Prediction Markets, Trump's Federal Reserve, Bitcoin Back to $100K, & MicroStrategy

0:00You're about to make a trade. Which you do you listen to? Is it get optioning those options? or let's do a little research. Learn more at finra.org slash trade smart. Now you've got gambling being normalized as part of life, as part of consumption, as part of joy. I don't think it's a good thing per se, but it's a thing. And you see it in meme coin investing. You see it in same day options. It was illegal to bet on elections in America. That's why Shane got raided. Well, should it be illegal? Yes or no? The people say, let me bet on anything I want to bet. My f***ing money, I got to do it with what I want.

0:36If Bitcoin ends next year at 140, it's going to mostly be because you've seen this U.S. wealth. Like a 3 % allocation is a trillion and a half dollars. It's a lot of wealth. And so if it starts moving, you could see that change the trajectory. But in the short run, we still have this overhang of treasury companies and the fact that people thought it should be a lot higher this year, that's not. God forbid that you and I should be in the U.S. Senate. But let's say you and I were in the Senate, we should be worried about that. You see, for people listening at home, what Michael just did was he folded his hands in body language of great defense because he does not want to be in the Senate or anywhere near there.

1:11Okay, so go ahead. What would you say? What would you be worried about? Welcome to Open Book. I am your host, Anthony Scaramucci. In sort of a bonus editions of Open Book, I decided to bring in a very dear friend of mine, 30-year friend, Mike Novogratz, who was a partner at Goldman Sachs. We worked there together, went on to become the macro trader and one of the founders of Fortress, and now is the founding CEO of Galaxy, which is a phenomenal cryptocurrency trading shop. Mike and I have spent a lot of time together privately talking about markets, and I thought it would be interesting to share some of his and my insights for you.

1:54I hope you guys will enjoy this conversation. In today's show, we're going to be talking about the crypto environment, the acceleration in Bitcoin and other things, crypto last week, but also the macro environment, who the next Fed chair is going to be. And then after the break, Mike and I are going to talk about the prediction markets and the impact that these markets have on the overall markets and some of the things that are going to be happening in the future. Mike and I are going to try to predict that. Hello and welcome. It's with me, Anthony Scaramucci, and I am Mike Novogratz. All right, Mike, we're back.

2:29What a great show last week. Great conversation. And so we had a crypto rally caught me by surprise. I don't know if it caught you by surprise, but what happened? Give us some insight. I think there was a tremendous amount of fear in the market around micro strategy. You know, people don't understand exactly the sailors strategy. And they started funding this idea that at one point he's going to be a forced seller of Bitcoin to pay off his preferreds and his and his perpetuals. and i think the strategy team got together and said let's put enough cash on the sideline for the next two years that we can make every uh payment that we have in a cash reserve so it's first time he he had a cash reserve so what was about a 1.4 billion is that right yeah 1.4 billion which is his payments coming due on coupons.

3:32And he can then just sit. And there was a spectacular volume day. So what you call a key day reversal in trading is monster volume. The market starts down and ends up. And so I think in the short run, the micro strategy fear went away and that allowed the market to breathe like, oh my God, it's not the end of the world. It doesn't mean crypto is out of the woods. You know, when you look at a chart, crypto Bitcoin really has to get back above 100 and stay above 100 for, you know, a week or two for it to feel safe again, right? Big money is made in trend. And you can define trend by the 20-day, the 50-day, the 100-day moving average.

4:19When you're below all three, it's kind of super trend. When you're above all three, it's super trend bullish. and we're below all three in crypto right now and we're below this line at 100 where lots of the volume happened above. And so that's gonna act as a ceiling for a while. It doesn't mean we won't get through it. Bitcoin is a funny, funny instrument and there's a real narrative for it. And you're also seeing real money people start to buy. But when I say real money, the wealth channels of America, right? RIAs, registered investment advisors, manage about$45 trillion, mostly for older people, of wealth.

5:01It's the single largest block of wealth. And you're seeing Bank of America, JP Morgan, Vanguard, all these big institutions saying, hey, my salespeople can now sell Bitcoin, which is very different than you were allowed to buy Bitcoin. We can now sell it. And you're seeing buying there. And if Bitcoin ends next year at 140, it's going to mostly be because you've seen this U.S. wealth, like a 3 % allocation is a trillion and a half dollars. Like it's a lot of wealth. And so if it starts moving, you could see that change the trajectory. But in the short run, we still have this overhang of the treasury companies and the fact that People thought it should be a lot higher this year, but it's not.

