Transcription
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More people are paying attention to crypto right now than ever before. So, it's important to get your information from the sources you trust. That's why I want to give a big thanks to Bitwise for sponsoring today's episode. Bitwise manages over $10 billion across more than 30 crypto strategies, and they've been doing this since 2017. But here's what really sets them apart. They give back, too. Bitwise actually donates part of the profits from its Bitcoin and Ethereum investments to open-source developers, the people building and maintaining the networks that we rely on. So, when you work with Bitwise, you're not just getting professional crypto exposure, you're helping fund the future of crypto itself. Check them out at bitwiseinvestments.com or email james@bitwiseinvestments.com and tell them Ral sent you. Thanks.
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Hi, I'm Ral Pal, and welcome to my show, The Journeyman. As you know by now, The Journeyman is that journey to the nexus of understanding between macro, crypto, and the exponential age of technology. Now, this whole exponential age thesis is the coming together of many big mega-trends. One of them is crypto, one of them is AI, but it's also technology overall is advancing at an incredibly rapid pace. Now, my next guest brings it all together because he's an old-school macro friend of mine. So he understands the macro. He's also the majority owner and founder of Galaxy, the US investment bank that also not only focuses on crypto, but also on AI and data centers. So, look, I think it's going to be a fascinating conversation. I know a lot of you follow Novo and have been fans over the years. So, let's sit back and enjoy.
Join me, Ral 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. Novo, welcome back, my friend.
>> It's got to be my fifth, my fifth one of these, and I'm excited.
>> Exactly. So listen, as ever, look, we got a lot to talk about in Galaxy, but first, you and I need to talk macro because that's how we always start. So, what are you thinking?
>> You know, we're in such a weird space. Uh, the economy is growing pretty strong, and you've got a Fed that broadly said, "We think the economy is going to be a little stronger, and we inflation's going to be a little higher, but we think we should be cutting rates." Uh, it's why gold is at the all-time high. Uh, Bitcoin's at the all-time high. Um, it's a funny world out there. There's a president who is just dead set on picking a Fed chair that wants to cut rates. There's a huge amount of debt that needs to get financed, and so lower the financing cost, uh, helps with the deficit.
>> Although they kind of lose the control of the long end doing that. Well, Japan certainly has, isn't it? Japan certainly has. Uh, the US is actually the flattest curve of the three.
>> Yeah.
>> Um, you know, they're they're issuing a lot of bills, uh, not a lot of long end. And at one point, that ratio's got to shift, or or it doesn't. Um, and so every single person I know is nervous. And it's funny that, you know, macro, you've made money this year if you just stayed in the trade. Begin the year, you say, "Got to be long gold, long silver, long commodities, long the curve, and probably long stocks." And guess what? Oh, and short the dollar. Every one of those trades has worked. So, you look at a company like Bridgewater, who are too big to move, you know, Ben Meltman over there right now, they're up 26%. Ben would have traded himself into a paper bag with all the Trump stuff, but that whole group...
>> ...is Ben's a Bridgewater now?
>> Ben's at Bridgewater. He's the the deputy CIO. He's got a big job.
>> Wow, I didn't know that.
>> What a perfect place for a guy that calls him well and might overtrade him. If you can't overtrade, it's been a pretty easy. Most of my other macro friends, their performance is anywhere from flat to up single digits in one of the great macro years because all the Trump stuff with the tariffs with the slow has just shaken people out of what were their predictions early on in the...
>> ...and also Scott, who you know as well, has made it pretty clear what they want to do. He, they've just basically said, he's, he's basically said, "I want a weaker dollar. I want to get rates down because I need to refinance the debt," which is a rare thing for them to actually admit what they're doing. And and we're going to jam it the bills in. And in the meantime, and they're kind of debasing the currency, and he's made it very clear what the trade is, and people just got freaked out by all of the political stuff.
>> Yeah. And listen, it's, we're a very strange time politically in our country, right? You know, the administration, I went to the inauguration, and in the big inaugural ball where everyone was there, the president said, "Guys, we're going to do more in a 100 days than any administration's done in four years, and we're going to just hit them and hit them and hit them and hit them." And that's exactly what they've done. They are moving at lightning speed on so many fronts that the opposition doesn't know what to do, but the markets feel like it in chaos. I mean, the downside of it is you are undermining a lot of the great institutions in America. Um, if it's the military, uh, or the Department of Justice, uh, or the Fed, uh, or the FBI, and some of that needed to be cleaned out, but you are now really, I think, you know, not cutting out the scar like the the virus is, you're cutting through the bone, and that's scary. Um, and I think the market doesn't like that. Uh, and the polls don't like that. And so we'll see what, you know, when you run into midterms.
