Mike Novogratz 谈加密货币前景、交易与讲故事 | 1000x

All we're doing is telling stories for the future. Why AI is going to be a bigger bubble than crypto is so easy: You just log into ChatGPT and write a poem to your mother in the voice of Walt Whitman, and you're like, “Oh my God, you're such a good poet.” Everyone can understand what AI might do, and so, of course, Nvidia is already at a crazy price. That doesn't mean it can't double. Bubbles don't normally last 3 months; they just don't.

I've known you for a bit, and I've always been fascinated by your background. You've had a pretty diverse one: You were a Princeton wrestler, a military helicopter pilot, you've mentioned running marathons in the Sahara, and you've even done a little bit of ayahuasca. What experiences do you think contributed the most to your success in your career?

Wrestling teaches you how to lose and come back. It teaches you tenacity and toughness. There's a great quote: “Once you've wrestled, everything else in life is easy.” I was a good wrestler; I wasn't a great wrestler, but it defined who I was until I was 22. I think that's where the foundation comes from.

I also got lucky in that I pivoted my way into something that I was naturally good at. If you think about what macro investing is, it's a combination of reading economic trends, political trends, and social trends, and understanding how markets behave with those inputs. There's a lot of intuition in it. It's very different from some businesses. There's hustle, but mostly intuition.

I stumbled into it because it's a storyteller's business. You look at the world, create a story, put your positions on, and tell that story. I was a natural-born storyteller, so macro came really naturally to me. I didn't know that when I was a salesman at Goldman Sachs. I thought I was just cute and charming, and that people liked to deal with me because I was fun.

It wasn't until I left being a salesman and left being a trader at Goldman, when I was running a hedge fund, that I realized, “Oh, fuck, they talked to me because I was right most of the time.” My ability to either know who was going to be right and steal that information or that story, or synthesize the information, was right more often than it was wrong. That's a lot of luck: to stumble into a career and figure out what you're good at.

You mentioned a couple of points that we wanted to drill in on with you. Macro investing is notoriously difficult. The number of variables that go into the equation whose output is the price of some macro asset, like Bitcoin or crude oil, is vast. It's immense.

You mentioned synthesizing the information. Do you have a process for synthesizing these macro trades before you go and tell the story?

I do. It's not linear. I think what's important for everyone is to figure out what information they need, and then process that information.

In macro, there are tons of data points, from country visits to charts, surveys, and fundamentals. I'm talking to people in all kinds of different areas of expertise. When I used to trade emerging markets, I would go to a country and meet the bankers, meet corporates, meet investors, and meet the press. Pretty soon, I'm at the central bank and the Ministry of Finance. Pretty soon, I would understand Indonesia.

I used to tell people that when I was trading dollar-yen, if I had the newspaper from the end of the year and you had the newspaper from the end of the year—both in the U.S. and in Japan—we might still make different bets on where dollar-yen is going to be, and we might not be right. You take all this data and put it through your algorithm. Mine is pattern recognition.

I look at the chart and it tells me something. It's fundamental analysis, political analysis, and all those analyses, but at the bottom, it's a guess. It's an “I think.” Because you're guessing, you're scared all the time. If I'm wrong, oh, fuck.

The real trick is whether you can develop a discipline. This is where wrestling or other disciplines come into play. You create a set of rules by which you manage your risk and manage your life. That gives you the best chance of having your guesses be right in your portfolio. That's often stop-losses, sizing, or some philosophy.

What most macro traders in crypto missed last year and the year before was that they thought things would go straight up. They made a ton of money, and then they lost 75% on average. They don't realize that when you lose 75%, you're pretty much out of business. It takes 5½ years at 25% to come back to zero. No one's got the patience to wait 5½ years, and 25% is a good year.

People didn't have an understanding of risk, volatility, stop-losses, or, quite frankly, even year-end. You're running a hedge fund, and you're going into year-end up 80%. On January 1, you're up 0%. You can be playing with the house's money, but the house's money is your money starting on January 1. You've taken your 20% promote, and now your investors don't expect you to have a huge drawdown.

