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Mike Novogratz: Scaling Galaxy Into A Behemoth, Criminal Justice Reform and NFT Hype

Mar 15, 2021 ·

By Tom Shaughnessy

The Delphi Podcast Host Tom Shaughnessy hosts Mike Novogratz, the Founder, CEO and Chairman of Galaxy Digital. This interview was recorded live in NYC.

The two discuss crypto bull runs, scaling Galaxy Digital into the empire it is today, NFT hype and value accrual vs the traditional world, criminal justice reform, advice Mike gives to Galaxy employees and so much more.

Mike is an industry titan who has an immense amount of knowledge and alpha to share. This interview was extremely exciting and I think Mike for his time. 

Every Delphi Podcast is dropped first as an audio interview for Delphi Digital Subscribers. Our members also have access to full interview transcripts. Join today to get our interviews, first.


Music Attribution:

  • Cosmos by From The Dust |
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  • Creative Commons Attribution 3.0 Unported License



Interview Transcript

Tom (00:05):
All right Mike Novogratz, welcome to Delphi’s Clubhouse. Just to let you know, it’s being recorded. I have to tell you legally. How’s it going?

Mike (00:11):
I’m doing all right.

Tom (00:13):
It’s great to do this in person. First interview in a long time in person. What about you?

Mike (00:18):
Yeah I’m ready for COVID to end, so I’ve declared it over. Much to the chagrin of my kids who are like, “Dad.” I’ve had COVID. So I feel like I won’t be able to give it to you.

Tom (00:28):
[inaudible 00:00:28] I had it. It was a tough weekend.

Mike (00:28):
I didn’t have it to bad. But I infected a lot of people, so that was kind of shitty. You feel all the stress of having to call people. But after I got it, I felt better.

Tom (00:44):
Yeah, no. You think we’ll be back by the summer?

Mike (00:44):
I do, I do. I think Biden’s going to say today, May 1st, every adult can have a vaccine. Almost everyone I know in the city who wanted a vaccine has gotten one. I think you’re going to see it rain vaccines in April. You’ve got the good weather coming out, spring. Even today, the city feels like it wants to go.

Tom (01:05):
It does. Back to 50%. Well I mean you think eventually vaccines and just everyone already having antibodies will inflect somewhere, you know?

Mike (01:13):
Yeah, you know it’s funny because this bill that came out today, they’re putting all this money in for testing. We’re not going to need testing. Everyone’s going to be vaccinated. We’re not going to need masks, we’re not going to need testing. We’re not going to need this whole elaborate plan to bring the schools back online. We needed that last year. Not this year. Politicians are one year late. But I think by summer, we’ll have a normal summer. People will be traveling, the Hamptons will be ripping. The city will be popping.

Tom (01:41):
You think all the people that moved to far away, out of the city into the country, Puerto Rico, all over are going to come back to New York?

Mike (01:47):
I think most, certainly under 30 will. What in God’s name are you going to be under 30 and living in the suburbs for?

Tom (01:53):
I can’t wait for Brooklyn to open.

Mike (01:54):
I think under 30, the city’s going to boom. I do think there’s some, two kids, 34, wife likes living in the suburbs, some of those guys or women are going to get stuck.

Tom (02:05):

Mike (02:07):
But my guess is the city comes roaring back.

Tom (02:09):
Yeah, no, I’m excited for it. Mike, you’ve built an incredibly large business. You’ve seen a lot of stories, a lot of projects, a lot of people. Not to be redundant here, but how does it feel? Did you ever think Galaxy would be this big at this point?

Mike (02:24):
You know it feels good. I called it Galaxy 2.0. We went in in 2018 really and started, had this idea of building this Goldman Sachs of Crypto, we called her. Then I switched to the Drexel of Crypto. Which I got all kinds of shit for, because Drexel didn’t end so well. But Drexel did, Mike Milken was really the guy who helped credentialize high yield junk bonds. I thought part of our job was to be credentializers, to bring the institutional world into the crypto space. For a bunch of different reasons, we were way too early, and made some internal mistakes. Had an okay business, but not a great business.

