainly looking.
Speaker 1: At it, Hey, Mike, very briefly, and then we're going
Speaker 1: to do some news and come back to you in
Speaker 1: just a few minutes. Are we You've seen a lot
Speaker 1: of cycle. You have the tattoos to prove it. Are
Speaker 1: we in a crypto winter right now?
Speaker 2: Yeah?
Speaker 3: Listen, I mean we've read one hundred and thirty thousand
Speaker 3: and we're now at seventy six thousand, and so that
Speaker 3: is what a forty five percent drop if I did
Speaker 3: my math right, or maybe it's forty percent drop. That's
Speaker 3: way through bear market, and that feels awfully chilly. My
Speaker 3: question is when is spring coming? And I think we're
Speaker 3: closer to spring than we are to the start of winner.
Speaker 4: Big picture when it comes to any kind of regulation
Speaker 4: when it comes to crypto is what's going on with
Speaker 4: the crypto market structure bill? And the big sticking point
Speaker 4: at this moment is whether crypto companies can give some
Speaker 4: reward points or yield on stable coin balances. You've said
Speaker 4: that the crypto industry is going to lose the battle
Speaker 4: against the banking lobby on this.
Speaker 3: Why is that, Mike, Listen, there are a lot of banks.
Speaker 3: They've done this a long time. They're good at lobbying.
Speaker 3: They have community banks, their cousins, their poor cousins, very
Speaker 3: poor cousins in every district of every congressman.
Speaker 2: And the community banks are being.
Speaker 3: Used very effectively to say, oh my goodness, oh my goodness,
Speaker 3: we're going to have this terrible deposit flight and then
Speaker 3: we'll not be able to give credit. It's you know,
Speaker 3: it's not a real story, but it's working because listen,
Speaker 3: if people wanted to take their money out of community banks,
Speaker 3: they could have put it into galaxies eight percent offering
Speaker 3: or sofis.
Speaker 2: You know, there are so many neo.
Speaker 3: Banks, and yet deposit flight is slow, right, Deposits in
Speaker 3: general are sticky, and so over time, yes, there would
Speaker 3: be deposit flight, but there should be because in most
Speaker 3: of those banks, including JP, Morgan, Wells, Fargo, you name it,
Speaker 3: Chase City Bank, you put your money in your savings
Speaker 3: account and they pay you nothing, and they make a
Speaker 3: whole lot of money leaving it at the FED at
Speaker 3: three and a half or four percent, and so it
Speaker 3: is terrible for the consumer. It's ironic that Washington, both
Speaker 3: Democrats and Republicans are saying, hey, let's let's let's side
Speaker 3: on the let's side with big banks and not not
Speaker 3: the consumers, not our constituents. But that's exactly what's happening.
Speaker 3: And so Brian Armstrong and and you know, the stable
Speaker 3: point issuers who are saying, hey, we want to we
Speaker 3: want to actually have an innovative, you know, security that
Speaker 3: that allows us to pass on some of that interests
Speaker 3: to our customers through rewards or actually, in the perfect way,
Speaker 3: it would be through direct interests. But you know, banks
Speaker 3: are strong in the lobby and they're you know, I
Speaker 3: do think a deal gets done somewhere in between. But
Speaker 3: right now both sides are kind of at a Mexican standoff.
Speaker 3: Why do I think a deal still gets done? Like
Speaker 3: the Republican senators have put a lot of time in
Speaker 3: this and have a lot at stake.
Speaker 2: Right Trump is the quote crypto president. You you you've
Speaker 2: got the House.
Speaker 3: Hey, on the Senate, you better be able to pass
Speaker 3: a crypto bill or you look pretty weak.
Speaker 1: We'll give us your view on when you think that
Speaker 1: market structure bill will pass.
Speaker 3: And the Democrats have the same you know, the Democrats
Speaker 3: don't want the crypto pack which just came out and
Speaker 3: said we've had one hundred and ninety million dollars of
Speaker 3: a bazooka ready to shoot at people.
Speaker 2: That's stay out of the way of crypto.
Speaker 3: And so the damage just want to pass this thing
Speaker 3: and have crypto off the table. In politics, it never
Speaker 3: should have been political. It always should have been a
Speaker 3: bipartisan issue. Elizabeth Warren made it political. Agaensler made it
Speaker 3: political well, and so listen, I think this is you know,
Speaker 3: two weeks, it's six weeks, and I think my hope
Speaker 3: is we have something done.