All of those lessons can be put into 3 buckets: What information do you need? How do you process it? And what are the rules that give you the best chance of staying alive and having your portfolio match your views? I always tell traders to carry 3 notebooks, and you get better in each of those notebooks.

From a crypto perspective, crypto markets are intensely short-term and intensely long-term in many ways. You need a 5-, 10-, or 20-year outlook to stay convicted in the asset class, but there are so many things that happen on a day-to-day or week-to-week basis that change the price pretty immensely.

When you're thinking about how you used to trade in the macro markets, the types of assets you used to trade, and how you approach crypto today, what are some differences and similarities between those asset classes?

Crypto last year was an 80-vol asset, and I never traded an 80-vol asset. If you were going to have a $10 million fund and run it 90% long, you're pretty much just going to a casino and flipping coins. The chance of having a volatility-adjusted return, or Sharpe ratio, is ludicrous unless you just got lucky when it went straight up.

The biggest lesson, or the biggest transition, you need to make is sizing and expectations. Most crypto funds had too much risk in them. That was really fun when you bought something at 1 and it went to 400, but going from 1 to 400 happens once in a lifetime. We were having it happen all the time.

The knowledge that this was a bubble—a bubble caused by a beautiful idea and by a set of circumstances involving 0% interest rates and people staying at home—encouraged me to take chips off the table, sometimes too early, but to be constantly taking chips off. Some of my younger friends who hadn't gone through cycles and didn't really understand bubbles would take a few chips off and get right back in.

I think experience had some merit in both the 2017 cycle and the 2021 cycle. But really, even on a go-forward basis, it's all sizing. Crypto is up, even after today's sell-off, 55% on the year—the single best asset other than Nvidia. But is it really? If you're volatility-adjusted, it's still up and still has a high Sharpe ratio, but it's not as good as, say, Apple this year. It was having a correction.

You've got to be careful. It doesn't mean you can't take a lot of risk. You need to take a lot of risk in bursts. Right now, volatility seems very low and mispriced, so shifting some of your cash position into options makes sense to me. Those are all tools that you learn over time to survive.

The biggest lesson is to understand volatility. If stocks traded at 20 volatility, currencies at 10, and crypto at 50 or 60, then for the same conviction, your position sizes should be very different.

The other mistake people make is, “I'm a crypto guy.” No, you're a trader. It's an asset with unique characteristics, but so are crude oil, natural gas, corn, interest rates, and currencies. This idea of crypto as its own asset class, or “I'm a crypto trader,” was misplaced for most fund managers.

It wasn't misplaced for the engineers or the revolutionaries in the space. But if you're a fund manager, it was misplaced. Managing portfolios is the same, no matter what you manage.

You mentioned something interesting there: the fundamentals of risk-taking and understanding volatility. You're known as one of the risk-takers, not just in crypto but in macro more broadly.

What specific characteristics does crypto have that help you remain so convicted in the space, even during drawdowns? What framework do you cling to when things are looking a little shaky?

We're still in the zone where we're selling a vision of the future. What made crypto unique was that Bitcoin came at a time when people were losing trust in centralized infrastructure—governments and banks—but also at a time when populism was creeping its way into every government.

If you look at debt-to-GDP in the U.S., it's skyrocketed since 2008. Debt-to-GDP is a pretty good proxy for populism: “I want to spend money because it feels good.” I remember Trump said, when he had the single greatest increase in government spending ever—and that was before COVID—someone asked who was going to pay for it, and he said, “Someone else is going to worry about that.”

He had the single greatest increase in government spending, and he had tax cuts, because it felt good. That story isn't going away. We just had a budget—I mean, a debt-ceiling showdown—and McCarthy is declaring victory, while Biden is declaring victory. They did cap spending for 2 years on non-defense, but they capped it at a level close to 24% of GDP, when government spending is normally closer to 20% of GDP.