>> And the other thing is like growth is weird as well because we've got like capex growth because of the data centers, which we'll come on to, is exploding. U, so we got the fixed asset investment side going up, but Main Street is pretty dead because of rates. So I can see this kind of dichotomy they've got going on. I was, I was out to dinner last night with a, it was a group dinner, but but one of Scott's top lieutenants was was there, and it was interesting. They see the same thing. They're like, growth is fine. You know, a lot of capbacks, not just the data center, but capbacks across the board. And but how, but but unemployment, you know, by, but the labor statistics are harder to to also get your arms around because you're pushing all the the foreigners out, right? All the the immigrants out. And so like in construction, you know, were they on record or not on record? Uh, messy numbers, but it certainly feels like you've got softness in the labor market. That's why they want to cut rates. Um, but you got a pretty strong economy, right? And the second quarter was really strong, and the third quarter looked pretty strong. And so it's a very, you know, I mean, in some ways it's a, it's a long equities, you know, uh, you know, long gold, long long risk asset market.
>> That's right. It seems pretty clear from that, and I don't see many major risks on the horizon yet. Well, the only question is, it's become so consensus that I mean, you saw Paul Jones went on TV yesterday, and I love Paul, and he was like, "That's it. We're going to melt up into year-end, right?" Sometimes those calls become, you know, uh, the great butt of jokes later on in life. You're like, you know, the great thing about Paul, he'll say it, and he'll be stopped out by by by tomorrow.
>> Oh, you never listen to anything he says, as you know. He's like, he's got a 3-second time horizon on everything he does. His life.
>> Well, he is, he is often, you know, the most disciplined guy I know. And that's why he's, I think he's 35 years of trading. And one year in his own account, he was down like 72 basis points in 35 years. Like that's discipline. Don't lose your money, you get rich, right? It's how many people have a few good years and they're like, "Oh, I had that one down 30." And I was like, "What?" And one down 30 takes a 45 just to get back to break even, right? Uh, and so your sharp ratio, one bad year crushes your sharp ratio.
>> Yeah, dead right. So listen, why has crypto been heavy, you think, versus equities? I mean, all the tech stocks have been ripping higher. It's been a really easy trade. Well, crypto's just been choppier.
>> Yeah. Listen, we, we had a huge run in some ways.
>> Yeah.
>> And crypto is about narrative and flow, right? And so what's the story?
>> You had a great Bitcoin story for a while, and then it kind of ran into selling. We sold 9 billion ourselves for one client. Like...
>> ...I know, with almost no impact, bizarrely.
>> ...But that, that was, that swallowed all that treasury company buying.
>> Yeah.
>> And so without that 9 billion, you're probably significantly higher, right? Remember, prices are set on the margin. And I think there were a lot of people in the Bitcoin world that had rode this so long that finally decided, "I want to buy something." I'm not going to sell all my Bitcoin, but I got a friend that bought a yacht, you know, a friend that bought part of a sports team, you know, and so people trimming because it had been a great run, and it, you know, you're you're just digesting that that turnover. And do you think that's the main supply has been old OGs plus miners and stuff like that? Is that the main supply you think?
>> That's the only supply we've seen. And the other piece has been, remember Ethereum was dead, and then all of a sudden you've got the the Genius Act plus Tom Lee and Joe Luben with their DATs, and it became a buying machine. And so ETH had a spectacular run in the last, you know, whatever, two and a half months. But that's, you know, you go, you go from uh, 1,800 or 1,600 all the way to 3,800. That's a pretty good run.
>> Yeah.
>> And so, you know, on the year, these things are what, whatever, 30%, 32% uh, not stunning. Good year. Um...
>> ...but usually it's backend loaded as well, almost every time. And so that's the question is, are, listen, if you looked at the normal four-year cycle, you'd be lightening up and you'd be getting flat into Christmas. Like, what could be different? Dangerous, freaking words. It's different this time. Um, there are two things that could be different. We are going to pass a market structure bill, and that plus Genius is going to allow, you know, at one point, Apple's going to have stablecoins on their iPhone. Like, there's no, there's no excuses anymore that there's regulation around what's a commodity and what's a security, and what's, and the SEC saying, "We want you to be on-chain." And so I think there's an acceleration of the existing giant players in consumer and financial markets getting into crypto. We are going to see tokenized stuff, um, probably starting with tokenized equities and mortgages and everything else, um, that's good for the narrative of all these level one, you know, L1 chains. Um, you also have a president who says, "I'm going to pick a dove, and we are risking Fed independence."
>> Did we really have independence though? Honestly, I don't think we did. I mean, from yelling to go from one to the other kind of shows that it's all one thing now. Uh, you know, we... Yeah, that was, I thought that was the dumbest move a president had done is taking a Fed governor and make it the secretary of treasury. Literally, I thought it was the dumbest thing. I said that over and over. Um, but Chairman Pal's his own guy, you know, like, I mean, you got a president screaming that he's stupid and he's this, and he just says something, smiles, and says, "I'm going to do what I think is right." And so, I do think there's Fed independence.
>> And what's coming out of this regulation? Do you have any wind of that yet? When that...
>> ...when it's going to come.
