Raoul Pal: Novo, good to see you again.
Mike Novogratz: You as well.
You as well.
RP: It’s been a while.
I really wanted to get back together with
you to talk about– you’ve done one of the
things that I find really interesting.
I’ve been interested in this whole kind of
crypto, and blockchain world, and all of what’s
going on.
And you’ve made the shift from macro to this.
So you’ve obviously seen it as a macro opportunity.
And Burbank’s done this, and Dan Morehead,
and a lot of people we all know did.
Talk me through it.
MN: Oh, sure.
The first little secret is Morehead’s fund
didnt do so well in macro.
He kind of reinvented himself in crypto.
He had a good run for a long time.
RP: Same with John as well– Burbank.
MN: Same with John.
And so often, necessity is the mother of invention.
Listen, I left Fortress.
And like many people, there were some broken
I had a crummy in my fund last year.
And I took some time to reassess.
I was running a family office.
And just being invested in crypto– and we
were investing back in Fortress.
When it started to take off, you had extra
time to sink your teeth into it.
And it just sucks you right in.
It is fascinating from a political perspective.
It’s fascinating from a sociological perspective.
It’s fascinating it’s making new economic
And it is macro.
And so the skills you have in macro are so
It’s macro plus being a venture guy.
And so for me, it was just an easy fit.
And having had early skin in the game, and
being either silly enough or smart enough
to get on TV back in 2014-15 and talked about
why I thought it was a bull market and build
credibility, it didn’t take long before I
had the shot to kind of be one of the guys
at the center of the space.
And when I was looking at next careers, it’s
It’s exciting.
You want to stay young and hang out with young
It kind of sucked me right in.
RP: There was a mate of mine who’s another
ex Goldman guy– Emil Woods.
I don’t know if you know Emil.
He’s been in blockchain, Bitcoin for a long
time very early on.
And he just said he left the hedge fund game
for one thing and went to this.
He said, because this is alpha.
He said, there was almost no alpha left in
markets, or much less alpha.
MN: I’m not sure I believe that actually.
Listen, some people really did see this as–
like Morehead to his credit, when I called
Dan, he was sitting on the sidelines and sort
of called me.
I looked into Bitcoin.
I said, this thing’s going to go higher.
And we didn’t have enough time, nor did Fortress
really want to be big investors publicly in
the Bitcoin-blockchain space back then.
So we called Dan and said, look into it.
And so Dan, to his credit, spent two weeks,
and called back, and said this is going to
change the whole world.
And so he went in hook, line, and sinker.
And a matter of fact, I owe him a thanks.
Because Briger and I, who are the Fortress
guys behind this, we were wealthy guys at
the time.
And Dan was pretty wealthy, but not nearly
as wealthy.
And so he put a lot of money into it.
So we figured we at least need to put as much
as he did.
And so a lot of our early giant gains came
from the fact that Morehead had so much courage
around this thing.
RP: Yeah.
Nothing like a bit of competition, right?
MN: Yes, exactly.
RP: So what is it that appealed to you about
the space?
Because everyone always has this anchor point
that they get into something because they
see something, and then goes, OK, I get it
What was the thing that you saw?
MN: Originally, I got a call from Pete Gregory.
He said he had moved to the west coast.
Everyone is talking about Bitcoin.
What do you know?
I said, I’ve never even heard of it.
So I googled it, did a little homework.
And at that point, it was 2012.
We were right in the middle of the European
financial crisis.
We’d had the big financial crises in 08.
And I remember, literally, Paul Singer took
an ad in the newspaper saying that Ben Bernanke
should go to jail because QE2 was so treasonous.
And I’m thinking, Paul Singer is one of the
world’s great investors.
Like, what’s he thinking?
And there was this split.
People were so worried about quantitative
And I was like, wow, we have rational economic
actors worried about the state of Fiat currency.
We also have the cypherpunks, the libertarians,
the people that want to live off the grid.
And there was enough of a constituency– and
the Chinese were buying.
Enough of a constituency, I was like, cool
technology, cool economic idea– this thing
is going higher.
So I thought at least it’ll be a bubble.
No idea if there would be mass adoption or
not, but at least I originally bought it really
as a speculative asset.
And then we had that great debate– do you
want to own the asset or the picks and shovels?
So we bought some exchanges.
Our great miss was we tried to get into the
coin-based round.
So it was Fortress and Benchmark.
And they end up picking Andreessen and Union
Square Ventures.
Fred Ehrsam was an FX guy at Goldman Sachs.
I was an FX guy at Goldman Sachs– like, Fred,
let us in.
He didn’t let us in.
But a home-run investment for those guys.
But we invested in Bitstamp, and Corbett,
and some other exchanges that did very well.
It wasn’t really until I left Fortress and
I stumbled into Joe Lubin, who runs ConsenSys’
Joe’s a college roommate and a friend.
And I looked at my portfolio.
I was like, I’ve got all this stuff.
Bitcoin hadn’t gone sideways for a while.
And I know Joe had been coding away for years
on this new project, Ethereum.
So I went to visit his office.
And it was my first aha moment.
I was like, shit, these guys are plotting
a revolution.
They were plotting a revolution to take down
all these centralized systems.
And so if it was the cloud, if it was ride-sharing,
file-sharing– all the verticals, they had
them on their Wall The music business.
RP: They had a very clear sense of where they
were going?
MN: They had a very clear sense.
And he is a complete believer in this new
world, in this decentralized, distributed
world– distributed trust, distributed ownership.
And I was literally there an hour.
And I was like, dude, I want to buy this business.
And we started talking about it.
And it was more complicated than I thought.
Everything was decentralized.
He said, come back in three weeks, I’ll know
what I can sell you.
And I was on my way to India.
So I at least bought some Ethereum.
Good macro guys know, when you smell something,
at least put something on.
So I bought a bunch of Ethereum at $0.96,
which was hard to do.
And then I went away.
By the time I came back from traveling in
India, it was $4 bucks, $5 bucks the next
And I realized, Joe no longer needed my capital
because he owned a lot of Ethereum himself.
But it really sucked me in.
I was like, this is more than just financial.
This is going to be web 3.0.
And why it’s got such vibrancy is that it’s
a millennial and Gen Z-led revolution.