5:51Let's stay on microstrategy. We've got a lot of young listeners, so I'll just be brief on this. What Michael Saylor did was he converted his software company effectively into a Bitcoin accumulation company. His attitude is Bitcoin is the operating layer of the future of money. And so he's a software company. This is unbelievable technology. And currently he owns about 3 % of the overall network. But there's fear there that if there is too much volatility, he'll get forced into this vicious cycle where he has to cascade sell. You're telling people right now, I'm hearing you correctly, he's built up a two-year reserve where his preferreds, all the debt that he took on to buy this Bitcoin, those coupons get paid.

6:39Is that enough? Or is there something you would be worried about? Now, play analyst. I know you love Michael Saylor. He's a very close friend of mine, wrote the foreword for my Bitcoin book. I like him as well. But is that enough, Mike? I think it's enough in the short run. If you know Michael, you know his fundamental belief Bitcoin is going higher. Listen, if something would happen and Bitcoin doesn't go higher and it goes down to 30 ,000 or 20 ,000, yeah, micro strategy is not going to be a very good stock to own. you know we're gonna we're gonna change the name to skybridge the low bridge or blown up bridge okay so i yeah it's not gonna help galaxy either as we all know so part of the bet that that shareholders and micro strategy have made is that bitcoin goes higher you're now basically trading at parity to to the bitcoin that it has you know when you adjust for debt and everything else and so now it feels more like an ETF.

7:36Listen, there were tons of people, me included originally, when he had this strategy that was trading at a big premium, said it can't last and it's got to go to become just equivalent to an ETF unless he can do something really creative. His creativity, which was real creativity, was he found a way for people to believe in him, sell Bitcoin at a premium, use that to buy more Bitcoin. For the existing shareholders, they benefited. For the new shareholders, they needed new people to come in. And so you got a lot of, the last group of his shareholders are underwater. And so, you know, most of them are probably going to hold and ride the Bitcoin train.

8:21Some will sell for taxes and some will sell just because they're like, enough of this. I think he will have a hard time reigniting that flywheel. But I think microstrategy you can trade as a closed end fund, you know, for a long, long time without having to sell any Bitcoin, it might trade at a 10 % discount or even a small premium. And so it, all these treasury companies are now in the same position. MicroStrategy at least has a ton of volume every day. Like it'll trade$2 billion of volume today. Like to put that in perspective, Galaxy, which is a$10 billion,$9 billion company, will trade$250 million today.

9:04So they're trading at more volume than the ETFs. Most of the other DATs, other than Tom Lee's BNMR, trade with almost no volume. And so you've got this collection of kind of closed-end funds, and closed-end funds normally trade at a 10 % to 20 % discount, and it just becomes less exciting of a story. Why it's important for crypto is because for three months, that was the vehicle that was bringing new capital into our space. It doesn't have to be a disaster for the space. It's just going to be dead money. And so for crypto to have its next leg up, you need new sources of capital. And that's either going to be wealth or it's going to be some retail frenzy that shows up again out of Asia or out of somewhere.

9:51And we haven't seen it. I'm going to throw a fact set at you. It's a little bit of a hypothetical, but I want you to stay with me, agree or disagree. So if I'm sitting here, let's say I landed from Mars, I came out of my age of disclosure, alien spacecraft, and I'm looking at this market, I'm saying, okay, there's a transition that's taking place. The way venture capitalists bought Google, then they went public, and now you have institutional and retail holders. There's a transition taking place. Galaxy participated in a nine plus billion dollar sale of Bitcoin for an OG holder earlier in the year.

10:31There's been billions of dollars that have transitioned from whales in Bitcoin into ETFs, into the institutional market. And lo and behold, we learned from Bank of America and Vanguard that, to your point, they're able to sell it. But you know Wall Street. I know Wall Street. One thing we both know about Wall Street, it's a selling machine, Michael. And so I'm looking forward, I'm saying 26, there's going to be a lot of demand because Wall Street, you know this, these are products that are sold, not necessarily bought. Wall Street's going to be out there with this product. Do I have that wrong?

11:10Yeah, that's the exact setup. And it's just a question of how fast that machine gets going. and you know, it's easy to sell things that are going higher. I mean, it's hard to sell things that are going lower. And so you've got to base and get a little bit of positive momentum. I use that level as a hundred. If you get about a hundred, 105, there's going to be the FOMO machine. Oh my God, I should have bought it at 85. I should have bought it at 90. I should have bought it at 92. And then you're going to really see the acceleration, but it might take us, you know, a few months to get through that.