Mike (03:10):
We’re given a second lease on life, literally, with COVID, as horrible as that sounds, all of us in Crypto were. COVID gave Bitcoin an amazing macro story. It gave the rest of Crypto, this idea of the digitalization of everything and hyper speed. We were smart to notice there was a shift, both from positioning but also hiring. Since then, we have hired a tremendous amount of talented people. Right now it feels great. I walked in last week and there were five new employees, and each one was hungrier and smarter than the next. I was like, “Okay, we’re getting this now.”

Mike (03:53):
I used to always say, “We need to hire younger people.” And I’d get yelled at for being an ageist. What I should’ve been saying is, “We need to hire Crypto native people, people that actually care about Crypto, that know how to stake, that are looking at the new projects.” It’s interesting, because Wall Street, our president has Volvo signs in his office, because with our institutional customers, we’ve got to be safe. We’re going to drive a Volvo. I laugh now. I wear a hoodie one day and a suit the next. With [inaudible 00:04:26] I wear hoodies probably four days a week.

Tom (04:28):
[crosstalk 00:04:28] all your meetings.

Mike (04:30):
But it’s this, we’re straddling this line between institutions and they want things buttoned up, and Crypto, which is kind of like a middle finger to the system, and trying to push the edge of regulation. It’s an interesting place to be.

Tom (04:45):
Do you hire the DeFi degens for the research, and then you hire a guy who has to deal with the institutions? What’s the switch?

Mike (04:53):
You know it’s interesting, I love DeFi, and we’ve got a great team there. If I called them degens on the radio, they would yell at me. We’re having a lot more collaboration between the traditional and institutional guys. Because I want to be the smartest guys in the room, like you guys want to be the smartest guys in the room, and I think sometimes you are. Everyone wants to be the smartest guys in the room. How do you get your firm to be smart? You get cross-integration, right? You get cross-fertilization. Even if I’m talking to a client that I know is just going to buy Bitcoin, if I can take him down the same rabbit hole that most people on this call have gone through.

Mike (05:37):
Hey, I started with Bitcoin, understand what a blockchain was. What is the Ethereum? What are the other alternatives to Ethereum? What’s built on top of Ethereum? What’s DeFi all about? What are stable coins? If I can take them on this journey, he’s going to feel smarter to his bosses, he’s going to like me as a client better. And we’re going to get a much better chance of getting other business, as these guys inevitably will go on the same journey.

Tom (06:02):
Agreed. Personal question but I’ll ask anyway, how do you scale a business that large, that requires such specific intellect and knowledge per person? You have a ton of employees, but how do you get the knowledge from that DeFi degen over to the guy that has to impress the large institutions? It’s hard.

Mike (06:20):
You know, it’s a great question and we’re still working on it. In Galaxy 1.0, we had one of my young brilliant guys, Luca, do this project Alexandria, where he literally did a library of every kind of Crypto concept. Simple Blockchain stuff, SNARKs, you name it, it was in this library. People were supposed to do, it was like a study guide for the employees. That doesn’t really work. We tried.

Tom (06:51):
It’s not hands-on. It’s cool though.

Mike (06:53):
It was a good idea. It didn’t work. Well it worked a little. So it’s literally finding ways to work together, and it’s hiring people that care. That’s a big, big part of it. It’s people that … Listen, the world has changed immensely in the last three months. If there’s one message to give tonight that might have some profundity, I’m not even sure that’s the right word, is that three, four months ago, when you entered a career in Crypto, you were taking a career risk. It wasn’t a thing yet. In the last four months, it’s 100% become an asset class. It’s become an asset class in a way that surprises me even, as a bull. Every major bank is now completely engaged. We were just about to hire a guy from one of the major, biggest banks in the world.