And this is their game in lots of ways.
And at its core, it’s a distrust.
And it’s also more of a utopian– they want
to build a more fair system.
And so it’s cutting out the middleman in lots
of ways.
So if you look at the music, their version
of music is Ujo Music.
There’s lots of different people trying to
disrupt the business.
It’s connecting the artist to the consumer,
and cutting out the guy that takes 89-95%
of the money right now– you know, the fat
RP: Yeah, there’s a whole social thing behind
It’s not just about finance.
People don’t see that.
MN: Well, what was unique about Satoshi’s
Whitepaper– so the cryptography is really
They solved problems that computer scientists
have been working on solving for a long, long
And maybe that gets a Nobel Prize one day.
But more unique maybe is the token in the
Bitcoin ecosystem– bitcoin.
But the token has an incentive mechanism to
drive people in the same direction to create
a social network.
And so you have this kind of new economic
model in lots of ways, where we can create
an incentive structure to really quickly create
social networks.
And then it’s an experiment.
RP: Because it is an incentivized social network
MN: That’s exactly what it is.
And so it’s, in some ways, if you got paid
a tiny bit to contribute to Wikipedia.
But Wikipedia worked even without the incentive
And so can communities nurture and grow businesses
or systems as well or better than individuals?
And that will be a real battle.
RP: It’s a big experiment, right?
MN: It’s a huge experiment.
RP: Because the libertarians will believe
that it’s possible, you don’t need anybody
controlling anything.
But you kind of look where Facebook has gone,
and you kind of think, well, I’m not sure.
MN: Well, so what’s going to end up happening
is we’re not going to go all one way or all
the other.
There’s going to be some use cases where it
really works.
Like, centralization works pretty well in
lots of things.
But I did 23andMe where I licked thank stinkin’
stick seven years ago.
And now Esther Wojcicki owns my DNA data.
RP: And he’s selling it now by the way to
MN: And so a while back, people owning your
data wasn’t such a big deal.
So what they owned your data?
If the Chinese owned 95% of all spending data
eight years ago, they could never find it.
Because a billion people would have to find
But with AI, you’ve got this giant worm that
they plug in.
And it sucks all the blood out of your neck.
And next thing you know, your– so it’s this
dystopian future when AI can plug into these
giant data silos.
And so if you think about all our DNA data–
23andMe has five million DNA genomes, and
Ancestry has 10 million.
Those are huge databases.
That gets scary.
Like, that shouldn’t be given to one central
location that could get hacked or get sold.
That should be behind a blockchain where people
that contribute get paid something.
And the research organizations pay to use
that data.
And quite frankly, if everyone put their data
in, we’d have monster gains in medical treatment.
And so the idea of those databases isn’t a
bad thing.
The idea of those databases not being private
is a really bad thing.
RP: Yeah.
Because the one thing that interests me–
kind of I’m mesmerized by– is Google, in
terms of so much data.
Nobody’s ever owned that much data on that
many people in history.
Nobody knows how secure it is from cyber crime
or anything else.
And why should we give a monopolistic power
to something like Google— MN: We shouldn’t
It was the flaw of the internet.
And I think people now are starting to recognize
that in lots of ways.
Lonnie– I can’t remember his last name.
This year’s Ted, the opening talk was this
guy Lonnie, whose name I can’t remember.
He’s this big, wonderfully thought of technologist.
And he gave this whole speech about, listen,
there was one mistake where people went with
the advertising model, which created these.
He was arguing they should go back and change.
But we have these unbelievable data silos.
And I think it’s why it’s created all the
We look at all the wealth of the internet
has gone into literally seven or eight companies.
RP: Yeah.
So Tim Berners-Lee is talking about something
like this now as well.
Have you seen that?
MN: I haven’t seen his thing.
RP: So he’s been talking about some way of
retooling a web 3.0 to get rid of this– the
fact that the data is owned by people.
Every time I see him talk about it, I just
think this has got blockchain written all
over it.
MN: That’s the promise of the blockchain.
And that’s literally the future of the blockchain.
RP: But most people don’t get that.
Most people still think it was a financial
MN: And so it’s interesting– the evolution
especially of big companies.
We have this index with Bloomberg, the Bloomberg
Galaxy Crypto Index, which we’re proud of.
We think it’s a wonderful addition to the
architecture of the space.
Our young guys and their young guys got all
It kind of moved up the food chain.
And it got stalled at the management committee
level, because older guys think, North Korea,
Silk Road, money laundering, Bitcoin.
And to their credit, with a little encouragement,
listen to the young guys.
Just listen.
Listen to the story.
And when they listened to the story, it got
Over I think it was one third of their terminals,
or something close to one of their terminals,
had asked for more information on crypto.
So there’s this desire for people to understand
this thing.
And so here’s a conservative media company–
one of the best in the financial market space,
if not the best– that thought about it, debated
it, listened to the story, and actually approved
And I’m seeing that at almost every big company
I visit.
Where a year ago, they were like, what, can
you explain this.
Now when I go there, they’re asking really
pointed questions.
Sometimes, I’m just listening and taking notes.
And they’re all much closer to implementation
of something.
RP: So what are they going to do?
I mean, we’ve seen Visa doing stuff.
IBM has started to do stuff.
People are looking at it.
What’s your sense of the lie of the land and
where it’s going?
MN: There are multiple fronts you got to look
So the one front for the financial markets
is, what’s just the financial market architecture
that allows people to get comfortable with
So if you’re running the state of Wisconsin
pension fund– I always pick on them because
they’re always a forward-thinking pension
fund– what’s going to get them in?
And so part of that is custody.
So ironically, it’s a custody solution from
someone they trust.
RP: And the whole custody system needs to
go on this by the way.
MN: But it’s happening.
I would bet you in the next week to three
months, you’re going to see multiple announcements
of good custody solutions.
The custody systems that are there now are
fine, but they’re not from companies that
people have heard of or trust.
And so you’re going to see branded names come
into this business.
And I think that’s going to kick prices to
the right.
And it’s going to create adoption.
RP: Does that stop the investment opportunity
for others?
Because you’re kind of hoping you’re going
to find the new Google in this whole mix.