It's like me giving you a triple allowance for 2 years as a young kid and then saying, “I'm going to get tough this year. I'm only giving you a triple allowance again.” We're spending more than we can afford. That's the narrative for why Bitcoin and other hard assets will appreciate over time.

I don't think we can get out of that story for the next 10 or 15 years, so I'm structurally bullish on hard assets. There are going to be big cyclical moves. When rates were 0%, of course Bitcoin should have gone to $65,000. When Powell decided to raise rates really fast and try to stop the runaway train of inflation, because inflation was supposed to come back down, that changed things.

I do think you're going to have an economic cycle within that big secular trend and adoption cycle. We thought institutions were going to buy crypto. I've got 430 people at Galaxy, all geared up to help institutions come in and buy crypto. A combination of bad behavior from a lot of our peers—Sam Bankman-Fried and company—tough regulation, bad regulation, or no regulation out of the U.S., and 5% interest rates caused that enthusiasm to wane.

The only silver lining is that retail is still buying. It was always the people's revolution, and they're still out there. I haven't given up faith in Bitcoin.

The other parts of crypto—the big decentralized revolution, what will be built on Ethereum, and this base layer of trust that we can build this whole new world on—are happening. But the market now seems to want to see shit that works.

I don't have an app yet. If we lived in Africa or the Middle East, we would probably use crypto for payments, but here we would probably use Apple Pay. It works. Unless you're an early adopter, you're not using Web3 in your normal life.

That doesn't mean we can't have markets go higher, because there's $1 trillion in the crypto space that cares about it. But to suck people in and get them really excited again, especially with the competition from AI, we're going to need some apps that people can get their teeth into and wrap their minds around.

Because even with all of that, we're telling stories for the future. Why AI is going to be a bigger bubble than crypto is so easy: You just log into ChatGPT and write a poem to your mother in the voice of Walt Whitman. “Oh my God, you're such a good poet.” Everyone can understand what AI might do, and so, of course, Nvidia is already at a crazy price. That doesn't mean it can't double.

Bubbles don't normally last 3 months; they just don't. They normally last a couple of years. I don't know if Nvidia goes straight up, but I would tell you that I don't think we've seen the high of that whole AI bubble. Crypto is going to have to compete with that.

We can come up with reasons why crypto's important. It could be really important for authentication with all these deepfakes: How do I validate that this is actually my work, or my identity? But now I want to see people actually show me the app that does it. Even if it doesn't get complete adoption, then we're telling stories that people can sink their teeth into again.

I think that's one of the tough parts. I was actually just talking about this with my partner, Joe, earlier today. We're in the show-me stage, in my opinion. Without something that brings in a ton of people and is as easy to use as ChatGPT, you kind of get stuck.

Bitcoin obviously has that narrative already built in—the store-of-value narrative and the hard-asset narrative. The rest of crypto has less of that, but that's also what we're constantly looking for in the market: the most promising opportunities in the crypto space.

For people like us, if we're investing long term, that's where we look. I'm curious: When you think about the crypto market in aggregate, outside of your view on Bitcoin, where do you find the most interesting opportunities? Is it in short-term trading, long-term investing in protocols, or investing in applications? Where are you finding the most opportunity right now?

We keep Bitcoin and Ethereum as core holdings. I like the supply-demand setup for Ethereum. There's not a whole lot of supply. We're still putting small amounts into venture, but I think people got too long venture over the last cycle, and that's going to take time to digest.

Our lending business is an interesting business because a lot of the lenders got out of the market: Genesis, BlockFi, Voyager, and Celsius. That's a more conservative way of staying in the game, but it's certainly less volatile than it was in the past.

My expectation is that this is going to be more lackadaisical for a while. I've still got my eye on gaming because gaming is so tangential to crypto. While there haven't been a lot of Web3 games that have taken off yet, there are a couple that are starting to get a little bit of traction. Mythical has an NBA Smash Up game that's starting to get a little bit of traction.

