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