But in the end, the DTCC can use it for clearing
and everything else.
How do you make money out of this?
MN: If you think about how I actually look
at the market, I put Bitcoin in its own class.
It was the first mover.
It has developed a use case of store value
of digital gold.
It is clunky.
It’s expensive.
It’s going to remain expensive– to process,
It takes a lot of energy use.
And it will never process the million transactions
a second– I shouldn’t say never.
It’s less likely to process the million transactions
a second that are going to be needed to really
have the blockchain be the architecture in
web 3.0.
But people know it and like it.
And it feels like digital gold.
Why has gold got an $8 trillion market cap?
It sits in vaults and has negative carry.
Bitcoin at least will have positive carry
soon enough because you’re going to have a
repo curve and everything else.
And so I think that’s motoring along.
And it will be the first point of on-boarding
for institutions.
They’ll buy Bitcoin.
It’ll be in the first place that gets custodied.
So these custody solutions coming out will
start with Bitcoin.
The SEC has already said it’s not a security.
It makes it very safe to custody.
And so I think you’re going to have a surge.
This will be the fall of Bitcoin.
Bitcoin is going to outperform the rest of
the coins for a while.
The more interesting piece in the long run
is these 100 blockchain companies vying to
be one of a few of what I’ll think is the
world’s shared, decentralized supercomputer
that processes data and authenticates it.
That’s what a blockchain is.
And so if you’re Hashgraph, or Dfinity, or
Ethereum, or EOS, or NEO, or all these names
that people are investing in the token system
of, a few of those are going to win out.
The winners of those, the token values are
going to go far, far, far higher.
They’re going to go higher for both store
of value, but also for use case.
The Ether token is a commodity.
It’s buying gas to have processing power later
EOS, you’re buying a slice of that processing
And so the winners of those are going to be
big winners.
It’s hard to predict the winners of those,
They’re open source.
They’re collaborative.
There’s a layer on top of those being built
now– these interoperability programs, things
like Cosmos, and Polkadot, and Aon.
So we’ve got a team of the computer science
guys that are trying to sort out how that’s
going to play out.
The honest answer is, I don’t actually know
And I’m not sure anybody does.
But so that’s something to watch.
And then the third bucket are what they call
Dapps, or applications built on top of the
blockchains, where they go to individual verticals.
And those are interesting.
So there’s one for decentralized gambling.
Not that there’s one, there’s five trying
to be the decentralized gambling slot.
My intuition– there will be one winner in
each of those verticals.
And it’s too early to tell which one will—
RP: And there’s a lot of verticals.
MN: There’s a lot of verticals.
And so all of a sudden, you’re in some ways
rebuilding a big portion of the web.
It’s interesting.
RP: So let’s talk about the cryptocurrency
side for a bit.
How are you approaching investing or trading
in this?
Because obviously, it’s going to bring the
high frequency guys.
It’s going to bring everybody into the space.
MN: They’re all there.
So there is a huge arbitrage opportunity in
December of January.
I’ve never seen arb’s like this.
And by March, it was gone.
It was gone because Hudson River Trading,
and Susquehanna, and Jane Street, and all
the big names with the smart guys were like,
we could figure this out.
And they did.
Not just those three– the crypto people,
the Asians, the Chinese are all over this.
RP: And what was that arb?
MN: It was an arb, that you could at times
buy Bitcoin on one exchange at one price and
another at another price.
There was so much water being pushed through
small pipes.
Coinbase, and Gemini, and all the US exchanges
were trying their hardest to process new applications
and to KYC them.
And they just couldn’t do it fast enough.
And so prices were all over the place.
And there was this kind of retail chaos.
I actually sold a lot of stuff at that time
because I was like, OK, this is what tops
look like– just people climbing on top of
each other to buy things.
And that bubble popped.
The retail bubble popped when we hit 20,000
in Bitcoin and 1,400 in Ethereum.
It’s taken six to nine months to kind of deflate
that retail bubble.
There’s still a ceiling of retail sellers
above the market.
And the coins have been in a sluggish bear
market since January.
The alt coins have gotten destroyed– down
70-80-90% some of them.
And so you might think, eh, we’re now in a
bear market.
What you’re missing if you think that is all
the underlying movement is so bullish.
And so how are institutions making their first
They’re doing an adventure.
And so Andreesen just announced a $300 million
Funds like Polychain– Pantera just raised
80 million more for their next venture fund.
And they’ll probably do another 80 on top
of it.
So when you look at the private market, it’s
bid, bid, bid.
We’re fighting to get into the best deals.
There are new players in it, right?
Binance and WoB– companies you probably haven’t
even heard of have huge war chests because
they were the exchanges overseas.
Coinbase has a war chest.
ConsenSys has a war chest.
Block.one one has a war chest.
There are five or six players just in the
crypto space that have monster war chests,
let alone all the venture guys.
And so when Telegram wanted to raise money,
they raised $1.8 million like that in a bear
ICO’s I think I read in the first half of
the year were 45% of total volume IPO’s.
And so if Wall Street isn’t paying attention—
RP: I think people are spinning to catch up.
MN: Yes.
RP: It’s moving so fast.
MN: And so it’s a bull market in privates.
It’s a bull market of talent coming into the
If you look at my analyst class, you’ll be
like, whoa.
It’s a better analyst class than you had when
you were running a $10 billion macro fund
at Fortress.
It is.
Like, the quality of talent coming in.
RP: You attract some great minds.
MN: And so the computer science talent, the
entrepreneurial talent, the sales and trading
talent is all moving in.
And if you look at the amount of people being
hired, it’s a graph that goes straight like
And so you’ve got a bull market in talent.
You’ve got a bull market in privates.
I get asked to speak five days a week.
And when I look at the quality of the places,
there’s a bull market in speaking engagements
and conferences.
And so I check all the boxes.
And we’re making progress on the computer
We’re making progress on the economics.
And we’re making progress on the institutional
And so if I didn’t see the prices of the coins,
I’d be like, this is a raging bull.
It’s going to take a while for the coins to
burn off that bubble.
And it’s not going to really see the acceleration
until you see the institutions coming in.
And they’re just starting.
RP: But what happens if you go through a bust
in the VC side?
Because it’s attracted more money than almost
anything else.