11:44We might go lower first. We might go, you know, I I'd like to think 80 was the short-term low. Um, you know, I would say volumes are down 30 to 35%. Uh, and a lot of this still comes in. We talked a little bit this last week comes from that black Friday as, as the crypto guys were calling it when you had these wild drops and, And a lot of punters, and remember, crypto investors like a lot of leverage, and a lot of them got wiped out. And so you wiped out a lot of market makers and a lot of participants. And I always say, Humpty Dumpty Cracks, it takes more than a week to put them back together again.

12:23No question. He always gets put back together again because paychecks come in, dad gives you money, inheritances, and people have more money to start putting in the markets. But it just takes time. And we're at a lull right now. So before we go to our break, I want to switch gears to macro. I had breakfast this morning with two very astute macro people bringing up the thesis about the Fed. And even though we may be in a late cycle stock market wise, I don't know if you agree with that or not, but it feels like we could be in a late cycle. There's a lot of room here because the Fed is going to have a rate-cut-friendly Federal Reserve chairman.

13:07And knowing Donald Trump as well as I do, and I think you know him pretty well, I expect him to flood capital into the system in an attempt to win the midterms. He certainly doesn't want to lose the midterms. And so these two governmental forces are going to push the market higher in the first half of next year. Is that your view? Do you have a different view? What would you be worried about? So that's becoming consensus, which worries me a little bit, but I think he's going to pick Hassett. I think Hassett's going to be very dullish. He's going to do the president's bidding. But stop there and go back, Michael, for people that are learning about markets.

13:43Why, when you say consensus, does it worry you a little bit? Because everyone's in the trade, right? Yeah, because people all believe the same thing right now. Now, sometimes that doesn't matter because once it happens, things crack. If you want to look at the most interesting chart of the day, and not everyone has this ability to chart, but if you look at the 30-year interest rate or the future on the 30-year interest rate, so on Bloomberg, it would be USHC or GT30 or just the 30-year bond on Yahoo. The pattern looks like what you call a head and shoulder. And when those things break, it's a big leg down.

14:23almost like when crypto went under 100, it goes pretty fast to the next level down. If bonds go a little bit higher in yield or lower in price, you could see kind of a cascading effect. And we've seen that in Japan with their bond market. And that's usually a canary in the coal mine, so to speak, right? So you're having confidence break down that central banks plus Ministry of Finances are going to be able to keep confidence in the long end of the yield curve. So that's not good for risk markets. And so the bonds really start breaking down. We got to be careful. again why picking a fed governor who has the respect of the market who will fight for the fed independence is all because of the bond market if you pick you know a guy who just does whatever the president wants you could see the bond market break down and that that's a real problem for people and so so you think it's going to be kevin hassard so so what it might not be Hassan because if this bond market breaks in the next 10 days and that's all you hear about Donald Trump is as you know you know much better than I know I just watch him uh he's a man that could change his mind in an instant if he's got a bond market that's crapping itself you're gonna have Scott Besson in his ear saying yeah you might want to go with Kevin Warsh you might want to go with Rick Reader someone who Wall Street trusts because all you got is the bond market right Okay, so - Let's see what you've got, 39 trillion in debt.

16:02Okay, so your opinion though, okay? I have my own opinion, which I'll share in a second, but your opinion, Hassert is what? Is he too Trump connected and Trump dependent? Would he be data dependent like a reader or a warsh? I think he will do Trump's bidding. At least I think the market will perceive him. Now, he might start off trying to act very independent, but people aren't going to buy it. You know, people don't remember this about Kevin, but in the year 2000 with James Glassman, who was an economic advisor to the first George Bush, they wrote a book called Dow 45 ,000. And this was a sensationalist book.

16:44I remember. You remember the book? Sensationalist book 25 years ago. And so he's always been a perma bull and he's always been for lower rates. I don't know if Trump knows that he wrote that book, but he is triggered on lower rates. So it'll be interesting to see if that happens. And of course, the Dow did get to 45 ,000. We're now trading at 48 ,000, but it took 25 years, Michael. So before we take the break, though, you believe that it will be him. Because we're going to get to the prediction markets in a second after the break. We'll talk about the fascination with those. But if you were a betting man right now.

17:23yeah i think i think because i think trump really wants to have control i think it's dangerous right the last president that took control of his own central bank in a big country was president erdogan of turkey and the next year they had 86 inflation like it normally doesn't end well like we have independent central banks for a reason um you know what's scary anthony is if you look at the last any of the last 10 cabinet meetings. But there was one, I think, two days ago, two and a half hour cabinet meeting, and they televised them. And each cabinet secretary goes around and praises, you know, the commander in chief.

