Mike Novogratz on 2023 and Beyond

0:00Join over 5 ,000 attendees for the largest AI event in Asia, Super AI in Singapore, June 5, 2024. 2024. Edward Snowden, Benedict Evans, Balaji Srinivasan, and over 150 others will hit the stage, joining the industry's most influential to explore and unveil the next wave of transformative AI technologies. Singapore will become a vibrant AI hub for a full week from June 3rd to the 9th, with over 150 side events that will make for unparalleled networking opportunities. Visit superai.com for 20 % off tickets with the code REALVISION. Look for the link in the description.

0:53Hi, I'm Raoul Pal, CEO and co-founder of Real Vision. As you know by now, this podcast, The Journeyman, is my exploration to that nexus of crypto, macro, and technology. I think all of these megatrends are merging into the biggest macro opportunity of our lifetimes. And I'm a very curious person, and I want to learn from the best. I want to have as many conversations and bring you guys along the ride, because it's all new. It's a new world. So we're not looking back. Yes, we use history as a guide as well, but we're having to look into the future and understand how this is all playing out. And I found that for me, having a macro framework has helped the most.

1:38It even allows me to understand technology. And it also really gave me an edge in crypto. And I've been in this space for a long time. And I've learned a lot of things along route. And there's different ways of approaching crypto. if you're going to take advantage of this opportunity. Don't forget, when we first had crypto, Bitcoin on Real Vision in 2014 in our second ever video, the price is up 250 ,000 % since then. I checked actually, I put a tweet out the other day about the FT yet again slating Bitcoin. And I went back into the archives of the FT and I found the first article I could find on Bitcoin, which was slating it, which is 2013, saying this is just a fad, it's a bubble.

2:26Yes, it's had three bubbles in the middle of an exponential logarithmic uptrend. And since the first FT article slagging off crypto and Bitcoin in particular, it's up 330 ,000%. So that's why the opportunity here is bigger. This is why it attracts so many younger people, because everybody's so screwed with the cost of housing, cost of mortgages, with the cost of living, with the inability. All millennials are now having kids, trying to buy a house, trying to figure it all out. Nobody's got enough money. And so working as a slave in two or three jobs still doesn't move the dial. Everyone's finding that.

3:13So things that have an asymmetric upside, like crypto and technology, have really caught the attention of everybody. They see it as a way out. And you can see the baby boomers or the existing infrastructure and institutions fighting that narrative because they have a vested interest. But we all want something different. We think there is a new system that could be built that's better than the old system. And for me, for us all, what I keep telling people is your job is, given the biggest macro opportunity of all time, is just not to fuck this up. And fucking it up means not knowing, not having the knowledge, and then not having the skills of how to invest.

3:58So one thing for sure you should do, if you really want to take advantage of what is coming, just brush up on your skills. And we built within the Real Vision Academy, we've got the Crypto Academy. It's an amazing course taught by ex-tradified people who are deep into Web3, deep into crypto, are very successful traders in crypto and in their past lives. That's Ovi and Mando. And they put together a course for us just to help newbies understand how to navigate, how to invest in this space. Even if you're not a newbie, many people are relatively new to understanding investment processes. So I can't urge you enough.

4:37The best investment it'll ever take is the$350 to go to the Crypto Academy. So realvision.com forward slash Crypto Academy. I think there's 730 lifetime memberships left. They then run out. The price goes up to$500 and it's an annual fee. So take advantage of it. Gifting yourself education, that'll be the best$350 you spend. If not, you'll just punt it on some NFT, it'll go to zero. So you need some framework. How I try and check myself and my hypothesis and thesis, because I've been doing this a lot longer, is still testing against people that I really respect. People who have great knowledge.

5:18And Novo is a good friend of mine. And also, he's a great trader. He's a macro guy like me. We grew up at macro together. We were both at Goldman, both running hedge funds. He was obviously much richer and more successful, but I've got more hair than him, which is very important in my view. And my suntan is better. But checking with Novo, as I do periodically, as you all know, is a real joy. It's like checking with Dan Tapiero. We can talk macro, we can talk crypto, we can exchange ideas because we're not afraid to get things wrong. Because we're macro people, you get bets wrong all the time. You're not afraid to doubt yourself.