Mike (07:57):
He was about to come, and he’s not now, because they just offered him to be the head of a 25 person group, to compete against us. I was like, “Okay, great.”

Tom (08:06):
Good luck to them.

Mike (08:10):
If it’s JP Morgan or Goldman Sachs or UBS, they’re all now engaging in Crypto. It’s going to start in the wealth channel for a lot of them, but it’s going to go much faster in other places. JP Morgan is petrified of Stablecoins, right? They make $12 billion a year. $12 billion a year on their cross border payments business. All these big foreign exchange banks. You’re corporate and you want to send money from Vietnam to Norway, they take a lot of money on that. As a matter of fact, I was told that JP’s just added three billion to their tech budget, added, because of this problem. They’re trying to hire as many engineers as they can in the Blockchain space.

Mike (09:00):
It’s game on now. It’s game on for Apple, and Microsoft, and Facebook, we all read about, right? The end was coming. I think it’s becoming accepted that in five years time, people won’t have bank accounts, they’ll have wallets, and people will feel that their money is just as safe in a wallet as they used to feel in a bank account. I don’t know if it’s five years time or seven years time or three years time, but it’s definitely happening. The good news is for people that decided to make a career in Crypto, you’ve got a career. It might not disappear in four months.

Mike (09:34):
Where literally, it felt like it was disappearing in 2018, and even in the crash of 2020, people were like, “I can’t believe that happened again. I can’t believe Ethereum’s under 100.”

Tom (09:45):
Hey mom, lend me a thousand bucks, I’ve got to pay rent. But now it’s living at your parent’s houses.

Mike (09:50):
And now there’s a career. That’s a big deal, because it allows firms like ours and yours to hire a different group of people. You don’t only have to have the really frontier fringe guys, who really have seen it themselves. You can hire great human capital, and you can walk the there. That’s what we’re seeing.

Tom (10:11):
How do you think about the banks though? It feels to me like JP Morgan could spend a zillion dollars acquiring projects, companies, people, but I don’t feel like they’ll ever have the cultural shift until it really hurts their pockets.

Mike (10:26):
I always thought the banks were being foolish about Bitcoin, because Bitcoin wasn’t a threat to the banks. If anything, it was a threat to the gold producers and the gold funds. But it wasn’t a threat to the banks, it was just another asset. They should’ve traded it, they should’ve asset managed it. It was a very profitable niche business if they could’ve done it. They felt it was this existential threat. DeFi is an existential threat to the banks. It goes right after them. I think they’re going to have a really hard time competing against DeFi in the long run. Because of that, they’re not dumb, you watch, they’re going to play dirty when it comes to leveraging their relationships with regulators and throwing smoke into the room.

Mike (11:14):
Part of it is, we did a deal with a bank today. We had to indemnify something. I got a DocuSign and it was 179 pages long.

Tom (11:26):
You supposed to read that?

Mike (11:27):
I was like, 179 pages long? For some little piece of a deal. I was thinking of replacing that with code.

Tom (11:36):
Yeah, oh yeah.

Mike (11:38):
Replacing all those people who feel like, “I need to jam that guy because it’ll make me look good to my boss.”

Tom (11:44):
So operational heavy, so bureaucratic. It’s so slow.

Mike (11:48):
Yeah, so when we get to the world of driverless insurance companies, and driverless banks, and driverless exchanges, I have not a big enough position in Sushi and in Uniswap. I’m fascinated, right? They haven’t cracked the KYCPs of that yet. But there are a lot of smart people working on the KYCPs, and I think once that’s cracked, I keep scratching my head. I was like, “Why isn’t that going to be the biggest exchange?” Now listen, we’ve got high valuations in DeFi already. You’re not buying things cheap anymore. But I do think it’s the most exciting area. But that’s the area that should scare the hell out of Wall Street.

Tom (12:30):
Yeah, yeah.

Mike (12:31):
Bitcoin should.