18:05You gave that leadership and we're gonna do it. Thanks to your leadership. That's why everyone with your leadership, congressional Republicans under the president's leadership, under your leadership. Thanks to your leadership. Under your leadership, Mr. President. Under your leadership. Under your leadership, all because of your vision leadership. Just appreciate your leadership, Mr. President, and empowering us to be able to conduct this service. Merry Christmas. Donald Trump is the most visionary leader I've ever seen. And this performative deifying of the president, which just plays right into Trump's smile, is dangerous.

18:44It feels like North Korea. and so Hassett's in that circle right now. And I don't know, he could surprise us all if he's got the gumption to say, no, no, no, no, no, Mr. President. You're just the point of me, I'm doing my job the way I'm supposed to do it. We're gonna take a break and we come back from the break, Michael. We're gonna talk about the prediction markets, Shane Copeland, Polymarket, CalC. We'll talk a little bit about their impact on the overall markets. We'll be right back after the break. Welcome back from the break. I'm Anthony Scaramucci. And I'm Mike Novogratz. So, Michael, we've got this whole new phenomenon that's happening now.

19:23I'm surprised it happened earlier, by the way, but we have prediction markets. We have things like Cal C and Polymarket, and we have all these different websites that we can go to now. And I can bet whether or not the Yankees are going to fire their manager. I can bet whether or not Kevin Hassert, who we were talking about prior to the break, is going to be the Fed chair. Literally anything. But I have been impressed with these markets because I feel like they have uncanny predictive ability. Now, let's go back to the 2024 campaign for president. You know, on Polymarket, it was 70 percent that Donald Trump will win the election and he won it.

20:07So let's step back. There was a book, oh God, by like a pseudo economist and he talked about the power of crowds and he could put a cow up in front of people in a thousand people right down the way to the cow and the average of the crowd would get the cow within a pound or how many jelly beans in the jar. Like there is a genius in large numbers and that's what prediction markets bring us to. uh because of information michael right because there's generally the collection of those people there's like a james surawiki about 15 years ago wrote a book called the wisdom of crowds i mean that's what i was talking about yeah yeah so yeah so there's the wisdom i probably shouldn't call james a pseudo-economist but you know okay all right that's right he doesn't he's not he's not going to be offended he's just he's going to be super happy that you and i brought up his book from 15 years ago.

21:01But the wisdom of crowds suggests that there's a lot of information in the marketplace and those betting markets will analyze that information for you in terms of its weighted average of what the info is. You believe that? I do. And listen, I think they've done a pretty good job in predicting lots of things. You know, the story of prediction markets here is interesting though, because I met Shane when he was starting his business in Soho, he might be the only guy in our industry that has fancier jackets than I do. And so, you know, he - I'm going to tell him that you said that, actually. He'll be, I mean, that's a huge compliment from you.

21:40I don't think anybody has fancier jackets than you. So we had a shtick going and, you know, I look back, I wish I had invested. I didn't. He, you know, he had a long haul. While he was able to raise capital and people really believed in him. It was not an easy path for him, including, you know, having his office raided by the FBI. What has been so unique in the last six months, and both of these things are now raising money, both Calci and Polymarket raising money over$10 billion out of nowhere, was the regulatory mind shift that came in with the Trump administration said, oh, no, these things aren't illegal.

22:25It's a new way of looking at things and we'll let you be regulated, broadly unregulated, right? A CFTC product. And people are like, what? And if you're a casino that has spent hundreds of millions of dollars on compliance and regulation and getting your people approved, or if you're a sports betting organization, if it's DraftKings or Fanatics or any of those giant sports betting platforms, you're saying, this is unfair. Like we have this huge overhead and huge burden of compliance at these prediction markets don't. And the government's kind of saying, tough luck. And so these guys have wings in their sales.

23:12I think you're going to see it is a very disruptive business in sports betting, in markets. Now, listen, you will see lobbying fight back. You know, DeFi, decentralized finance, you know, permissionless systems is the crypto equivalent to the prediction market in the sense that it will give those platforms like Hyperliquid or Uniswap huge advantages over traditional exchanges because of the same compliance stuff. And you saw Ken Griffin going down to DC today saying, no, no, that's not fair. Right? So the incumbents are going to try to protect their space. And the biggest risk to the Calci and Polymarket isn't them being able to get customers and create great product.