>> ...I think they're, they're two different approaches, but but you're going to broadly, I think, say that 20% threshold of ownership is decentralized. Um, and if you're under 20, open-source code, a few other things, that's a commodity and it'll be CFTC regulated, and the rest will be security. What, what's more interesting, I guess, is is once you know that, like where security tokens can trade, and are there going to be different levels? Are you going to have to go through the whole SEC process to become a security token, uh, and is that going to be easier than it used to be? Right? This SDC is unbelievably forward in wanting, you know, like, we tokenized our equity, that, and that was all done compliant, where the first tokenized equity that's the same as an equity, right? There's not a, and so, but it's trading on on Solid Superstate, which is pretty much a walled garden, right? It's only cool once it starts trading on Hyperlid or on on some decentralized, you know, uh, decentralized platform, right? Kabuto Swap, wherever. And then you're like, "Whoa, now we're out in the wild." Um, it feels like this SEC and this administration is pro-DeFi. So, like, for the simple viewer, why was DeFi so, such a threat? Well, all the regulation around know your customer that JP Morgan and Galaxy and everyone else does to go through is different in DeFi. The protocol itself won't know their customer. The user of the protocol, the the on-chain is supposed to do their best. You know, the, what, what the best they're going to do is say, "We're going to use a radar gun to catch speeders. We're going to use the fact that this is all on the blockchain, companies like Chainalysis and others, to say, 'Hey, we're doing the best we can to make sure no one on the OFAC list isn't in the trading. No one on the the bad actor list is on.'" But you're not guilty before you, right? Like, there's two ways to think about it. We have the technology in America that hooks every car up to an internet device. Then when you go over 55, you instantly start getting tickets. We don't do that. We choose to actually have to catch you speeding, right? And if that's the approach for DeFi, like DeFi is going to eat the world. And that's the approach it feels like the SEC is okay with. But that's a, the moment they, they said they were going to do a sandbox in DeFi, I was talking to a guy down there, their phones lit up with the banks in New York saying, "That's not fair. That's not fair. That's not fair." And you saw today, you know, in prediction markets, right? The Jeffreer putting $2 billion into...
>> ...Poly Market.
>> ...Poly Market. Like, I was out this weekend in Vegas at the fights, and I was sitting with a guy that runs five casinos, and he was like, "That scares me because we have unbelievable regulatory requirements to run a casino. Right? If you're DraftKings or Fanatics, Draft, you know, sports, or, you know, any of these gambling sites, phenomenal uh regulation, state level and federal. And now you're saying you guys can just do this unregulated." And so there's going to be lobbying back to say, "That's not fair." In some ways, it isn't fair, right? You can't make one group get, you know, go through 19, you know, exams. When I, when I got okay to run casinos, when we were at Fortress, we bought Penn Gaming, and there were 13 states we had to get licensed in. We had to give every check we wrote for 15 years. They went through every last thing of your financial history and your criminal history if you had it. You got a ticket for, you know, getting in a fight in college. Like, it's a huge process, costly, invasive to say, "Hey, we trust you to run a casino." And now we're saying no.
>> But there again, crypto is like the world's biggest casino, and there's almost no interference now in what we do on it, right?
>> Yeah. And so that's going to cause more friction, but right now, it's the gates are open.
>> The other thing that's a bit weird is this thing about 20%. Because you end up, so if you build a business, you kind of want to keep as much equity as you can. Like when you built Galaxy, you want to keep as much equity, but we're kind of forcing people to not hold much equity. Well, because...
>> ...and I'm not sure the incentives are aligning because you get a lot of, you know, kind of the excess capital gets dumped onto the market pretty quick as soon as lockups come out, and the management team or the founders don't actually hold that much of it in the end.
>> You know, it's a really interesting process. Like, is it, like, is it a decentralized company or not? Like, the idea of decentralization wasn't centralization. It wasn't, "I'm going to build a company." We already have the model for that.
>> Yeah.
>> It was, we were going to have this new model where if it's decentralized rideshare, where the owner, the riders, the customers, the engineers, and the investors are all owners, and no one really owns it, right? Like, the whole decentralized thesis was a new business model. And what we have is a lot of people wanting to use the old business model, "I want to hold most of the profits for myself," and just use this easier, regular regulatory framework. And so, listen, there, there's plenty of ways to be a centralized, you know, business on-chain. Uh, just register as a security.
>> That's right. You either, you can use the equity and all the token. They're two separate things. But it feels like, I was speaking to Mickey Melro about this, that this is all going to collapse, and you're kind of proving it with your equity being tokenized, that the difference between token and equity, I don't know whether it stays.
>> No, it's, it's going to collapse, but you're still going to have to regulate, you know, like, I'm not going to be able to issue equity willy-nilly and say, "Hey, best of my like, certainly not with the US framework." And what the, the SEC chair told us, which is really interesting, is they're not prosecuting people right now because the rules, we, the rules aren't clear. The moment the rules are clear, they're going to be all over this.
>> Yeah.