MN: It will.
RP: And it’s got to go through that bust side.
We’ve seen it all, right?
MN: We’re too early to call the bust, because
we’re just in the ramp up here.
That’s four years out.
RP: Because it kind of feels to me, if I look
at how– we saw it in the internet back in
2000 or we saw it in the PC day.
They do the same thing– the whole space moves
massively; it all goes bust; the capital leaves;
then out of those ashes, comes the real move.
MN: Sure.
I think there will be some of that– unaccelerated
It’s just things are moving so much faster.
The dot.com was a US-led phenomenon.
It was broadly only US.
This is global.
I was just in Korea and had a fascinating
conversation with a CEO of one of the big
Chaebol groups where they were looking at
doing a Korean blockchain and then building
apps on top of it.
And I was like, why would you have a monopoly
in what you do?
And he was like, because I’m worried in three
to four years, all the musicians are going
to want to be in a decentralized system, the
taxi drivers are going to want to be in a
decentralized system.
He says, I think all my users are going to
go, therefore I want to own part of it– so
in essence, hedging against his own business.
That’s way ahead of where the US CEOs are,
at least in my experience with them.
Uber is worried about Lyft, and about regulation,
and about culture of their company, not about
the decentralized version.
The Korean CEO was worried about the decentralized
And so this is a global thing which is going
to move at different speeds in different places.
And then when you see one group doing it,
the other group catches on.
And so I can see these cycles happening much
faster than they did in, say, the internet.
RP: I know we don’t want to say this, but
it’s different this time.
I kind of agree.
it seems to be heightened cycles.
MN: Well, it is, and it isn’t.
People ask me, like, how did you sell, why
were you selling this.
Because the laws of physics still hold.
When things get crazy— RP: The investment
framework that we grew up with still works
in this world.
MN: The investment that we grew up with was
the investment framework that’s lasted for
2000 years.
RP: It’s human nature.
MN: That’s not going to change.
And so one of our core principles is discipline
If you buy something and it gets to really
stupid prices, sell it.
Don’t regret it if it goes a little higher.
RP: This is another side question.
How the hell do you deal with the volatility?
Because you’ve got this multi-pronged approach.
We’re coming to what you guys are doing.
But it’s bloody hard, right?
Because it’s not the world that we’re used
MN: You drink a lot.
No, no, no.
RP: Yeah, and you don’t sleep.
MN: You know what, you size your positions
You’ve done this long enough.
If you’re dealing with a 100-vol instrument
relative to a 10-vol instrument, you have
a smaller position.
When you have a small position and it’s going
up, you take profits along the way to keep
your overall vol balanced.
But we run at a much higher vol than I would
have run a non-crypto investment bank.
RP: Well, that’s because the risk-reward is
Because if you got a higher pay out, you can
run a higher vol.
MN: Well, that’s true as well as the employees
that are coming into this space, the investors
that are coming into this space are coming
in with a knowledge of higher vol.
And so you’re not taking investor money and
them wanting you to run it at a 4-vol.
RP: Thank god.
That was the death of the hedge fund industry,
MN: People are coming in because they want
to take advantage of the opportunity of a
new emerging market.
And so you’ve got to kind of almost think
like this is investing in emerging markets
15-20 years ago.
RP: And so do you think it’s a traders market,
or it’s a buy and hold market, or somewhere
in the middle, or it’s buy and hold and trade
around the edges?
MN: I bought this piece of art that says HODL,
because I laugh at– it’s hold on for dear
And it’s a meme in the crypto space.
And I’m not a HODL-er.
And so I thought it was kind of cheeky to
buy it.
When I buy something that I think gets way
overvalued– and you have to understand what
overvalued is, it’s relative to other stuff–
I sell it.
There are some things that are core holdings.
But I can shave those a whole lot.
So I trade around a very bullish macro idea.
We are long as a company.
RP: Sure.
By definition.
MN: By definition.
We have 70-odd people.
And so we’re long in the space.
But I think you still have to be a disciplined
RP: Because I tried to do it in the ag market.
I started with Magnus, a mutual friend of
ours, an ag fund back in 2007.
Ag’s had just stated taking off– a brilliant
And then we had to learn about agricultural
And fuck, we walked away quickly thinking,
this is not that easy.
MN: Yeah.
Listen, when— RP: You try to run long bias,
but it’s very difficult.
MN: And you have to sell at times.
When you make a whole lot of money in something,
you have to take some chips off the table.
Because inevitably, things don’t go one direction
RP: And so how do people look between the
various cryptos?
We’ll still talk about cryptos and move onto
other stuff in a second.
They’re looking at this whole base of cryptos.
How do they know which to invest in?
Because people are just kind of now punting
in the lowest– well, they were– in the bubble,
punting at the lowest prized crypto.
MN: I think last year’s mania was a one-off
mania that’s not coming back.
So if you’re coming into the space thinking
you’re going to re-get 2017, you’re crazy.
It wasn’t.
It was a retail mania that caught fire, lasted
for about four months, and was done.
And part of the reason it was done was the
regulators said, stop.
A regulator’s job is to protect the little
And the regulators were behind the curve.
And the little guy was getting battered.
It was getting battered in China, in Korea,
in Japan, in the US.
And so global regulators said, stop.
Let’s get a hold of things.
And on a go-forward basis– listen, the crowd-sourcing
part of this is going to exist, but it’s going
to exist under different frameworks.
You’re going to have broker dealers that are
raising the capital for most of the new ICO’s
under some regulatory framework.
You’re going to have better projects, I think,
that rise to be able to get capital raised.
And I don’t think you’re going to have this,
you invest, and a week later it’s 100x.
You’re like – . And so the crypto community
is going to shift, right?
As we move to security tokens, you securitize
a bunch of real estate, or tokenize a bunch
of real estate.
A great real estate investment might do 15%
a year, 20% a year, right?
No crypto guys last year were buying token
x at 5 hoping it would go to 6.
They were buying it at 5, hoping it would
go to 50.
And so there’s going to be a mindset shift
and new buyers coming into the market.
Institutions are going to come into the market
with a much more sober approach.
RP: Because I kind of look at the ICO market
and look at– it was a complete mess to start
But what’s in that mess is super interesting
of where this is potentially going to go.