24:03It's the lobbyists that are going to try to change the rules on them and say, this is not fair because they've got an advantage. I mean, I got to ask you this question because I think what people are worried about from a regulatory perspective, there was a reason why there was regulatory suppression of this stuff. Because you could make bets on the election, but people were profiting. You could make a bet on a hurricane. Hurricane's going to do damage to New Orleans and you could win on that. And there's opinion-based things. And then there's also things that somebody could potentially unduly influence.

24:36Now, you saw the Google. There was an article today that a Google engineer was delaying the Google results by a certain amount of time and then gambling on polymarket and making a whole bunch of money. He was rigging the system. So are you worried about that? Let's say you and I were in the Senate, God forbid that you and I should be in the U.S. Senate. But let's say you and I were in the Senate, would you be worried about that? And you see, for people listening at home, what Michael just did was he he folded his hands in body language of great defense because he does not want to be in the Senate or anywhere near there.

25:10OK, so go ahead. What would you what would you say? What would you be worried about? Listen, there's a it's a great question. There is this balance between the Democratic side likes to protect the consumer. And sometimes they way overdo it. The Republican side has a buyer beware. You know, listen, if it's disclosed, you're a big boy, go do it. And I come out probably not right in the middle, probably a little right of the middle on this stuff. I think humans are smart. I think they learn quickly. That said, I think we need far better disclosures and we need fair set of rules. And so that Google engineer, what was written about is true, should get prosecuted and fined and thrown in the clink or at least have some severe penalty.

26:08And so you could have markets that are free to operate in, right? You don't have to be a certain wealth to participate, right? Like we could have open access to people, but we need a much, much better disclosure regimen. And there's gotta be a process. And with AI, it should be doable where markets do get monitored for irregularities. And, you know, that's - I'm with you. It's very complicated, Michael, But this is a$10 billion market now. But the estimate is in five years, it could be as high as$400 billion. It could, in a Super Bowl case, go to a trillion. Do you believe that, Mike? What I talked about, I think, out of this last week with you, or maybe I was on stage, when you and I were teenagers, we would watch movies and gamblers were perceived as gangsters, bad guys.

27:14Or you could go to Atlantic City. It was a pretty seedy place. or Vegas was the only place the prostitution was legal, right? You know, this had this seediness to gambling. It was kind of the bad guy thing. It was illegal to bet on sports in America. Like in most countries, gambling was illegal. And we have now normalized speculating and gambling. It was unthinkable to have sports teams in Vegas when you and I were teenagers. Remember, it was like, can't have a sports team in Vegas. That would potentially ruin a sport team. now you've got you've got gambling being normalized as part of life it's part of consumption as part of joy and again i don't think it's a good thing per se it but it's a thing and you see it in meme coin investing you see it and you see it in same day options i got a son-in-law who's an awesome meme coin trader i've got a cook a chef that does same day options right like everyone around my space.

28:13My son loves sports betting and they got the, everyone, every kid between 20, every male kid between 22 and 30 or 16 and 30 understands what a parlay is. Right. And so this is just taking that, giving it another form and making some kind of, you can do politics, right. It was illegal to bet on elections in America. That's why Shane got, uh, rated. Uh, well, should it be illegal or yes or no. And I think the people say, let me bet on anything I want to bet my money. I got to do with what I want. And, you know, the morality of a country has to say, yeah, we don't think it's good. Or we think it's good if you're 25 years old or over, or, you know, like that's what countries get to come to side and decide what their morality is.

29:03And right now, the morality of most countries are let them gamble. One last question before we go, Mike. I'm looking at our economic dashboard here. And I want you to, this is a quick question to say up, down, or maybe. So Bitcoin and crypto in a healing phase, you think we'll have another downdraft? Do you think we're consolidating here, up, down, or maybe? I think consolidating. I think it's a harder decision here in the next eight weeks. My gut is it grinds higher, but I'm not positive. I think over a 12-month period, we will be much higher than here. Rates. Rates are going lower. I think the yield curve is going to continue to steepen, which means the two-year rate is going to grind lower and the long bond is going to grind higher.

29:55And I worry, the biggest worrying sign would be if the 30-year rate starts falling at an increasing rate, right? Right now, it's still just all kind of grinding around and the curve is steepening. But the twos versus thirties, let's say it's roughly 125 basis points. If that thing is 175 in six weeks, that's a problem. all right listen is a great another great show this week we hope you guys will uh join us again next week uh mike thanks for joining the show and i'm going to see you in abu dhabi right we're heading here we come all right god bless be well see you soon guys thanks for joining us today on the show send us questions at info at scaramucci.net and we'll answer them next time the holidays mean more travel, more shopping, more time online, and more personal info in more places that could expose you more to identity theft.