5:53You're not afraid to ask questions, but you can also have conviction too. So Nova's a person I really like to talk to. He's just a really thoughtful person. He's always a lot of fun, and he always brings new perspectives. So let's all learn together with my conversation with my overgrads. Join me, Raoul Pal, as I go on a journey of discovery through the macro, crypto, and exponential age landscapes. In The Journeyman, I talk to the smartest people in the world so we can all become smarter together.

6:30Novo, great to see you, my friend. Can't wait for the conversation. How the devil are you? Last time we spoke, I think we were just in the midst of the nightmare. You know, I certainly have a bigger smile than I did then. feel some redemption for the industry, for Galaxy, for us lunatic crypto dudes. It's funny. I remember there was an interview I did with Bloomberg, relatively close to the low, where Somali Bassett, who's a friend, was pretty damn harsh and was taking it out on me a little bit. And Druckenmiller, Stan Druckenmiller, who's in my mind, the greatest macro trader of the last 25 years, he sent me a text.

7:21He was like, yeah, tell her to come back and see where it is in a year. And that was pretty much close to the lows. I'm surprised we've rallied this much in a year. I'm thrilled actually. I remember at the beginning of the year, I said, I go to bed and I'm saying the Hail Mary and the All Father for three or four things. One was an ETF and getting BlackRock engaged. One was Binance settling. One was the Fed pivot. And one was just clearing the dare. The fourth was some process on regulation. And the fifth was, you know, clearing the dare trust of the mess. and you know shockingly we got all four uh four of the five at least we haven't got the the regulation progress but we've got a little bit in that ripple won the lawsuit uh you know uh grayscale won their suit which helped the etf uh gensler has been kind of kneecapped a bunch by the courts uh and so a lot of good things happen for the industry which has a 44 000 bitcoin and a 2200 Ethereum and everyone read it a sigh of relief.

8:38So let's talk macro first, because that's how you and I see the world to start with. A lot of macro people got bearish for all of this year, but it seemed that a lot of this was priced. My thesis was it was all priced in last year. I mean, 2022, what more would you want? Blood. The Nasdaq was down 38 % and crypto is down 80%. How are you seeing the macro here? Yeah, I think two things happened this year, which are not normal in that normal for most of us who've spent 25, 30 years investing is a government that spends 20 % of GDP in the federal budget. And we're at 25%, 26 % right now. And so I think what happened was in lots of ways, we kept waiting for the economy to roll over because you kept seeing signs, they raised rates, raising rates should send the economy down.

9:42And it didn't. And I think people got macro wrong in lots of ways because the strength of the US economy surprised people. I believe that strength came from fiscal spending and that'll be a price to pay down the road. We just spent more than we ever did. The stimuluses were bigger than we actually comprehended. And so government spending is a lot less elastic to rates. If they're going to spend money and infrastructure. They don't care what the rates are. And I think there was just a lot of pent up fiscal spending that kept the economy floating. And again, people got the equity market wrong because of that.

10:29They got the rates market wrong because of that. Now it does feel like the economy is slowing. Yeah, it does. It feels like we're going to be close to recession around this quarter and next quarter, right? Yes, 100%. And rates markets have priced a lot of that in. I've probably gotten ahead of themselves a little bit, but that's helped Bitcoin. And I think just the fact that there are no more rate hikes coming was the first psychological shift that you know, the average time between last hike and first cut is less than six months. and you know so you know a cut's coming uh and that's you know good for assets now listen we've had the biggest easing of financial conditions ever in november ever and so the fed stopped hiking because they said well financial conditions tighten so much then all that got reversed and so i don't think the fed will be that quick on the trigger to cut uh but you know inflation's coming down if you get inflation down to two, where should real rates be?

11:39Certainly not three. And so you'll definitely see some cutting home. Yeah. Stan always says the way to trade macro is by living in the future. It's like 12 months in the future. And in 12 months in the future, a rate's going to be here or lower? Lower. Is there going to be more stimulus? Yes. Will there be more fiscal stimulus because there's an election year? Yes. So in which case, it's pretty clear as a macro outlook, right? So listen, you want to be long two sterties. Of course, it's just gone from minus 15 to minus 40 in a day and a half, which made my ear bleed. You know, what happens a lot is in November, December, pension funds buy a ton of bonds.