And there’s a whole new way of doing things.
It’s kind of the mix between IPO’s plus crowd-funding
plus decentralization.
And all this stuff is in there.
MN: And it’s coming.
RP: How do you think that all plays out?
MN: Well, it’s coming.
Part of what we’re doing is building an investment
bank to be able to— RP: Yeah, that’s what
I wanted to ask you about— MN: –to be able
to be a participant in that.
And I think there’s a couple of years of runway
before the big boys join the foray.
But let me tell you, if you’re a CEO of an
exchange and you read that BitFenix made $300
million on $320 of revenue, and that Binance
made $400 million over the same five-month
period, and that Coinbase made $1 billion
in the last quarter of last year, do you think
you’re running– whatever exchange you pick,
you’re going to be like, ah, let them have
that business.
I’ll just sit here my old— No.
These guys are on the move.
When the investment banks say, oh shit, the
ICO market is half of the IPO market, don’t
think not every single one of those banks
is figuring out how they can think about transitioning
and following this.
RP: Kind of that utopian dream that we started
the conversation with– I mean, I’ve said
this from day one.
I’ve said, the people who are going to control
this is likely the banks plus a couple of
new entrants.
Because we know the corporate guys, all these
guys are smart.
They’re not going to— MN: There is going
to be a lot of top-down projects that are
coming out in the next 24 months.
And there’s going to be some angst in the
community of saying, they’re stealing the
You know, the truth is somewhere in between.
There are still going to be a lot of decentralized
They are going to be– and quite frankly,
a lot of the older players will be bridges
to get the capital in, right?
You don’t change the world on $400 billion
of market cap.
You don’t.
And for the blockchain revolution, for this
crypto revolution to kind of fulfill its dream,
to fulfill its mission, it’s going to need
a lot more capital from a lot more constituents.
And so you need institutional money.
And so there’s going to be some compromise.
And you’re right– a lot of the big players
are going to say, my mission is to be an exchange,
to be in the middle of things.
And I know how to do it really well.
And I know how to do it and protect the security
and protect the little guy.
And so they’re coming in.
And I think a lot of the crypto companies–
one of my bets would be that a lot of the
crypto custody companies end up getting bought,
because traditional custody company ABC, who
is trusted, feels like they’re behind the
And so you’re going to see a collision of
the two worlds real fast.
RP: And what about government?
That’s another part.
I mean, because they’re looking at it too.
MN: So governments are interesting in that
part of them were the regulators– listen,
they were behind the curve.
And they were behind the curve because regulators
come from the institutions that we all grew
up at, right?
Jay Clayton worked at Sullivan Cromwell, right?
I remember I was on the Fed Markets Committee.
And at the end of a lot of meetings, Bill
Dudley would say, well, what should we be
worried about, where are the bubbles.
So he was asking his peers– the guys from
private equity and hedge funds.
He wasn’t asking Joe Q Retail.
98% of crypto was Joe Q Retail.
It was Mr. and Mrs. Watanabe, and Mr. and
Mrs. Smith, and Mr. and Mrs. Kim.
So they were behind.
So they’re catching up fast.
I was in Japan recently.
And one of my old partners, Oki Matsumoto–
Monex has just bought one of the exchange
that got hacked.
And he’s been spieling a lot of time with
the FSA.
Let me tell you, in the last four months,
they went from a high school education to
PhD summa cum laude.
Like, they have come up the curve, their regulators.
And I think you’re seeing that around the
world– regulators racing to get up the curve.
And so we’re going to have a more clear regulatory
The Winklevoss ETF just got rejected.
If you read it, the regulators are going from,
well, this is what was wrong– they’re narrowing
their frame.
And there’s an inevitability that there will
be a Bitcoin ETF at one point.
You just follow the first rejection to the
second rejection, the dissenting opinion.
And so the scope is moving in the right direction.
And so one, I think there’s an inevitability,
even in China.
In some ways, this is an anathema, right?
You’ve got President Xi, who has given himself
multi-terms, or at least the ability of multiterms.
So he wants to go to Emperor Xi.
They’ve got a centralized clearinghouse for
all financial data.
They’ve got cameras on street corners called
Skynet that facially recognize everybody.
Like, it’s kind of a dystopian, totalitarian
The blockchain is a complete fight to that.
All their regional governments are giving
money to blockchain projects– all of them.
There’s a ton– and so you would think, well,
how does those two things jive?
A, they don’t.
But there is a sense of inevitability that
the government says, well, it’s going to happen
anyway, we better understand it and be part
of it.
RP: But do you not think governments adopt
this technology to keep control of it?
I look at Aadhaar in India and all of that
kind– the digital monetization of India.
It’s like, OK, it’s not a blockchain, but
it’s obviously – MN: So you’ve got to be
little careful.
So there’s two rivers that are running side
by side.
And we can conflate them when they don’t need
to be conflated.
One is digitalization.
That’s happening.
And one is blockchain.
The difference is the centralization and decentralization
piece, right?
You can control the whole– China, in some
ways, if you really wanted a totalitarian
regime where you knew everything about everyone,
you would just do what they are doing– have
the whole thing centralized.
And you’d plug your little AI machine into
And they would know you’re a dissident before
you knew you were a dissident.
And so the blockchain itself actually makes
that more difficult.
It allows a privacy layer for you to be able
to allow what data you want out.
So it’s like that identity on the blockchain–
your selfsovereign electronic identity is
really the killer app.
If that gets implemented or not will be a
huge— RP: Well, because one of my thoughts
is that the backlash against populism is something
Populism is a lot of colluding putting people
together again.
But really, part of it is this decentralization.
What happens if a government was to choose
and say, OK, all of your data now cannot be
bucketed in certain places and could be put
in a blockchain?
I think there’s not the kind of government-controlled
blockchain idea, but there’s a way that they
would create an infrastructure to allow non-control
of some of your key elements.
MN: Yeah.
You’re merging to the same thing.
Listen, you could have legislative edict that
says, Facebook, you’re not allowed to save
anything for more than 24 days.
The legislators can try to get involved.
The blockchain is a much more elegant solution
to those things.