It makes too much intuitive sense that Web3 and gaming go together, and gaming is just in a 25-year bull market. Young kids love to game. We have a fund that invests in gaming with some Web3, but when they underwrite game studios, they're not really underwriting the Web3. It's often the cherry on top.

That's kind of it. Again, there are some specific investments our guys will make because they think there are unique teams, and you want to still be in the game.

If we run it back to your earlier points about Bitcoin specifically, we've talked about how we've been trading with the broader markets and how you think about Bitcoin as a hedge against irresponsible government spending or irresponsible government actions.

This year, we've had a lot of different events and regimes in the crypto markets. At the beginning of the year, Bitcoin was correlating very heavily with risk markets. After SVB, it was much more correlated with gold than anything else. Now it seems to be doing its own thing. The Nasdaq is ripping in a pretty narrow rally, but Bitcoin is refusing to follow.

When you think about what's happening there and who's participating, how do you think about it?

I don't think we're going to get a sustained Bitcoin rally until the Fed is done, and in my mind, that's probably in the summer. We've all been a little too pessimistic on the economy. History will be rewritten.

The $4 trillion of COVID stimulus was really an experiment in universal basic income. It's lasted longer than people thought, and people spend money. They like their new lifestyle. We've had a service economy that continues to be vibrant, while the industrial economy has been slowing and slowing.

As a macro guy, you're used to ISM surveys and all these things rolling over. You're like, “Of course unemployment is going to follow,” and it hasn't. We had banking crises that looked like they were the end, and all of a sudden the government gives more money to all the banks.

We just had a big, strong jobs report. I think the economy is getting more hollow, and I think it will slow. In fact, today I bought some Ether and Bitcoin calls. I think that probably by the end of the summer, you'll have the Fed either having started to cut or at least saying, “We're worried about the economy,” and either going to cut. That's probably the next thing that gets Bitcoin higher.

Do you think we ever go back to 2% inflation? I personally don't. I think they're going to revise that target higher to allow for the cycle you just described to continue, with people essentially spending more after COVID.

That's a great question. I think they're going to talk about 2% and hope for 3%.

If you think about when I graduated from college, debt-to-GDP was about 50%. It's about 130% now—125%. You guys can check me on my facts. The only way out of that is inflating your debt away.

Last year, they did a pretty good job. We had 7% inflation, and we were paying about 3% for our debt—2.5% was the kind of blended average—so you just inflated 4% of the debt away. You need to do that for a while.

You can't say that as a central banker, and you can't say that as a Treasury official, but you want to have higher inflation to get out of the debt trap. If it gets too high, you're screwed. It's a really, really challenging dance for the stewards of your economy to pull off.

There are structural reasons why inflation will be more stubborn. We had 30 years of globalization where the wealthy were getting a bigger and bigger share, and workers weren't. Now workers are fighting back. Wages are going higher, and there aren't enough workers.

We're going to rebuild supply chains because of the ridiculous war we have with China. I think there are structural reasons why inflation is stickier. You might be right, but I don't think they're going to reset their target.

That's a good framework for thinking about this next question. Bitcoin is a debasement hedge: If monetary and fiscal policy are too profligate, Bitcoin performs. But obviously, we saw that it isn't necessarily the best inflation hedge, at least not in the short term, as we saw last year.

Do you see prolonged inflation as a form of debasement that leads to Bitcoin performance? How do you think about the relationship between alternative monetary systems like crypto and policy?

As fiat currencies get debased, hard assets should go higher. Remember, we had a speculative frenzy around Bitcoin because it was a spectacular inflation hedge. If you bought at the beginning of COVID, you bought it at $7,000, and it went to $69,000. You 10x'd your money. There was no better inflation hedge in the world than Bitcoin or other crypto during COVID, when we were all panicked about inflation.