12:30and by mid-December they stop and then there's corporate supply in January and so there's a big seasonal and the long end of fixed income uh but pension funds are fully funded for the first time they can like they can lock in uh and so great environment for them I think they're the buyer of fixed income right now I don't see a lot of structural buyers of fixed income in the future right fed's not going to be buying uh foreign governments don't want to be buying uh you know But then, how the fuck can they refinance all of this debt, right? Because everything's rolling. I mean, my view is they have to lower rates just for that.

13:08Or if not, they have to keep issuing more and more bonds to catch up. The yield curve has to get much steeper. We're at minus 40, 2s, 30s. That won't surprise me if it's a plus 110 nine months from now. Now it's got negative carry. It's not easy to trade. But I think that's the trade for 2024. You see, I went through kind of all these macro trades. And I've been doing this for a while now. And then compare them all to crypto. Right, that curve steepener. Just buy Bitcoin, damn it. You just buy crypto. It just goes up better on a risk-adjusted basis. Well, I have a macro account and I trade a crypto account that I hedge with macro.

13:51So two separate accounts. and my crypto account is up over about 125 % and I don't run it, you know. Leathered. 100, you know, 100, 100. I mean, we traded it well. We have options at the right time and my macro account, I'm up 2.1%. It's been an embarrassing macro year. I just, you know. But in the crypto bull market, you're never going to make as much money in any other macro trade. It's just really hard to do, right? You can be a complete moron, buy Bitcoin, go to the beach, come back a year later and make 125%. You know what? I'll do it. One of my real good friends is a quiet crypto maniac.

14:35And he does a lot for the community behind the scenes. But he also gets nervous a lot. And so he calls me two times a day when the market's down, sometimes three times a day. And he owns a lot of crypto. The day Larry Fink went on TV and gave the bullish Bitcoin story, I had a lot more confidence the ETF would happen. I said, the largest asset manager in the world has just credentialized our asset class. And I told him, I was like, dude, we've won. It's game over. Put your phone away, turn your screen off. You luckily don't have a 420 person business to manage with a big cost base and lots of moving parts and people's careers to worry about.

15:30You just have a giant pile of corn and it's going to be worth a whole lot more in a year. And so stop calling me so much. He laughed. And of course he called me two times the next day as well. but i really believe that that was a game changer it's been the biggest thing that's happened in our space all year uh praise be to the guys at orange pill larry uh i know who they are but i'm i'm sworn to secrecy uh and i i think it's real you know i was just on with another giant asset manager about an hour ago and he was just doing the math of you know the 1 % allocation globally with no supply where prices could go.

16:15And it got me literally, I've always wanted to go out and buy 50 ,000 calls. There is a scenario of a parabolic move. Normally we're at a place on the chart that we're supposed to be taking some profit, right? You bought it cheaper, you bought options and whatnot. 42, 44, 45, it should pause. but man oh man it doesn't trade like that it trades like not it's still um i've been really watching micro strategy versus bitcoin right micro strategy trades at about a 21 22 percent premium to bitcoin uh we know an etf's coming why should an etf proxy trade at 20 premium to bitcoin should. You would assume when the ETF comes, that spread will go down.

17:08Michael Saylor last month sold$700 million or$650 million of MicroStrategy stock to buy Bitcoin at the premium. So he's doing trades that are a creed of the book. What's shocking is he did that and the spread didn't move. And he's doing another 750 this month and the spread's not moving. It tells you just how much pent-up demand in the equity markets there is for crypto product. Marathon is trading, what,$16 a share. I think that's about four times book. It might even be higher than four times book. But to put that in perspective, Galaxy trades at one point two times book. The U.S. equity market, Marathon is a stock that people want to play crypto through because there's no other place to play it.

18:03And so there is a ton of pent-up demand because, again, a mining stock is an okay proxy for Bitcoin-ish. I like Fred Teal a lot. They've got okay assets. They're not great assets. You know, I'm in the mining business as well. And it makes me scratch my head just how well these stocks trade. And so it makes me pretty damn bullish over the next 12 months. So this is how I've, my mental roadmap of this, and you'll understand this completely, is we've got Fiat World and we've got Cryptoland. Cryptoland's an emerging economy with massive population growth, productivity growth, all of that stuff. So it just looks like an emerging market in our old macro world.