Tom (12:32):
It’s kind of ironic seeing Sushi Swap and Uniswap trade on coin base. I mean, it’s like here’s liquidity for your competitor. Yeah. Yeah.

Mike (12:42):
That’s a good point, actually.

Tom (12:44):
Yeah, it’s funny to say, MAC key and Hayden are two emperors in the space. They’re going head to head with two very different communities now. It’s going to be interesting to see it play out. What’s your favorite DeFi project? Or favorite couple, favorite sector? You don’t have to shout one out. But what’s super exciting to you in the DeFi space, that you’ve been around for a while, you say, “Hey, this is just straight up.”

Mike (13:08):
Listen, at its core, compound even, right? Just rethinking the interest rate market. Having a spot interest rate market. As a guy who had his life in fixed income and foreign exchange, I was like, what do you mean spot interest rates? That really was kind of a mind-blowing insight. I think the foundation of all finance is the interest rate curve. I think that’s a foundational piece of architecture.

Tom (13:41):
What do you think about the yield? Compound also kicked off yield farming, basically, because they were one of the … Well, Synthetics did it early on, but Compound was the first to offer [inaudible 00:13:51] for using your platform, lending, borrowing. Now it’s obviously, teams are giving out their yield farming rewards in two weeks to everyone. Do you think yield farming is basically just marketing money at the end of the day? Or do you think it’s actual real incentives? Do you think it drives lock in? How do you kind of think about that?

Mike (14:10):
Well, when the big money was made in it, it happened so fast it was just Ponzi, right? I don’t use the word Ponzi so explicit, but how do you pull the next guy in? How do you pull the next guy in? It’s interesting, again, from an institutional perspective, if you’re regulated, the KYCPs of this thing are really difficult. We can invest in these companies but we’re not using them in every case, unless we really can understand who we’re trading against. I think it’s going to have legs. You’re not going to get 40% yields.

Tom (14:51):
No. It’s funny, our team laughs when we see 400%. We’re like, “Is it really worth our time in gas fees for 400% a year?”

Mike (15:01):
The other thing I think is, and this is going to sound arrogant, so I apologize to everybody for sounding arrogant. We have a very young community that learns fast but still very young. New ideas, people come surging in and often don’t think through all the risks. We were talking earlier about Celsius or BlockFi or all these lending platforms. To me, it makes absolutely zero sense to lend Bitcoin, which is a hundred of all asset, to somebody to make three and a half to four percent extra. It’s the theater of the absurd. Especially when you’re taking their credit risk. You’re an unsecured creditor to a highly leveraged …

Mike (15:54):
Again, that’s even if you were taking no credit risk, 400, 25 times your VAL, right? Or ETH’s trading at 140 VAL. So just as a trader … Listen, no one’s losing yet. When everyone’s winning, everything looks good. When you get losses, either credit losses or the opportunity cost of being able to sell your … You know, you lock up your Bitcoin and then it spikes like crazy, you want to sell it and it’s locked up. You can’t sell it. It makes no sense to me.

Tom (16:39):
I’ve driven home in the middle of the night from my girlfriend’s, many a night when I thought something was getting hacked or rubbed or something. Just going back to Galaxy and DeFi, a lot of the life changing amounts of money, or generational wealth, is when some kid, some guy, puts 10 grand to a brand new project, turns into a million bucks. That doesn’t really matter to a big firm. How do you keep your eye on DeFi where it matters, but also where it’s worth it financially to invest?

Mike (17:08):
So listen, we have a great team. We’ve got Michael Jordan.

Tom (17:12):
Amazing guy.

Mike (17:13):
The white Michael Jordan, who has no basketball skills but is one hell of a skier. He’s like a fucking wicked rocket going down the mountain. You know, a guy named John Cole, Bill Nelly. We’ve got, these guys, they’ve got a mission, and the mission is to get us into the best projects. It’s hard to get in those projects, right? You’ve got Paradigm and Polychain, and all these guys who wanted to get in these projects. So you’ve got to have something to offer them. Yeah. Guys that really care and understand the project. We have an ability to bring publicity and to bring Wall Street into those projects, so that’s something to add. But it’s a fight. It’s a fight to get in the best projects. So it’s the team we’re putting resources to. Right now it’s been great, these guys, they’re doing a great job.