When inflation finally showed up, if Powell had strapped up and become a real central banker, he took a sledgehammer to the gonads of inflation. That was painful. Crypto would have kept going higher if he hadn't done that.

I think it's unfair to say it wasn't a good inflation hedge. There was a lot of inflation last year, but there was a central banker fighting it. Markets always get ahead of where they're supposed to be.

I think Bitcoin will trade semi-correlated with gold and semi-correlated with risk. I say that because it's a new asset. If you're really in an “Oh shit, I'm losing everything” situation, you want to pay down leverage. I'm not sure you have the courage to buy new assets.

That's why the adoption curve happens. It's why young people get more comfortable with it than old people. Old people have never had to do that; they have their own safe assets.

The only thing I see as promising right now, in the midst of regulatory assault and very little sponsorship from institutions, is that retail continues to accumulate through the platforms. It's surprising to me how much buying happens every day in small amounts that adds up to big amounts.

I don't think that if we get an S&P that just gets the hell knocked out of it and there's a Fed response of much lower rates—if it's not stagflation—Bitcoin could do okay. But if it's stagflation, I think Bitcoin will struggle for a while.

I think we're fighting each other on those calls today. We're lifting some as well, actually, from you guys, so thank you for that. Let's open this thing up.

If volatility has come in so much and we're trading sub-40 on ETH, how do you think about the risk on volatility here?

Here's the risk on vol. We talked to more than 100 crypto institutions across miners, hedge funds, private equity, protocols, and banking. Most of them aren't rolling in dough. Most of them have made cuts already and have an operating budget that was made for a different era.

Selling calls went from being a hedge to being an income generator. That's very dangerous. You've been paid to sell calls, and after that first rally, selling anything makes you look smart.

What often happens is that people get addicted to that income. While crypto vol seems crazy cheap, I told my guys, “Don't spend all your money yet. It could get cheaper.” It will get cheaper and cheaper until it suddenly shifts, and then everyone who's short is going to get their face ripped off.

But that's the painful cycle of markets. I was trying to have a bet on how low crypto vol—both ETH and Bitcoin vols—will go. When do we go sub-30?

Because 30 is about as high as you get in normal assets, it would be the first time it does get into that. I don’t know—I don’t have a magic wand on that—but I do know it wouldn’t surprise me if it went lower.

Yeah, that makes sense. I think it comes back to what you said about sizing, because every time you lose on that trade, it is likely a better trade at the end of that, right? So if you lift some calls in a month and it hasn’t gotten to that, then you’re probably looking at sub-30. You just size it to be able to get in there, right?

Yeah, which makes a ton of sense.

I’m kind of curious: You said something there about institutions being a lot more reluctant than retail to get into the market, and retail being the driving force. Maybe a 2-part question: What do you think people are missing about why retail is buying, and what could really increase that rate of adoption? Is it going to come from inside the U.S. or outside the U.S.?

I think outside. Listen, we just have Hong Kong—Hong Kong allows retail to buy through regulated exchanges. They can’t use stablecoins, so there’s going to be a bit of an educational and onboarding delay, but that’s important. I think Asia continues to be a place where people like to gamble and people understand crypto, so it won’t surprise me to see Asia continue to be important.

But I think retail is this slow, grindy process. We need new storytellers, right? It doesn’t help that CZ gets indicted by the SEC, or that our storytellers, our promoters, and our explainers are important parts of the ecosystem. I keep teasing that I’ve done my share, and someone else has to actually start going on CNBC and tell the crypto story.

What Bitcoin and all these ecosystems are is a social construct between people, right? The genius isn’t in the technology. We could recreate it and call it a hobby coin, and it would be really hard for you to get 140 million people to want to store their hard-earned savings in the hobby coin blockchain. Bitcoin has this giant head start, but you need to bring people in, explain it to them, and have them understand it so they’re willing to trust their savings.