18:55I think of these ETFs as a trade deal between one and the other. And you're just going to get capital flows. And what it's showing you is you and I have traded, you know, you've used swap markets and other ways of accessing markets that have closed capital accounts. That's why MicroStrategy's trades at a premium, because it's a closed capital account. They can't get in. so the moment you open those floodgates well it's just a matter of does crypto land have a higher rate of return i think it'll just attract a huge amount of capital over time so i agree with you i think it's there is a risk not it's not a forecast but there is a risk that this is a very different cycle to anything we've seen yeah 100 % agreed it's a i literally sat there i was listening to these guys today and i thought i'm gonna buy some calls um and i've already logged a lot of crypto and mining and infrastructure.

19:54But it just felt like there's that chance that I hadn't been thinking about of the real parabolic move. The one that really interests me for the parabolic move is ETH. And let's say they have an ETH ETF. Fine, right? ETH rallies, we get that. The issue is, is the more ETH velocity, the more it gets burnt. So you've got all of these stakers. So there's like 25 % of the entire market is staked. The rest is stuck in cold wallets. And you're going to burn the rest whilst having an ETF. How the fuck is that going to work without just doing that? Listen, I went to the Fed in 2014 with Dan Warhead. Me and Dan went, we met with Bill Dudley, who was, I don't think he was the Fed governor at the time.

20:48He was the number two guy. Maybe he was the governor. I believe Lil Brady was there. But a bunch of staffers to talk about Bitcoin. and they said something that has stayed in my mind they were like bitcoin can never be a currency they were like we're fascinated with the blockchain we're fascinated with these rails to move things on and maybe it can be an asset but currencies there's never been a successful currency with a fixed supply they're just too easy to manipulate and squeeze and you have too much volatility and that was their belief and i think they're right i don't think bitcoin will ever be a currency that we buy pepsi cola with uh and you know listen it started off people bought illicit shit with it but no one's buying stuff with bitcoin uh as much as people will talk lightning and other things yeah you might use the infrastructure but you're not going to use bitcoin as a transaction currency no because there's just no spot and it goes up yes yes Yes.

21:54And I was thinking about crypto today. One of the things I got really wrong is I used to say, ah, there are 114 elements on the periodic table. Gold is the only one that has value just because it does. And the rest all need utility. And I thought Bitcoin could have value as just a store of value and Ethereum and everything else needed real utility. And where I was wrong is all of these other cryptos in some way are a form of Bitcoin at this point. And that this ETF and these new inflows are buying time for any utility that we'll see in the future to get built. But the reality is most of the value right now in Solana or Ethereum or Doge or you name it, Celestia, is store value.

22:54It's a community of people that have decided to store their money in this system. And they realize, wow, if I bring more people into the system, the price goes up. and I believe in this community and the structure. And I'm really nervous about the other world because I don't understand it or I think I got screwed by it or it's just not as cool. And so we're part all store of value at this point. There will be utility one day, I hope, right? Real utility. There'll be apps I can use to buy tickets or transfer stuff. But reality is Web3 has disappointed so far, right, in terms of the big utility gains.

23:40I do believe they're coming. And so other than payments, most of that's with stable coins. And so we're really a narrative game, a storyteller's game. We're going to shift in crypto from being just a storyteller's game to a plumber's game, building the financial market and the regulatory infrastructure to really kind of change the way finance gets done. But none of that's happened yet, right? With the exception of stable coins, right? People use Tether on Tron to move money around the Mideast and Africa and lots of places. You know, shout out to Justin Sun, who's just coiny. And again, that's even interesting because the idea originally was, oh my gosh, you need these decentralized systems that are fast and secure.

24:27And with Tron, you have something that's quasi-centralized, right? Justin runs most of the nodes, but it's fast and cheap. And for small payments, people don't care. They trust you. That's right. Because it's no store of value. It's a transfer mechanism. Yeah. Hey, everyone. We're going to take a quick pause and hear a word from our partners. We'll be right back.

24:50Your favorite neighborhood spot grows with Square. Indeed, my favorite neighborhood spot has quickly become Todd Snyder in Williamsburg. Todd Snyder is one of my favorite menswear shops and has supplied me with all the clothes I have needed this quite hot summer. Every business has different goals, but Square is the business platform that supports them all. From opening a new location, selling something new, or just expanding their reach. Indeed, I've seen it with Todd Snyder. In Square also you can get real-time insights, so don't wait for end-of-day reports. Go to square.com forward slash go forward slash real vision to learn more about how your business can grow with Square.