Mike (18:16):
So yeah, we can’t put $100,000, that makes less sense. But we can put a million or two million into projects. Some of these things, you put two million in, four million in, it can be life changing.

Tom (18:27):
I’ve seen a16z go to small DeFi projects and evaluations, 10X overnight. Is it really worth it at that point? So Mike, I guess when you’re thinking about portfolio sizing, not for Galaxy for but everyone listening, what would your advice be to young people in DeFi that are investing? Ultra concentrated, diversified?

Mike (18:48):
You know, it’s really different when you’re young, in some ways. Because assume that you have a job, right? Assume that you have a job, and your job isn’t just investor. Which I know a lot of people are making so much money in Crypto, they decide they’re just investors. I think that’s pretty dangerous.

Tom (19:08):
Overnight scholars.

Mike (19:09):

Tom (19:09):

Mike (19:11):
It all looks good in a bull market.

Tom (19:12):

Mike (19:14):
I think when you’re under 35, you’re supposed to take some risks. So that’s more concentration. Not less concentration. The biggest thing, though, if you want to do well, is entry point, right? You can’t fumble, I missed it but I’m going to buy it way up here. You’ve got to do your homework and get in at a decent valuation before the big move starts. Then the hardest part is riding the big move. Right? It’s you’ve got to have some pre-arranged strategy. Hey, I’m going to take a 12th off, take my bases back.

Tom (19:54):
You’ve got to have a plan.

Mike (19:57):
You’ve got to have a plan.

Tom (19:57):

Mike (19:59):
There are, this is one of the few places, it’s like venture capital returns that you sometimes get in six months. We were talking about LUNA Token, right? It’s gone from 20 cents to $11, that’s 55X in five months. You start thinking, God, if I’d only put a million dollars, that’s 55 million. All right, you don’t have $1 million, so I put 10,000 in and it’s a shack load of money.

Tom (20:23):
Yes, it’s a big difference. Huge.

Mike (20:25):
Yeah, 55 times, yeah, yep. Yep. You’re buying a Ferrari if you want. But it’s really hard to hold. Make a plan in advance.

Tom (20:37):
Yeah, that’s totally fair. I guess, you have so much finance and traditional Wall Street experience. When you meet these founders, some of them are anonymous, some of them are well known. It just seems like you and their lifestyles would be so different. Your advice. Where do you meet them in the middle?

Mike (20:56):
You know, my clothes. I went out with Tarune. Have you ever gone out with Tarune?

Tom (21:00):
I wish I did. Yeah.

Mike (21:00):
He’s got wackier clothes than I have.

Tom (21:04):
You look pretty normal.

Mike (21:08):
Listen, for me, it’s a learning experience. I got back into having a business because I thought, can I work with young people? Yes. Will I learn a bunch? Yes. And can I contribute something? And I hope it was yes. I’m trying to contribute to the some wisdom of a 56 year old guy that’s been through a bunch of cycles, and that understands markets and has a pretty good view of … Macro guys predict the future, and I’ve had a pretty good ability to sense what’s coming. Then I’m learning all the awesome details of how that future’s going to change from these young guys that are building these new platforms.

Tom (21:49):
Mike, if I called everyone at Galaxy, every employee, what would they say is the advice they learned from you? Just in aggregate. Like the greatest piece of advice that you think they come away with, whether they stay or go, et cetera.

Mike (22:02):
I don’t know if they say this. I would hope they’d say this, is like, you’ve got to work on yourself. I always tell people, you’re not here for me. I already got five freaking houses, four kids, a beautiful wife. I’m doing just fine.