>> Right. You break the rule when the rules are clear, they're going to come after you. Right now, there's no rule, like, what's, what's a security, what's like, and and Gendler was willing to prosecute you in this OPEC rule set, and Paul Atkins said no, and so there's kind of free reign until this bill comes out.
>> And when's the bill going to come out with him?
>> I think, well, the government shut changes this a little bit, but assuming the government opens in the next two weeks, I think by mid-November, uh, mid to late November, you have a, a market structure built on.
>> So, let's talk about Galaxy for a bit. You're up to ridiculous amounts of things. So, catch us up with what you're doing. You got the announcements today of Galaxy 1. You got the data center business. You've got, I mean, it's just, you've got everything. You've tokenized your equity. You've got to talk me through it because you're up to all sorts of things. And I can see there's a lot of retail interest. You and I were chatting about this offline the other day. There's a lot of retail interest in Galaxy now because it seems to be really focused on all of the kind of key points that people are looking at. So, a lot of people really want to know what you're up to.
>> Listen, we, we had not done, it's hard to tell your story when you're listed in Canada and you're, you're a US-based company and you're not allowed to. It's like pre-selling a market and all these SEC rules. And so,
>> ...yeah,
>> ...we've done a much better job telling our story. Uh, and we've got a good story to tell. We have an unbelievable data center business, right? We have 800 megawatts already leased out. That's 20 billion plus.
>> Explain to people how that came about. Why you suddenly came into the day, because people won't put two and two together, but it's best to explain it.
>> Yeah. A little bit of luck and a little bit of skill. We got into Bitcoin mining after 2021 because we had made so much money. We had put a lot of it into an opportunity zone, and Bitcoin mining is a great opportunity zone asset. And so we said, "Okay, let's Bitcoin mine in opportunity zones." And as it turned out, we didn't own our own data center. So we were going to places that we could host that were in opportunity zones. And as 2022 started unfolding and the price of Bitcoin came down, a lot of those hosting, uh, agreements turned out not to be as, uh, firm as you think, right? There was either deception or bad, bad judgment on our part. And we were like, "Oh [ __ ] we have all these chips and no place to put them."
>> And so Chris Ferraro, my president, was like, "I'm not doing this again. We're going to own our own infrastructure." And so we searched for infrastructure, and there was a company named Argo, public company, that was under duress, and we gave them a loan, and we bought their data center from them that gave them enough money to pay back the debt they owed and stay alive. Well, that data center called Helios, uh, turned out to literally be not just the best Bitcoin mining data center, but one of the best AI data centers. And when I first got my phone and started playing with ChatGPT, we started talking about, well, how do we play AI? And I was quite frankly on a plane with a friend of mine who was an expert at power, and he gave me the whole, "We're running out of power" thesis. And I told him at my data center, and he's like, "Dude, I'll buy that." You know, I was like, "Well," and all of a sudden people started coming to us, and we were smart enough not to sell it. We did our homework, and quickly realized with the Bitcoin mines and with the AI data center, um, we have a strong team down there. Uh, we made relationships with a lot of the hyperscalers, and picked CoreWeave to be our partner. Uh, it was a risky bet to some degree, but they were at the same part of their growth trajectory as we were. And now on our first 800 megawatts, which is what we had, they have leased it out for 15 years plus five, two 5-year extensions. Their credit is getting better by the week, uh, which is great for us. And so we are in the process of building. The first data halls come online in the first quarter, and that's when it starts cash flowing. Um, but in two and a half years' time, when it's all built out, it'll be $7, $800 million of free cash flow a year with 95% margins because all we're doing is security, and you know, we provide the shell and the the power connections, and and they do the inside, and it's about a $7 billion capex build for us. And so what does it take to be a, a player to go for Bitcoin mining to this? A, you need access to the power. Now, and the power people care about was 2026, 2027, 2028. The further you get along, they care a little less, right? So we had that, that power. Then you need a tenant. Tenant's got to trust you that you can build it on time, that you have the resources to do it, that you can get it financed. Then you got to get it financed. So, we borrowed $1.4 billion from Deutsche Bank recently, and we'll borrow another $2.8 billion, and then another billion to build the whole thing out. You can't get it financed unless you have equity on your balance sheet, right? Because even though you're bringing in the lease and saying, "Hey, this is what you're financing. Here's the lease." They're like, "Yeah, we want a pair and guarantee on completion." Because they're like construction loans.
>> Yeah. And so it really helped that Chris Ferraro is a structured finance guy, and Tony Pquette had, you know, been the CFO at at many places and understands all those banking relationships because, you know, it's, it's a, the agreement with Deutsche Bank was like this thick, there were 32 of them, right? To...
>> ...wow.
>> ...and so, but now that that's done, I pray and call the GC up and my team up there to make sure it's, you know, we're a couple weeks ahead of schedule. Like, we got to build on time and on cost. And other than that, I'm just a landlord collecting the rent.
>> And what about the thesis going around that we're going to overbuild data centers?