Speaker 2: Okay.
Speaker 4: I want to get your take on prediction markets as well.
Speaker 4: The CFTC chairman Michael seeleggs clearly talking about the need
Speaker 4: to come up with some kind of rules of the
Speaker 4: road for this part of the market is growing very
Speaker 4: very quickly. And I'm wondering, from where you sit, what
Speaker 4: is the single most important legislation or rule that needs
Speaker 4: to be put forth on prediction markets.
Speaker 2: You know, it's a good question. I think.
Speaker 3: The industry, not the prediction market industry, but the sports
Speaker 3: betting industry, the gambling industry got caught off guard that
Speaker 3: the CFDAC basically said, hey, this is a new form
Speaker 3: of security, or a new form of a not security,
Speaker 3: a new form of a platform for people to use
Speaker 3: as a hedging to make bets on.
Speaker 2: And they allowed it, right.
Speaker 3: And so since then there has been a furious lobbying
Speaker 3: effort by the casinos and the sports betting places to say,
Speaker 3: that's not fair. We have all this, we have all
Speaker 3: this compliance we need to do, and these guys don't.
Speaker 3: And so I'm guessing the CFDC is trying to thread
Speaker 3: the needle to keep the existing world happy to a
Speaker 3: degree and not have to go back on this new
Speaker 3: industry which is innovative as can be, which is growing,
Speaker 3: which has captured the imagination of of not just the
Speaker 3: retail users of it, but they had somebody like Ice, right,
Speaker 3: Jeff Sprecker put two billion dollars into into poly marketing.
Speaker 2: Yeah, and so I.
Speaker 3: Mean this is another battle of incumbents trying to protect
Speaker 3: their turf against.
Speaker 2: An innovative, uh you know, new new upstart. Yes.
Speaker 1: Well, our colleague Emily Nicole reported back in November that
Speaker 1: Digital Galaxy Digital is experimenting in prediction markets discussions with
Speaker 1: poly market and call shape what's the latest there?
Speaker 3: You know again, we we didn't invest in those guys
Speaker 3: way back. I wish I had I had the opportunity to.
Speaker 3: And you know, I I quite frankly wasn't uh convinced
Speaker 3: that without sports, but you know, they that just you know,
Speaker 3: you weren't allowed to do politics back then. Sports betting
Speaker 3: seemed off the table, and so I didn't see where
Speaker 3: the where the tam was and you know, these guys
Speaker 3: proved me wrong, and and the CFTC gave them the pass.
Speaker 3: And so if you look at prediction markets, most of
Speaker 3: the volume happens around sports betting, and so, uh you know,
Speaker 3: they're not that many things you want to bet on
Speaker 3: every day, but sports happen.
Speaker 2: They have their defined outcomes. Uh right, politics which.
Speaker 3: Again was illegal for us to us investors to bet
Speaker 3: on politics. And you know, you have the whole rate
Speaker 3: of of of polymarket. You know, this is a new regime,
Speaker 3: new regime, it's a new administration with a very different view.
Speaker 3: And so so what could we do. We want to
Speaker 3: look at infrastructure. We want to be market makers. We
Speaker 3: wanted to you know, be providers of liquidity, and we're
Speaker 3: just getting started.
Speaker 4: Other trading firms Mike have also considered getting involved in
Speaker 4: prediction markets, like jump trading or sports betting. AQR Capital
Speaker 4: Management has talked about sports betting. How do you see
Speaker 4: this competitive landscape developing over the next year?
Speaker 3: Yeah, listen, I mean there's if you think about sports betting,
Speaker 3: you've got you Susquehanna has been a giant in it.
Speaker 2: These these high frequency trade.
Speaker 3: Ears with huge technology budgets will all they'll trade anything
Speaker 3: that moves, and they're good at it, and so I
Speaker 3: think there will be lots of liquidity provided from that
Speaker 3: same group of people that provide liquidity in same day
Speaker 3: options and that market making everything, and so if retail comes,
Speaker 3: there will be plenty of institutions to pick up their pennies.
Speaker 1: And Nichols Mike got to leave it there. Always love
Speaker 1: it when you join us on Bloomberg Crypto. Thanks so
Speaker 1: much for taking the time, especially on earning day that's
Speaker 1: Galaxy Digitals. Mike nobergrats joining us from New York.