Tom (22:13):
You’ve got it good, yeah.

Mike (22:15):
So you’ve got to figure out what you want to do, why you’re here. Everyone has to go on their own little therapy journey. Not at Galaxy, in the planet, right? There’s so many different ways now to kind of learn about yourself, even from fun things like Psilocybin and Ayahuasca retreats to meditation. But do work understanding what drives you, and that liberates you to then go forward with a lot more confidence, a lot more joy.

Tom (22:39):
My sister’s a psychologist and she always say, “Everyone should go to therapy whether you need it or not.”

Mike (22:44):
It’s a luxury.

Tom (22:45):

Mike (22:45):
It used to be, therapy was seen as, “Oh my God, what’s wrong with the guy?” I was like, we need to be the generation, you need to be the generation that de stigmatizes mental health. Everyone should be lucky enough to have a therapist. Because it’s kind of cool, you go for an hour and the guy talks about you. You know?

Tom (23:03):
It’s their one job.

Mike (23:04):
It’s their one job. And there’s no takeaway.

Tom (23:08):

Mike (23:09):
He doesn’t follow you out, right? It’s a really unique …

Tom (23:13):
You don’t waste a week arguing with your wife over stuff, you spend the hour.

Mike (23:18):
But there’s lots of other things. If you can’t afford therapy, right, there’s meditation or prayer or travel. People say travel, hey, when you travel, you realize that your way of life is just a way of life, it’s not the way of life. You learn empathy because you’re like, whoa, how did that … But mostly you realize that this shell that you think is existence is just a story.

Tom (23:41):
What was your favorite vacation, I guess? If you had to think through. It doesn’t have to be recent.

Mike (23:46):
I think everybody needs to go on vacations with their friends. Even more so than family, when you’re young. Your friends, Running of the Bulls I’m Pamplona, Spain, with a bunch of guys or girls, for us it was a bunch of guys chasing girls, not very successfully in Spain. But that was the fun. Drinking all night, running with the bulls. That was probably my favorite vacation.

Tom (24:12):
I’m a big EDM, Ultra, Burning Man guy. So I get it.

Mike (24:15):
Yeah. With my family, my favorite vacations are safaris in Africa.

Tom (24:20):
Okay. That’s cool.

Mike (24:21):

Tom (24:22):
That’s a good one.

Mike (24:23):
It’s going out there, everyone goes there, has the same feeling. You’re like, “I’ve never thought I was so religious before.” There is something magical about sitting on the Serengeti.

Tom (24:37):
When you do that, for the younger people, working 18 hours a day. Weekends I guess, bare markets?

Mike (24:39):
No, you do the African trip when you’ve got young kids. You do the Ibiza trip when you’re 28. There is a time and place for it, and you’ve got plenty of time. Even now, working hard, working hard, working hard. I tell people, it’s been such a great run in Crypto, take some of your Crypto, sell some, and buy yourself something that’s going to make you smile.

Tom (25:10):

Mike (25:10):
I don’t care if it’s a new car or a cool suit or great kicks or something bigger.

Tom (25:16):
That email from Sally Mae, finally paid off my college loans.

Mike (25:19):
Yeah. Or a house for your mom if you really are killing it. But that, you can lose your way if you’re just focused on stacking sats, or ETHs or whatever.

Tom (25:38):
Yeah I don’t even know. But yeah, that makes a lot of sense. I like that. It’s good life advice to kind of pull yourself out. We work so much all day long, we really don’t realize that point of view ever, you know? It’s hard.

Mike (25:50):
Yeah. Yeah. A good sports car for the summer at your age, if I was your age, that’s what I would be doing. I never had a good car, until I was old, married, and rich. Maybe this is just me projecting.

Tom (26:06):
Mike, if you need someone to take your car out for a weekend, I’m your guy. All right? Wow, we’re a half hour in. Just switching over, you do a ton of philanthropic work. A lot of it’s about the justice system, changing that. What’s the download there? What’s the goal? What are you trying to achieve? What’s wrong? I’m not as cued in as I should be.