Bitcoin is just a store of value in lots of ways, so that’s all that there is. It’s the social construct. It’s a miracle that we created a brand in 12 or 13 years with a $400 billion market cap—or whatever the market cap is—owned by 150 million people. It’s the 7th or 8th-largest country in the world, like Bitcoin Nation. That’s a freaking miracle, and lots of people deserve a lot of credit for it.

Each of the crypto ecosystems needs that in some ways. Avalanche has done an amazing job. They have a different story and a different use case, but until more and more of the world runs on block space, the storytelling piece is important.

Vitalik is wildly important, even though he owns less than 1% of all the Ethereum, right? As a symbolic head who’s been a good guy—who hasn’t? If there’s 1 hero of the space, it’s probably Vitalik. He’s wildly important. Joe Lubin was important to the Ethereum ecosystem. All the investments he made building up the ecosystem built the building blocks.

But what we’re having now is when you see yesterday’s heroes become scoundrels, it’s not good. You need to see some new storytellers and some new ideas emerge to get the animal spirits going again, to draw people back into our ecosystems.

That is an interesting point you bring up: that storytelling leads to demand for crypto’s product, which is block space. If you look at the Ethereum network, block space has been in demand, right? If there’s a neutral level, which is 16 gwei, above which it’s deflationary and below which it’s inflationary, it’s been averaging 50 to 100 gwei for a long time. So clearly, people want this stuff, and the fundamentals look strong. But like you said, it’s hard to fight the flows of people coming in and selling calls every day.

What’s so interesting is, when I was talking to one of my friends—you guys probably can figure out who—who runs a big Ethereum ecosystem company that’s mostly on-chain, it doesn’t feel 1/3 as bad there as it does in any of the CeFi/DeFi companies like ours. There’s that vibrancy you’re talking about that’s happening. Whether it’s people using MetaMask or that original, organic crypto peer-to-peer world, it’s still growing.

The last time I looked at block space, last year, it was dominated by NFTs. OpenSea was literally eating all the block space. NFTs were an amazing vehicle for us to tell stories and explain to people that one of Satoshi’s genius ideas was not just Bitcoin, but the first private property in the digital space—the first private property on the internet.

There was no capitalism without private property. There’s no freedom without private property. Satoshi gave us that in the best way for the masses to understand it: the NFT. When NFTs came, they exploded because they were understandable. You could pull people in. It was NFT, NBA Top Shot, Candy, or Punks. I’m looking—we’ve got 10 Punks hanging in our office. We have our own Galaxy NFTs.

Of course, those prices got crazy. Beeple at $69 million might have been the greatest short in history, and I love Beeple. But the concept was wildly important, and that’s not going to go away. Again, you need NFTs that are gamified, NFTs that are part of broader ecosystems, that can connect customers to their brands—like loyalty points that become not just commemorative tickets, but real tickets.

All that infrastructure is being worked on and built. Once one of those things takes off again, you’ll hear about it.

That makes total sense. You obviously understand storytelling; you’re fantastic at it. You know how to pick out a good story before it necessarily becomes popular and goes viral. That’s probably, if I had to guess, something behind your original investment in Bitcoin.

Avi and I both wanted to know this: Why is it that you decided to create a diversified financial crypto-services company this time, as opposed to the previous venture?

That’s a great question. Another way of asking it is: Why not just go long Bitcoin and walk away? I was just on the phone with a friend of mine who did that. We went in together, and I was like, “Man, oh man, there are days I wake up and wish I just did what you did, because it would have been so much easier.”

Listen, I was 50—well, I’m 58 now; it was 5 years ago. I was young 50s, and I figured I had 1 more chapter in life, at least. I love working with young people. I’d never really been a venture investor, and that excited me. I thought I had a role to play in helping people come into the ecosystem, and that a platform like Galaxy was the right thing to do.

Truth be told, I’m really good at a few things and not as good at others. I’ve hired people to work alongside me. Some have been great hires; others have come and gone. But we’re putting together a team of people with varied skill sets to be able to fill in where I’m not good, while bringing their own talents to bear.