>> We very well might. Um, right now, there's no one in sight. We are, we have another 2.7 gigawatts under study. And what's crazy about this is, so what does that mean? So, you apply to the grid. There are two grids. There's the Texas grid and there's everyone else, right? So, we're in Texas. So, you apply to the grid and say, and they have to do all these studies to say, well, if your power comes on in '28, and their power, like over 10 years, are we going to put too much power on it, blows out the grid? And it's not just when you're using it, you can't not use it, right? That's a, these grids are very finicky. And so, there's all kinds of technical studies that get done. And if you get approved, they basically sign a piece of paper, and now you've got the approval for for the electricity. Like that alone is worth a fortune. Then you start the process, you take that, you go to the hyperscaler, you get it financed. And so we're waiting in in the queue. Uh, my intuition is by the end of this year, we will know on some of that 2.7, and I think that'll be a positive answer. And I say that because, A, we've lobbied, but it's not lobbying. It's, you just, we're in a part of Texas where we're the only real valid user of the power that's in that part of the state. There's two switching stations already, or one switching station already built, one halfway being built. Uh, there's a giant lake for the cooling. And so it's perfectly situated. No guarantee they they give it to us, but I'd be surprised if they don't. And so, you know, then we go from a trade to a business. Will we have the same tenant? Maybe, maybe not. Probably not, because you want some diversity of of tenants.
>> Um,
>> ...but that's a, it's a different business than crypto. Um, it's a different mindset. It's, it's easier to figure out, and it's not easy to execute, but like your intellectual, you know, cycles are about one-tenth of what crypto's are. Because on the other side, we're like, "Okay, how do we play the wallet game? We just announced one yesterday. How do we play tokenization? How do we get on-chain? What's the regulatory framework? When is tokenization actually going to take off?" Like, there's so many variables on the chessboard to just try to understand what you're supposed to do in crypto. And once you, you, if me and you had the blueprint, someone like whispered in our ear, building to execute is also a huge pain in the ass. It's unbelievably complicated stuff. What blockchain are they going to use? You know, stablecoins will operate on. Like, who would have thought Tron was one of the most popular blockchains, but it is. And Justin Sun is a son of a gun. And he realized people overseas don't really care how decentralized your blockchain is. They're sending $18 or $50 or $500 across a blockchain, and as long as it's not stealing their money, they're just fine with it. Low fees. Boom. Right. We were like, "No, it's got to be decentralized. It's got to be Ethereum." No, Tron is good for people, right? And and so I, I find it fascinating. I love the fight. I love the intellectual battle, but the crypto business is a, a complicated business. Uh, we've tried to build a brand that people trust. Like this last quarter, we had two major wins based on that trust, right? We did this $9 billion liquidation for for an OG. Um, why? Because the guy that was in touch with them trusted me, trusted Galaxy. Um, that was it. There was no magic, you know, beyond that. And we executed it well. Uh, we made fair money. The client was happy. We were thrilled. Uh, that trade has brought in a lot of other inquiry.
>> And that was always your thesis even in the beginning. You were like, bringing your Goldman days experience, which is like, we can provide liquidity in this market. We'll figure it out. It's not the easiest thing, but we know how to do this because you've done it in emerging markets, and it's a similar kind of thing. And you've done that. I mean, you're a big part of the OTC option market as well by doing the same thing, right?
>> And so, and now, like, we just did this with the Ford, you know, Solana deal where we got together, and I was like, "I got a chance to partner with Jump Capital." Like, they're like four horsemen of the apocalypse when it comes to building, you know, trading infrastructure. You'd say it's Citadel, Tower, Jane Street, Jump. Like, they, these businesses never lose money. They make a ton of money. They really understand high-frequency trading infrastructure. And so that Jump chose to build on Solana, right, with Fire Dancer and with Pith, and and now Double Zero or Layer Zero, right? The, the Fiber, you know, track, they've built the decentralized, in essence, fiber. Um, I'm like, "We got to partner with the best infrastructure player who's got more money than Midas in Solana." Then we brought in Kyle Samani and Multicoin because...
>> ...yeah, I mean, that's an all-star cast, right?
>> ...and but again, that business, that capital raise, and being a, that came from the fact that we've built trust, right? People said, "Oh, we trust Galaxy." Like, you just called us an all-star cast, and so it's the brand making you money finally. And it took a long time to build a brand that makes money. And now that we're, we're, we're telling our story in the US. We've launched this Galaxy 1, which, you know, is a retail product, really aimed at the high end of retail. Uh, and we put our first, you know, MVP out yesterday. Uh, we'll pay 8% as a, as a depositor to Galaxy, 4% for checking accounts that are FDIC insured, which is, you know, at JP Morgan, you get zero or one basis point. At most banks, you almost get nothing to be in checking. And so, like, smart consumers will find us. We've got a crypto app and a crypto offering and an equity offering that will grow real quick over the next 3 to 12 months. But the plan is that app should be an everything app. Um, and I believe we're going to move from accounts to wallets over time. Some will be non-custodial, right? You, the MetaMask type, and some will be regulated. Ours are all within a regulated framework. So, that, that piece is exciting for me. Uh, again, that's the first time we're going to really use our brand...