25:32That's S-Q-U-A-R-E dot com slash G-O slash R-E-A-L-V-I-S-I-O-N.

25:46I think it's interesting. We got a little bit religious on how we thought about these systems. and in reality, they're all communities. They're store of value that communities seem to care about. Like I was skeptical that XRP would have lasting power because Ripple, the company, owns 60 % of them, now 55 % or 50 % of them. And I was like, that just doesn't seem a proposition that's going to work. And I've been dead wrong. Hats off to Brad Garlinghouse and his team. Ripple is now an institution. The XRP army is real. They care about their ecosystem and their coin. And yes, it's got a use case, but broadly the use case is the same as Bitcoin.

26:35It's another place for people to want to store value. And the real question is how many of these ecosystems can we have? Total market capital crypto is what now? Billion and a half? One half, one half, yeah. Right? So it's half of Apple. And so you think about the amount of energy, human capital, podcasts, conferences, research papers that are going in talking about this industry were tiny relative to the global capital markets. if I line up all the employees of Apple on one end of a tug of war and all the employees of crypto on the other end, I know who I'm betting on. I got Vitalik out front.

27:25We got some just boy wonders. Incredible. In terms of intelligence and passion. So here's another way of looking at that thing. So yeah, I hear what you're saying. right now they're just stores of value and we're saying we'll store it in this particular thing, whatever your thing is. But they are also a call option on the future, right? It's also, well, my community can build cooler stuff that will have larger use cases over time than your community. And so it's not just a store of value. But it's just a narrative at this point. It's a call. We haven't seen it happen yet. No. But what do you think?

28:05What are the things that make you think we haven't seen it we're seeing a lot of stuff like Franklin Templeton are doing stuff we're seeing you know we've even seen the European Investment Bank people are doing stuff it's not out of scale yet tokenization will happen because it makes efficient sense will it happen on you know public blockchains or semi you know walled garden blockchains I'm not positive um I don't know if that's in a year or five years uh every bank is working on it we're working on it we're We're working on some small projects, some medium-sized projects. So that's going to happen.

28:42But the real reason that I got excited about the decentralized revolution, really, was, right, seeing things like decentralized rideshare or decentralized exchanges or decentralized ticketing. Think about ticketing. It is the single best use case. I know. I keep saying this. It's huge. And we don't have ticketing yet because Ticketmaster is pretty freaking good and tough. I know Ticketmaster are the largest issuer of NFTs in the world. And they don't want to give up their monopoly. But they're actually the largest issuer of NFTs in the world. They've issued over 30 million NFTs. They just don't use it for their tickets yet.

29:19Of course not. And, you know, I've spoken to that team about it, and I think they might get there. But ticketing, I think it needed the - It's not a monopoly. And so you protect your monopolies, and it's hard. you know i i used to think i used to tell the story of decentralized uber i called it duber uh thought that was kind of cute and i thought what a perfect way to explain how this token economy can work and i mapped it out and wrote it out and talked about this theoretical company and then i don't know about a year ago i sat with travis uh the ceo at his house for a couple cocktails. And after about two hours with him, I was like, oh, now I know why Uber worked.

30:11Because that son of a bitch was good. He broke every rule. He bought the supply. He bought demand. He paid fines. He willed that company into existence. And I'm not sure a decentralized community could have done that. And so, again, we'll see now that their ride sharing exists. The other argument would be Meltem's argument, which is we just willed a trillion dollar asset, meaned it into existence. So it is possible. I don't want to short the crypto community. Listen, one of the greatest technological wins was going from proof of work to proof of stake in Ethereum. This giant system flipped over flawlessly.

30:58And there was no one in charge. There was no general. I mean, you could kind of say Vitalik was a spiritual general, but he wasn't the general, right? It was a community that did that. And so I'm not shorting the potential. I'm just saying thus far in some of the easy, I remember sitting with you two, literally the greatest thing that ever happened to me in crypto is I got a call from Adam Clayton. He was like, this is Adam Clayton from YouTube. Would you like to come to our concert. I'd like to talk to you about crypto. I thought it was a prank. I went out to the Meadowlands. I met the whole band.