It’s hard, right? It would have been a lot easier to be an investor or even an asset manager, because the asset-management cost structure is so much smaller when you’re building infrastructure for the space. You guys can trade, and other people can trade with us, and that’s expensive.

Now I look back and I’m like, “Was I crazy?” I did it because I thought I had a role to play, is the answer, and because I thought it would be a new journey. It wasn’t necessarily as well thought out as a trade as I would have made it. It was just a trade.

Yeah, that makes sense. Leaving an impact on crypto, I think, is a good and noble thing to do. I want to ask you about—just reflecting on your career as a trader—we’ll discount Galaxy because you said it’s less well thought out than a trade. What was your favorite trade over your career that stands out to you?

When Asia blew up in 1997, that’s when I went from a guy who made $25 million a year. We worked 21-hour days, literally, for that whole 1997. I used to call it a dog year. It was by far the most memorable year because I went from boy to man as a trader, or at least from boy to young adult.

What you also learn is that you make these discrete jumps. You’re nervous about betting $500,000, and then you’re nervous about betting $5 million. It’s not linear; it’s discrete. I was able to bet a small amount of money and make a fortune in Thailand because I bet on the interest-rate curve, forward points in foreign exchange, and very few people were focused on that.

That allowed me to feel like I could take more risk, and so I made that jump at Goldman Sachs. For me, going from a $10 million guy to a $100 million guy was hard to do. Some people in crypto made it quickly, but then they unmade it.

The great thing about Goldman is that once you made the money, the partners were like, “Thank you,” and took it from you. It wasn’t yours, and you started the next year with bigger cojones, but starting at 0 again. So there wasn’t this make-it-all, lose-it-all. It wasn’t allowed.

Lloyd Blankfein was a fiercely good risk manager. Even if he didn’t talk to you every day, every week, or every month, when he smelled the money going, he was on the phone. So I think that was probably the most memorable.

Buying Ethereum at $1 was both lucky and about who you know in your network. I knew Joe Lubin; I would have never been engaged in Ethereum if it wasn’t for him. I had met Vitalik before that. That’s probably still a 1-to-4,000 return, which very few people get. A 1-to-100 return is a pretty impressive trade; a 1-to-4,000 return is once in a lifetime. That’s a venture-like return.

And not just any, like you said, any venture-type return. That’s a Google or a Facebook, or even more.

I think what protects a lot of venture capitalists from themselves is the fact that seed-stage private equity just isn’t liquid. So when you’re long Ethereum, and you paid $1 for your tokens, and you’re watching it trade at $200, $400, or $600, how do you restrain yourself?

I’ll tell you a funny story. I spoke at the first Ethereal, out in Brooklyn, and Lubin put it together. There were, I don’t know, 400 people in an auditorium. They were all the guys who built Ethereum and worked around it.

I asked, “Who’s ever owned Ethereum?” About 2/3 of the hands went up. I said, “Who still owns it?” About 90% went down, and it was trading at about $70. I was telling them about something that Paul Tudor Jones, a great trader, used to call the pain trade. It’s harder to ride a trend, but great fortunes are made in trends.

You’ve got to handcuff yourself to the chair. I usually leave out that metaphor, but you literally have to handcuff yourself to the chair. It’s easier to stop out than it is to let winners run.

By the end of my speech—that’s how small the market was—Ethereum had gotten to $80, $85, $90, and $95. The next day, it was $130.

I’m selling it—handcuff yourself to the chair—and I couldn’t do it. I was lucky enough that I had bought enough that I could sell a little bit and think of it like an option, almost like I was trading positive gamma. At one point, I had a thing called the lockbox. I was like, “No matter what, we’re never getting into the lockbox of Ethereum.”

And I tell you what, if I was smart enough, I would have had it in a smart contract. I wasn’t smart enough. Sure enough, I broke the lockbox when it went higher. Listen, if I had kept all the Ethereum that I bought that first day, today it would be worth $2 billion. Let me tell you, I’ve made a lot of money on Ethereum, but my Ethereum is not worth $2 billion.

