Novogratz Remains Steadfast on Crypto, Says Wait Until Next Year

(Bloomberg) -- Billionaire investor Michael Novogratz is resolute when it comes to cryptocurrencies, even after his firm lost millions this year as the embryonic market continued to tumble in value.

"It’s been a horrible bear market in tokens," Novogratz, founder and chief executive officer of Galaxy Digital Holdings Ltd., said on a conference call Friday. "There’s plenty of reason to be depressed."

But the former Fortress Group hedge fund manager and Goldman Sachs partner has high hopes that crypto adaption will become more widespread as early as next year.

“I fundamentally think you’re going to see big adaption in 2019, 2020," he said. “Lots of the items in the digital world, the e-gaming space, are low value items so I think people will be more comfortable participating in blockchain.”

"We’re making big investments in that area," he added.

Novogratz’s crypto trading desk lost $136 million on digital assets for the first nine months of the year. Galaxy Digital lost around $41 million in the third quarter alone, according to company filings. The latest slump was caused, in part, by losing bets in Bitcoin, Ether and XRP, the company said, as well as regulatory developments.

"Part of the sell-off is because, I think, the SEC got tough on a few fraudulent ICOs," he said. "And not just were tough on them -- they mentioned personal investors can go for reparations in most cases. And people got very nervous."

The Securities and Exchange Commission fined two companies this month that hadn’t registered initial coin offerings as securities. The agency said investors were allowed to reclaim their money. But Novogratz said Friday he sees a silver lining.

"As the rules get clearer with the SEC and other regulatory bodies around the world, it’s easier, quite frankly, to build a business and it’s easier for institutions to feel comfortable participating," he said. "We are reaching out to regulators hoping to help structure some of the rules."

Novogratz was among the most high-profile Wall Streeters to jump into the crypto craze, which saw the price of Bitcoin -- the largest cryptocurrency -- spike to a high of $19,511 in mid-December, only to drop to around $4,000 more recently.

“Listen, we’ve had an undeniable retail bubble. It was a frenzy that popped in December, January," he said on the call. "We’re stuck in the in-between now. We are waiting for the institutional adoption," which he said could come as early as April.

He pointed to Bakkt’s futures exchange and Fidelity’s jump into the crypto arena with a new business to manage digital assets for hedge funds, family offices and trading firms, both of which are slated for a January launch. "I would bet by the second quarter, you’re going to start seeing real institutional buying." Novogratz is guessing Bitcoin will remain in the $3,000-$6,000 range until institutional buyers step in.

He also addressed his firm’s performance amid the meltdown in cryptocurrencies. The big losses came from the firm’s ICO business, and Galaxy’s ICO and coins division now represents less than 15 percent of its book, he said.

“The bad news, in trading, is it was a business we thought would generate the most stable revenue this year, and we were just wrong," he said. "We also found that getting the right regulatory structure and getting the right technical systems in place was just harder than we thought it would be.”

To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Andrew Dunn

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