>> ...because institutional, you use your brand subtly, but not, not as overtly.
>> Um, and so...
>> ...what's your vision for where this is going for Galaxy on the crypto side?
>> We want to continue to stay in that mix. I, I think you're not going to be a relevant crypto player unless you can build on-chain because more stuff's going to move on-chain. So, we're really focused on on-chain credit. Um, I haven't launched anything yet, but that's, if we don't in the next six months, call me and tell me I'm a fool because I'm saying we're going to. Like, you've got to be part of the infrastructure. So, tokenization, what does tokenization mean? It means tokenizing equities. It means tokenizing funds. It means tokenizing mortgages, tokenizing money market.
>> So, you want Galaxy to be the place that customers come to you, clients come to you and say, "Hey, listen, how do we do this?" And you the solutions for them.
>> We need to be part of that process, and we want to be part of the infrastructure, right? We have GK, which is the hot and hot and cold wallet provider. We have a big staking business, and so that'll mostly be partnered up with other trade-fi people as well, right? Like, I do think the big difference you're going to see in the next 24 months is how fast, the moment that checkered flag goes down on on market structure bill, how fast trade-fi gets involved because they can't not be part of tokenized equities or tokenized fixed income when that, when that happens, right? You can't be the biggest custodian in the world, Bank of New York, and say, "Yeah, we're, we're going to let all our stuff get tokenized, and they can custody that elsewhere, but we'll just tokenize the old stuff." That's not the way firms function. So, every custodian is going to be a crypto custodian, and every, and quite frankly, the biggest crypto custodians of the world most likely are going to be the people that were the biggest trade custodians in the world.
>> Now, how do you think about tokenizing kind of semi-liquid assets like funds when you've got a liquid token? I, I keep trying to get my head around this is like, how's it going to work? Because your token's liquid, it'll end up trading at huge premiums and discounts to NAV.
>> Yes. And and and whoever owns it has a right to that portion of the fund. And so, in some ways, it's brilliant because, like, "Okay, you're in Fortress's credit fund during '08, and you're like, 'Oh my god, I just want my money back.'" And they're like, "No, we put up gates." Well, is there a black? It becomes, in essence, the black market for the fund.
>> That's right.
>> At 70 cents on the dollar, I'll buy it all. But then does it also become hard for the funds to raise extra capital because there's always a secondary market because of the tokens?
>> Not really. Because again, if you're a fund, and you can see yourself, if you really believe you're worth par and you're trading at 60 cents, you're buying those tokens yourself, right?
>> True.
>> Right. Uh, listen, how much liquidity will there be in all these assets is really debatable. So...
>> ...yeah.
>> ...liquidity is energy. I got to get people to understand it, to care about it. That's how we create liquidity. It's energy. Um, Apple doesn't need to because we, everyone on the freaking planet, or half people have one of these phones, like we got Apple. And so, but that beautiful bar you're sitting in, if you tokenize that, they're probably like 27 people down in the Caymans that like would like to buy a steak in that bar, but they're not 270,000 people that would.
>> That's right. And so small illiquid tokenized assets probably end up...
>> ...only really trading with liquidity in the long run via bots, right? Think about it. This AI sweepers looking for assets that are mispriced.
>> And they're going to be the buyers and sellers. This is not, this is not next year. This is five years out.
>> Yeah, totally agree. Like, like again, I'm not going to tokenize the 13th floor of this building. The only guy, you know, you're going to have some real estate arbitrage bot.
>> But it's interesting because, you know, you speak to any real estate guy, and they're all interested in tokenization. The reason being because they want to sell more real estate.
>> Yeah.
>> And try and make it more liquid. And I'm like, "Who the [ __ ] is the buyer of this stuff?" The pension funds of the...
>> ...I don't think there are buyers other than again, so I bought SpaceX in 2014.
>> Wow.
>> You know, one and 10 SPV, and a 2 and 20 SPV, and I forgot what I put in. I think I put in $5 million bucks in each of them. It's up 20x, right? So $200 million versus mine. I think I'm after my fees, it's probably $160 million. I didn't do anything other than I had the money. It was an easy story. I bought some, and I had access, right? Most people, even wealthy people, didn't have that access, right? Elon gave a fund to his college buddy who, you know, took employee shares at a discount and then marked them up to us. There were two funds, right? If that was tokenized, and someone called you up, you would have sat and bought some SpaceX. Now, you might not have rode it the whole way, right? That's the one thing about not having liquidity is you ride it a lot longer.
>> Yeah.