Listen, if you’re Mark Zuckerberg at Facebook
and you know the whole world is turning on
you for privacy, for you having blown the
data to Cambridge Analytica, and privacy,
and we all got those things– oh, my god,
I didn’t realize every photo I ever took,
they still have.
And so there was this little backlash.
You’ve got to think he’s figuring, well, how
do I counter that.
So they’re, I’m sure, looking at their own
solutions, which probably have blockchain
pieces to it.
RP: Yeah, that was a question I wanted to
ask you.
In your travels around the world, conversations
with people, what is Silicon Valley doing
about this– the existing Silicon Valley,
not the new disruptors, but the big firms?
MN: What I would tell you is that most of
Sand Hill Road missed kind of the first chapter.
And they are completely geared up.
The locust of the best deals in innovation
is moving right back to Silicon Valley.
And so we’re going to get a guy, and hire
him real quick, and put him out there.
But there’s grand energy going around the
new projects out there.
And so every venture group has redone their
docs to allow them to participate in blockchain
and to own coins.
And so there’s money pouring into it.
The big legacy companies, I’m not as sure
of yet.
They’ve been a little more private.
But they’ve announced that they’re all looking
into it.
RP: Yeah.
I’d just be super interested in what they
would do, right?
Given the set of problems that they’ve obviously
got right now, the solution is right here.
If Facebook decides to tokenize, OK, that’s
a whole different chapter in this whole story,
MN: It’s hard for those guys.
Even after this sell off, Facebook’s got a
$500 billion market cap.
Like, OK, I’m going to change my whole business
model– no, I’m not.
No, I’m not.
I’m just going to tweak it.
RP: Yeah.
No, that’s true.
So when you’re looking at the whole thing,
you’re now trying to build up a firm that
kind of acts as an investment bank.
How does that look and feel?
Because it kind of makes sense because there’s
very short on expertise still in the area.
So if you can kind of accumulate it in one
place, you’ve got some value there.
MN: The idea is to try to– how do you go
from a family office to a business?
Like, your family office, you can hire a couple
of really smart people that work for you,
and they like working for you, and you develop
a relationship.
To build a firm, it’s got to be beyond a family
And so hey, we called it Galaxy.
And it was like, how do you recruit some of
the best and smartest guys around here?
And I always tell, their job is to make us
all smarter, right?
For us to be effective in the client business,
we need to understand this really well.
I can’t get on stage and not know what I’m
talking about.
First of all, it’s one of the most unique
industries, in that the young guys often know
more than the old guys.
Go to Wall Street, and at any job I had, I
could tell the guy below me how to do it.
And here, I’m always asking my 24-year-old
about, come explain this to me.
Give me one more time what a 51% attack is.
And for a guy like you, on the ninth time
I explain a 51% attack, you’ll get it.
And so it’s really an interesting challenge
in management and creating a culture where
the young voices are heard and respected,
and that you also have to encourage young
guys to realize, those old guys have some
wisdom too, that businesses just don’t get
all built by you thinking you’re so smart.
And so it’s a more collaborative culture than
you would have at most Wall Street firms.
And we’re still working on that.
It’s a challenge.
But in the long run, what do investment banks
They help raise capital for people.
They provide liquidity in a trading business.
We have an asset management arm.
And we directly invest.
We’re not going to be able to raise capital
for anyone who we don’t invest in.
And so the merchant bank title is real.
I can’t say, hey, I’ve got a great blockchain,
I’m not investing, but you should.
RP: Yeah, that doesn’t work.
MN: It doesn’t work.
Maybe in five years that will work, because
you could say, hey, they’re separate businesses,
Chinese walls, and what not, but not in the
early stage.
RP: My guess is there is a lot of money to
be made out of the advisory business.
MN: It will be.
RP: everybody is looking at this.
Nobody knows what to do.
And everyone has got to get themselves up
that smart curve, because we’re all still
dumb and we’re all trying to learn, OK, what
the hell is going on here.
MN: That’s a bet I have.
We’ll see.
Anyone who’s building infrastructure in this
arena is making the bet that the institutions
are all coming.
I’m positive they are.
It’s not even a guess for me.
I could be wrong on timing of when.
But I know I’m right on direction.
But that’s the bet, that we’re in early innings
of this revolution.
This is a third grader.
And in four years, it’ll be a college grad.
And in six years, it’ll be a PhD.
And at that point, you’ll really start sensing
how the consumer apps are changing the way
we function.
RP: So how long is it before we get from this,
which is all promise– we’ve had a few bits
of reality within it, mainly me promise.
How do we get from here to actuality, where
people go, OK, I get it now, this is an application
I use on my phone or business?
MN: So there are going to be some use cases
sooner than you think where you can use Bitcoin
to buy stuff.
That’s not Bitcoin’s real promise in the long
run anyway.
RP: No, it’s not transactional currency.
MN: Right.
But there will be some of those that will
get people hiked up.
They are proof of concepts.
Some of the early ICO’s are now putting out
their first proof of concept.
So Augur, which is a prediction market– me
and you want to bet that it rains on Wednesday.
We can create our own smart contract on Augur,
And if it rains on Wednesday, I instantly
get the money we’ve escrowed.
You can start playing with it now, but you
kind of have to be a coder to play with it.
In a year, you’ll have better user interface,
user experience.
And people will start coming.
RP: And it seems like the argument keeps going–
it’s like, next year, it will— MN: No.
But let’s be patient.
The blockchains themselves aren’t nearly fast
enough for anything industrial.
And the Ethereum blockchain is one to four
years away.
They have a thing called sidechains– so Plasma
or estate channels– where you can process
lots of information and then bring it back
to the blockchain.
Those things will be ready earlier.
But the real property centralized vision for
Ethereum, which is I think probably called
sharding, it’s three to four years out.
RP: So the infrastructure has not been built?
MN: The infrastructure has not been built
for the revolution to show up.
But remember, markets get way ahead.
We were investing big in the internet in 99.
You couldn’t watch a movie on your phone until
In 2003— Right?
This thing sucks.
I mean, we all know they’re buffering, what
the fuck buffering is, right?
RP: That’s right.
MN: And so if the markets get way ahead.
And just as there was this crazy FOMO bubble
in retail, institutions are going to get in.
And then they’re going to push.