I give myself a lot of credit for holding as long as I did. It was made easier by the fact that I was already rich, right? I had made $1 billion before I got into crypto, in macro and at Fortress and other stuff. My original size was bigger than most people’s, and that made me more money in crypto and made it easier for me not to completely freak out.

Listen, I don’t want to discount the credit that my team and I get. I remember in 2017, I’d get into these ICOs and they’d be up a ton. I’d be selling them, and some of the crypto guys were like, “Dude, we can’t sell this. It’s a great protocol.” I’d be like, “Did you not hear me? It’s my money, and you work for me. I said sell it.” They still wouldn’t sell, so I’d have to literally get another guy in the seat and say, “Please sell my goddamn tokens.”

It’s hard for people, and for me it was easier because tokens I didn’t even know what they did were going up 30% or 40% in 2017. We had an ethos of taking profits in crypto. I just didn’t believe there could be that many Googles. I thought Bitcoin and Ethereum had such a head start in developing the network effect and the community that they were going to be my core holdings. Everything else—whether it was Polkadot, Luna, or whatever—I was a seller along the way.

It also helps you avoid blowups in this space, that constant taking of chips off the table. I think one of the hardest things that I wrestled with in 2021 was, “When is the trend over?” A lot of people want to pick the bottom and sell the top, then pat themselves on the back and tell themselves that they’re great.

It should have been easier. You knew people were going to try to ramp it into year-end, and so year-end was it. You knew the Fed was going to start raising rates. You didn’t know what month, but they were going to start raising. You’d had an unbelievable run, and the leader had already come off while secondary things were going higher. Bitcoin was way off, and Luna kept going up.

We get credit—we sold probably more than $1 billion worth of stuff. But I tell you what, I had another $1 billion I could have sold, and it’s hard. You talk about a public company and what you should keep because the shareholders want it. You can make 1,000 excuses not to do the hard thing. The hard thing was to go to the sidelines, and that’s where Avi, to be honest—if it was me in a family office, it would have been easier, right?

In 2017, I did mostly that, and every once in a while I would tell myself, “Dude, you made so much money. Just sell it all, rent a boat, go away for a month, and come back.” It’s hard for people to let go of that adrenaline. It’s not just greed; you get committed to the cause.

You mentioned greed and cause. We know you’re a very charitable guy. As we run out of time here, all of this capital that you generate from your discipline and your process—how do you like to reinvest it in the broader world of people who need it?

I think you need to spend some on yourself and your own community. By your community, I mean your family, your friends, and the people you surround yourself with, because money is energy, and you should share some of that good energy. Then you should look at how you can make an impact.

I’ve shifted my philanthropic focus a few times. I was a wrestler, so a lot of what started around youth sports was about how that can build leaders. I started with Beat the Streets, or certainly helped accelerate Beat the Streets. I then got into criminal justice reform. I probably should have been thrown in jail for some of the shit I did as a teenager. I didn’t really have a link to it until I started meeting people and realized just what an unfair, stupid, uneconomic, and immoral system we have. So I got engaged with that, and with democracy reform.

The more you give, the more you get. It sounds cliché, but it’s something I’ve been told and learned in the places I’ve been. At least half of the richness of my life comes from those philanthropic experiences. It’s not that you’re a saint; there’s a selfishness to giving. You’re learning, uncovering, and connecting, and that’s why I encourage people to give.

It opens up new communities. Come to my parties, and they don’t look like everyone else’s parties. We’ve got young and old, Black and white, every color in between, and income groups all over the place. That’s what I love to do: try to create a community that’s not normally seen as a community.

I appreciate that, Mike, and thank you for spending the time to talk with us for an hour. We had a great conversation. Maybe the next time I’ll tell the story of you steamrolling me in wrestling.

We’ll save that one for next time.

All right, guys. Thank you, Mike.