>> But when we talk about the democratization of finance, I think most people would have bought that space. Remember, Tesla was already a big deal. So, you already believed in the cult of Elon. Most people would have bought SpaceX if they had access. And so tokenizing some big story, SpaceX was a big story even then, is a wonderful way to give people access. Tokenizing little stories isn't. You know, if you've ever wished you could ask me a question, any question, 24/7? Well, now you can. The RalPal bot is my AI assistant trained on all of my insights, macro research, macro views, even wine and travel knowledge. The Ralbot is available for everybody who subscribes to either Connect Alpha or Pro. It can really change your life. You get me as your mentor 24/7. The links in the description. I think you're going to love it. Yeah. And tokenizing a building, let's say. The issue is young people who are traditional buyers of this kind of stuff aren't interested in those kind of returns anymore. They just don't care.
>> Yeah. Well, so what's going to happen, and I'm pretty certain about this, is you're 100%. I talk about this all the time. The crypto community is now $4 trillion in wealth. As that grows and people get a little older, they're going to slowly say, "Every trade doesn't have to be a 10 to one, right?" Like, "Oh [ __ ] I should have bought Aster right when he launched it. I could have made 4x. I feel like an idiot." Like a 12% yield might feel like gold as people get older. But mostly, what's going to happen is the crypto infrastructure is going to infiltrate trade-fi, and those people already exist. So the buyer of the 10% yielding, you know, token is most likely going to be a trade-fi buyer who's now comfortable buying in tokens.
>> Yeah.
>> Because it's more efficient to hold it that way. It's faster.
>> And it just becomes another way to purchase stuff.
>> Yeah.
>> Like, make it easy, and they'll do it.
>> Right. 10%.
>> Right. Make it easy, and they'll do it. And so I don't think you're going to overnight turn crypto investors into conservative people, right? We have the word DGEN for a reason.
>> And so what about on the asset management side? What are you guys doing there?
>> Because you've kind of been stop and start in asset management. Well...
>> ...what are you thinking of?
>> We never tried to stop. It's just is a hard freaking business.
>> Yeah.
>> And we had, in essence, three parts of it. We had alpha product,
>> ...I'm sorry, beta product, right? Index product. We partnered with a bunch of people. That business has raised a decent amount of money. They're low fees in it though, right? But we had a good partnership with the CI Group, with it in Brazil, with DWS, and with State Street and Indesco here. So, five partners raising assets, relatively low margin. We've got a great venture franchise. We just closed a $160 million venture fund.
>> Um, our returns in venture have been top decile. Um, and so that business used to be mostly first my money, then our money.
>> Now it's, I'd say 30% balance sheet, you know, Galaxy's money, and 70% customers' money. Uh, and so that's that's becoming a good business. But we really got lucky and smart with this, uh, treasury company stuff. When we saw it originally, I was like, "I want to be the asset manager." Actually, Steve Kurz said that, and I was like, "Good idea. I'm going to make it my idea." Uh, and we've doggedly pursued. I think we have eight different mandates to be the the asset manager. Some three-year duration, some 10-year duration, you know, roughly a percent between, some a little higher, some a little lower. That's a high margin business because you use the same infrastructure you already had. Yeah, you're adding a few people here and there. And so really excited that that's that, that business got its mojo in the last four months. Uh, first with the venture raise, and then, um, and again, you just feel better about businesses the moment they're making you money. Even though you know you're growing for the long term, man, it feels good when they're and they're...
>> ...Yeah. Because we've all been through the cycles, and it's horrific when suddenly your revenues disappear. It's just nice to have that. And what about on, um, kind of providing risk capital to the market and stuff where you started with that continues to be...
>> ...that's our bread and butter business. Uh, you know, the best part of it is credit. We continue to have a great credit business. We're trying to grow it. I want it to get...
>> ...credit in your terms is what? Lending to people.
>> Lending to people. It's in some ways margin lending. You know, we lend to miners. We lend to big whales against their Bitcoin. You know, we'll lend against their Bitcoin, we'll lend against their other coins. Uh, and so that business works out really well for us. So, the credit business is good. Derivatives, you know, is a great business. Uh, some years it, it's triply great, right? Because derivative business, you're ranking money on the spread, but you also have, you have, you know, you're always left with a bunch of risk. And so how it's both, it's both a risk business and a customer business.
>> The same as it was in Goldman or anywhere else.
>> And who are the users of the options? Is it still the hedge funds? And are you seeing a broadening out into the general macro funds and those guys as well?
>> It's, it's, it's hedge funds, though. What's interesting, a bunch of the macro funds just feel more comfortable going on the CME or on the the equity, you know, the ETF options now. Um, but on all the non, non-Bitcoin and Ethereum coins, but there's still, you know, there's $4 trillion dollars of crypto wealth. There are a lot of whales. And the one thing I learned, and it's a funny story, is crypto guys have such a bigger risk tolerance. When we, when we were doing, when we were doing the, uh, the Solana trade for FTX, I remember talking to one of my big macro friends who, you know, I, it's got a net worth probably in 10 digits, not nine. Um, I'm, I'm sorry, 11 digits, you know, like, not 10, you know. Um, and he's like, "What do you think I should do? 20, 30, 40?" And then a crypto guy called up who was a proper billionaire. And he was like, "I'll take 150." I'm like, "Okay, you'll put 15% of your net worth." The other guy was 1% of his network, like 0.1, right? And there is just something about it came easy to people, right? I mean, by by definition, it was all made.