And they’re going to get ahead of value.
And then you are going to have corrections.
But what I keep watching is the progress of
the computer science, the progress of the
economic models, and the progress of the infrastructure.
And they’re all heading in the right direction.
RP: So how does this dovetail into the business
Does exist in its own right?
Because look, we’re very late-cycle right
It’s the second longest expansion in all of
economic history.
The probability you and I would know is that—MN:
So in some ways, a financial market disaster
would be good for adoption here, because there’s
no crossovers.
None of the blockchain people have huge stock
portfolios– well, maybe I do, but most of
them don’t.
The core buyers are in retail.
It was their revolution.
In five years, the asset classes will be correlated.
RP: Because they all are.
MN: They all are, right?
You own stocks.
You’re losing money.
You better sell something you have money in.
This is the mindset.
And so I think there’s a window where you’ve
got real uncorrelated asset classes.
There’s enough capital coming into this space
right now that there is more capital than
you can bring in and innovative talent.
There’s a shortage of coders.
There’s a shortage of project engineers.
You’ll get them as they’re coming out of every
And Comp Sci is now the number one major at
Princeton was a liberal arts organization.
When I went there, it was a tiny major, right?
We’re training and building more computer
scientists and engineers every day.
And they’re getting sucked into the space.
But if there’s a financial hit, I don’t think
that pipeline slows down.
RP: In all great macro thesis, we’ve always
got to look at what the risk is that we’re
What is the risk that you think that you aer
wrong, that you could be wrong?
These are all probabilities.
MN: So right now, I would say half the activity
in the space is enterprise– private blockchains,
let’s figure out how to do a supply chain
amongst the people that use it– and half
are open-source, public blockchain stuff.
Both are interesting.
Both are important.
It’s easier for people to want to shift.
I like blockchain, and I don’t like Bitcoin–
you’ve heard that 1,000 times.
And so from a business perspective, that’s
a harder business to monetize than the trading,
the coins, the ICO’s, the public stuff.
And so that would make it harder.
There are two kind of existential risks.
One is G20 one day wakes up and changes their
mind on everything.
I think it’s a low, low probability.
But we’ve got a pretty volatile president.
And he lands on his shoulder and yells in
his ear.
Who knows?
So there’s still a small risk that the regulatory
guys get really anti.
I think it’s very small.
We’re still early enough that a major, major
hack– we’ve had hacks– $500 million here–
but a major hack in one of the now trusted
organizations could also set us back some.
But I don’t think— RP: And that’s a setback,
It’s not a real– MN: I don’t think there’s
a risk that in 10 years time, blockchain technology,
decentralized systems are not in far more
used than they are today.
RP: But one of the risks that I would see
is cloud computing.
It goes to zero value because everybody can
set up a blockchain.
It’s easy.
So they all go to zero value, except one or
two applications that win.
So when you look at a broad spread of bets,
right– and that’s how you can look at it
right now– the fact is that a large swath
of them might do nothing.
MN: Oh, 100% agree with you.
There’s 100 blockchains.
And I don’t see a future for more than four
or five of them.
RP: No, that’s right.
Maybe this is just a risk– that the probability
of getting those kind of 20x-50x winners is
actually lower than we think because the whole
playing field is level.
Yeah, it’s just cloud computing I look at–
you could just keeps scaling this down.
MN: What I think– I keep telling people–
it’s not normal to make 20x returns.
It was funny.
I had an— RP: Well, I’m talking over a five
or 10-year period.
not in every case.
So I think that fast, crazy return thing is
RP: Yeah, that’s fair.
MN: And I do think you’re going to have to
be smart and agile to be in the right projects.
We set up an index that re-balances monthly
as opposed to quarterly.
Because we’re like, hey, we want to catch
the cool projects going in and push out the
ones going out.
Because if you want to be the S&P 500 for
the space, you’ve got to capture the bulk
of the whole macro move up.
And you’re not, quite frankly, sure what’s
going to be in that index in five years.
RP: Yeah, it moves fast.
So when you’re looking at the landscape, who’s
making the really big bet?
Who do you look at this and go, wow, OK, they’re
really going after something enormous?
Because it’s easy to go after audits or something
like that.
And there’s tons of these use cases.
Do you see anybody going after something that
you think, bloody hell, that’s really ambitious?
MN: Well, yeah.
I mean, the blockchains themselves really
are– I mean, if you want to think about what
EOS is, it’s trying to become the cloud in
some ways.
And so Microsoft is 65% of all cloud I think,
or something close to that– I’m sorry, Amazon
is 65% of all cloud.
The rest the guys share the other 35.
This decentralized global supercomputer that
can process data will feel a lot like the
cloud if it gets as big as it could get.
And so those are big bets.
I mean, I think that underlying infrastructure
that replaces it is really the big bet.
And then it’s each vertical.
And no one is putting huge money into them
yet because they were crowd-sourced decent
amounts of money.
That rose with the speculative frenzy.
And so these companies like FunFair, who was
going after online gambling, raised the Ether.
Ether went up.
Have a bunch of money.
They got plenty of money to build out their
And so it’s not the giant financial disruptive
It’s the bet he raised money on.
And it’s plenty to build out the ecosystem.
You’re going to see some announcements soon
from big legacy companies that are making
much bigger bets with bigger capital.
And in some of this, we’ll look back, and
we’ll like, eh, it just made the world more
The blockchain— RP: You just won’t see it
half of the time.
MN: You won’t see it.
It will be the back of the TV.
Like, you’ll really notice if your bank fired
60% of their staff and you get x percent better
returns on your deposits.
And no one notices that stuff other than the
guys that get fired.
And so in some ways, this is a job destroyer.
And in some ways, it’s going to create lots
of new jobs.
The other thing I’d say, one of the interesting
worlds that this is going to explode in is
the virtual world.
RP: Yeah, virtual real estate and all of this
kind of stuff.
MN: We’ve made two investments in companies
that are playing that.
I was with my brother-inlaw this weekend,
who is a big futurist and a big thinker.
And he was like, there’s an argument that
in 10 years, 15 years, a lot of people’s energy
is going to be spent in the virtual world.
They’re going to have virtual jobs.