In the last 12 years, really last seven years. So, it came easy to people. Therefore, they're willing to gamble it. And so I would rather cover three crypto people with $300 versus 15 trade five people with three with with with $3,000.
Well, because it's like the old days of global macro, right, when everybody was an actual risk taker. They there's a lot of risk that gets taken in in our crypto community and uh and we we stand in between and we help facilitate that.
And so, and is it still the Asians who are the sellers of premium?
Yeah, pretty much. Yes. So, the hedge funds and fast money tend to be the buyers and Asians tend to be the sellers for yield.
Yeah. Which is funny because my first job at Goldman Sachs that I really made good money in, I was the JGB yen derivative guy, all Japanese desk. I was the only uh white guy. And I was like, "Wow, I can source volatility from Japanese insurance companies." At that point, they were thinking of it in premium terms, not even V terms. How much do I get paid noon?
Yeah. Ah, that's very good. And I would sell it to hedge funds who thought in V terms and the spread you could drive a car through. And uh I didn't know what user was at that point, but like it was a great business for Goldman Sachs. And I felt like, you know, it was my like little contribution uh to Goldman's P&L and but it was the same it was the same concept.
Yeah. Exactly. Right. So, what are you most excited about for the rest of the year?
Listen, we're we're in the build build build mode here. Uh and you know, you launched that Galaxy 1. I said the same thing after we did our IPO. I said, "Guys, I hope the champagne is stale." Uh cuz the race didn't end. It just started, right? It feels like when you launch
never finishes. This game never finishes.
And and so we really got to put our heads down and build. We're looking for talent. We're hiring people. Um we're very excited. Listen, I think the end of the year is going to be wild. I think there could be a meltup in risk. Uh like you never know when things end, but I am very worried that this AI cycle is starting to feel very bubbly. that it just feels vendor financey and but again Jan one of 2000 to March 20th the NASDAQ just put another 44% on it and I thought J1 was going to be the end it was the end for a day down 5% up 44 like the end of bull markets the end of cycles
well I never forget your trade in ETH in 2017 it last quarter was wild. I remember I sold out my Bitcoin at like 2,000. I bought it at 200. I sold out at 2,000. Thought I was doing well. I sold out in April. By December it was 20,000. 10x
when you went 10 to 20 in about 6 weeks.
Yeah. And you you had the ETH trade on then. I remember
I did.
Um I should I don't have an ETH tattoo and I'm getting no more tattoos of cryptos.
No. No, don't. But man, I should have got an ETH tattoo because it bailed my psychology out so much. I had left Fortress and I made so much on ETH that year and that's when I sold someone bought my plane and I started my philanthropy and you know I should have at least sketched ETH into my plane but it was that and let me tell you that ETH I sold at 330 to buy my plane, right? We're at whatever 3600 right now, right? expensive plane, but when you bought it at one and you sold it at 330, it felt but that really rest stuffed my coffers and my psychology that and you know, listen, there was a lot of luck involved in that. The the the one thing that's interesting is the hardest part about great wealth, creating great wealth is riding a trend. And lots of all the great fortunes are in trend. There's not one great fortune trend. all those great CEOs who are so wealthy erode the trend. But when you're liquid and it's not your business, oh, you want you want to you want to just hit the cash register all the time. And so it was a little easier because I was already wealthy. Um and it was easier because ETH moved so fast.
Yeah. It it moved so fast that you you it wasn't like I didn't sell any. I sold a little. I sold little. little and it just kept gapping up the whole you know I think what was that the high there was 1100 that year uh to think about it I sold 330 and felt like a genius and then I went to 1100 but I kept selling the whole way up
yeah crypto the back end of a crypto bull market is wild
yeah and I don't and it doesn't feel like we've had that
no you know and so that's why we all hold out hope for that one last
the famous banana zone the one all right my friend well Good to see you and good luck with everything and uh I'll see you somewhere in the world soon.
Thanks so much. Be well.
Take care. So there you go, the update from Novo. We can see where Galaxy's headed, what they're up to, and this kind of twin opportunity we're seeing arising between the crypto business and also data centers. And we're seeing this merging of these technologies on numerous levels. Whether it's the rise of agents using crypto payment rails or whether it's digital ID as a way of proving you're not an AI or whether it's using Bitcoin mining stacks to start um building data mining businesses for the AI companies. It's all coming together in the exponential age. So I'll see you next time.
So you obviously like this video enough that you've got to the end. That's quite a big task. But listen, do me a favor. Hit the like and subscribe button and also check out what videos next cuz I think you'll love it. But if you want even more, and when I'm talking more, I'm talking about memberergenerated ideas, incredible alpha research, everything there to help you in your journey, just head to realton.com/join for the best financial intelligence out there and the pure alpha that's within the platform.