You’re a virtual gardener selling your fake
tomatoes to someone for– and my mom was like,
are you guys out of your minds.
And you look at something like Second Life.
And we invested in the company called High
Fidelity, which is the newer version of Second
Life, which is creating a virtual world for
people to live in.
There’s one called the Decentraland.
I think High Fidelity is going to dominate
that space because of the CEO and because
of the technology.
But it’s a world.
I mean, last night, I could hear my son talking
to someone.
And I was like, who is he talking to, I wondered.
And, of course, he’s playing Fortnite.
And he’s talking to his friends.
And they have their group of five.
And they won seven out of like whatever games.
They were up all night long Fortnite-ing it.
Fortnite now makes $320 million a month.
It’s a free game.
Well, how do they make the money?
They’re selling skins, virtual clothing, and
So listen, you got a fancy watch.
You’ve got an expensive shirt.
You probably have hair cream.
Your wife wears makeup.
We get tattoos.
We’ve had skins from time immemorial.
Cleopatra had the cool eyebrows.
RP: Yeah, it’s not different.
That’s right.
MN: They’re just having digital skins for
their avatars.
It is a monster market.
RP: Somebody was talking about digital real
estate as well.
So if you have a digital world, in which case
you can own the digital buildings– I mean,
I don’t get it.
But clearly, other people do.
MN: You also wouldn’t spend $60,000 for a
fancy digital jacket, but people do– $60,000
US for a jacket, swords, helmets It’s a $30
billion-a-year market trading digital upskins.
So we invested in a company called WAX that
is vying to be the decentralized marketplace
for those things.
So if I want to sell my digital sword to somebody
in Bangladesh, WAX will be the exchange we
sell it on.
And they’ll take a fee.
RP: I mean, I get it.
I mean, it makes sense in the end.
There’s no difference between our digital
lives and— MN: E-sports will be bigger than
real sports in four or five years.
And in some ways, they are.
RP: I think they have stadiums already.
MN: Yeah.
I was just in Korea.
They have a whole culture around their games.
RP: Yeah.
The whole digital space is super interesting.
And again, it’s just something that’s all
So going back to kind of the investment world
now, you’ve set up a– well, you’re still
in the process of setting up a business that
allows you to partake in all the verticals
that are available to allow you to kind of
have a diverse portfolio of bets.
So when different things are in different
parts of the cycle, you can benefit from those,
et cetera.
How does the average guy look at this space–
or the more sophisticated investor guy, but
not the guy who can build a firm? it’s not
MN: So one of the reasons we did this Galaxy
Index was, you know what, don’t pay a hedge
fund 3 and 30 to buy beta.
Here’s an index.
Bloomberg runs it.
It’s their index we just helped with the idea.
But it’s clean data run by a trusted financial
– RP: What is the index?
Explain what’s in there.
MN: the top 12 cryptos.
And it throws out stable coins, because they’re
supposed to be stable.
And they have their own screening process
based on the liquidity and what exchanges
they trade on.
And so that’s a great beta product for the
passive investor.
It’s manage and fee no promote.
And it gets you along the market.
There are lots of other indexes out there
as well.
RP: It’s tradeable.
So who makes a market in this thing?
MN: So it’s run like a fund.
It’s got quarterly liquidity.
There are others that trade on– there’s an
ETN that trades on just Bitcoin that trades
in Sweden.
Barry Silbert’s got his thing that trades–
I don’t get it because it trades at a huge
premium to Bitcoin.
I would be very careful about investing in
But there’s more and more public market access
RP: So do you think it’s still the crypto
themselves, or are people going to start doing
the same thing with funds of ICO’s and giving
people some sort of smart way of curating
what the right thing is?
MN: I think it’s a mix.
And so listen, there’s tons of money going
into the venture space.
There are lots of projects being funded.
And so I’m sure, if you’re running a portfolio,
you’re going to put something in venture,
just like we have.
But I think you would be remiss not to also
put something in coins.
And so I think sophisticated investors are
going to have a little of both.
RP: And just to finish up is, in terms of
where we are in Bitcoin and the main cryptos–
Ether and stuff like that– where are we now?
Obviously, we had the post-bubble typical
Its basing.
Is it basing another leg down?
MN: I think we bottomed in the Bitcoin.
And we’re about to see a Bitcoin fall.
Bitcoin has outperformed in the last two weeks
a lot.
I think it’s going to continue to outperform.
Because I see the first couple of big institutional
projects coming.
And they’re going to be Bitcoin-focused.
And so I think it’s going to recapture the
And then the others will catch up.
But I think the worst of the bear market is
over of that correction.
The others are going to go sideways for a
And Bitcoin is going to kind of pull the whole
space up.
RP: the spread between Bitcoin and a basket
of others is kind of a way of looking at it?
MN: One way of playing that.
RP: Yeah.
Well, thank you.
There’s a lot going on.
And I really appreciate your time.
MN: Good stuff.
RP: As ever, Novo’s understanding of this
space and his enthusiasm in it all really
helped me understand a bit more of what’s
going on.
This thing is moving so fast in so many ways,
it’s almost impossible to catch up.
And again, to apply that broad framework helps
us really understand.
There were some new things in that for me
really talking about the whole virtual real
estate space and how that’s developing; and
a number of the things that are developing
within the blockchain world and who’s doing
what; and where this may go to; and how society
as a whole is viewing this; and how this is
empowering the small guy, and not just the
big banks and all the other big financial
players, although they’re involved too.
It’s kind of a leveling of the playing field,
which I found interesting.
I thought there were some short-term trading
opportunities and investment opportunities
looking at what Novo thinks is coming out
of a launch or adoption of Bitcoin ahead of
the other cryptos for the time being.
So that’s something interesting to look at.
But I think really out of all of that, I just
got back to understanding how big this really
is and how much this may well change the world
around us, not over the next two or three
years, but the next 10 years and 20 years.
And it seems that Novo is well-positioned
by being able to take advantage of a number
of these verticals, which I think is one of
the key things.
It’s very difficult to place an exact bets
on what thing is going to win.
You actually need to be pretty diverse in
this whole thing.
So it’s not a make-money-fast situation any
It’s probably to intelligently invest, do
some homework, and have some broad bets across
the entire playing field.