Mike (26:27):
Listen, the reason I got so excited about Crypto was because it really was about systems change. It was about, can we rebuild the financial infrastructure that the planet uses? Actually, the commercial infrastructure that the planet uses, in a more transparent, egalitarian way. Can you set something up that feels fair? To me, that was cool as shit. The spirit of the original people I met in Crypto was burn it down, let’s rebuild it, right? It was revolutionary. It was F you to the man. That got me excited. I approach the criminal justice system the same way.

Mike (27:14):
It is such a fucked up system, excuse the language. In the US, it’s broken from it’s core. It’s based on mean spiritedness, it emanates from the echoes of slavery. It’s punitive, there’s nothing rehabilitative about it at all. It leaves the people that go in it more traumatized when they get out than when they went in. That becomes an economically foolish system. We need to really turn the whole thing up on its head. We need to have a system that protects our society, so if people are dangerous, they lose their liberty for a while. But we have to realize that everybody’s traumatized.

Mike (28:00):
Once they lose their liberty, everything should be, how do we help this person integrate back to society? So they can be a productive member. It literally should be these giant trauma processing machines. We have so many techniques to help people through trauma. But we don’t look at it that way at all. It’s interesting. Listen, the more I dig in, the more angry I get, and hopeful I get. Because you meet people who are so fucking resilient that even with all the hell they went through, they come out the other side having healed their own trauma. I’m like, “Whoa.” I can think of Alex Duran who works for me, or Wallo 267 I just podcasted, two very different characters, who went through a very similar process, and now are living the most productive lives.

Mike (28:51):
I was like, they shouldn’t be the exception, they should be the rule. That’s why I got engaged.

Tom (29:00):
I guess, what’s the overarching issue? Again, I’m naïve about it. I see Netflix documentaries, I see someone go in for a parking ticket, they’re there for 20 years. Is it that we’re optimized to keep people in prison for long periods of time?

Mike (29:12):
Yeah, we had this war on drugs, war on crime. It started up this prison industrial complex. If you’re a Philadelphia young kid, you get arrested, you don’t get sent to Philly prison. You get sent somewhere in the middle of Pennsylvania, to a town that is probably a red state, a red county, that now gets extra population because prisoners count as part of the census.

Tom (29:39):

Mike (29:39):
So you’ve got 10,000 young boys from Philly counted. They don’t vote. So now you’ve got extra red votes. Philly’s losing blue votes. You’ve got the guards, their fathers were guards, their grandfathers were guards. It’s a family business.

Tom (29:56):
It’s like a whole thing.

Mike (29:57):
And the prisoners, the inmates, their fathers were in, they were in. It literally is this generational. So there’s this business built around this, which is just horrific. You think about how big the business is. We pay judges, we pay bus drivers, we pay guards, we pay parole officers. If I could waive a wand, then I would crush the prison unions today. I’d crush the police unions, and I’d crush the teachers unions, to be fair. It’s funny, as progressive as I am, I think if we can do one thing for America, it would be to ban public sector unions. I love private unions. I just don’t think public sector unions do any good. They’re arguing against who? The taxpayer?

Mike (30:38):
Yeah. But the real problem is the approach. The moment you start it with a punitive approach, with a mean spirited approach, you’re lost. In Germany, in Norway, in all of Europe, to run the prison you need a PhD or at least a master’s in rehabilitation. In America, every single prison warden I met had no degree.

Tom (31:03):

Mike (31:03):
Started as a guard and worked their way up.

Tom (31:05):
Wow. So what are the examples … I guess, what’s the approach? You should be able to go to prison and rehabilitate through … Is it as simple as getting a college degree? Is it as simple as changing the environment? Or it’s hard?

Mike (31:19):
I think, you need at times just a process to deal with your own trauma, right? You need financial education, financial literacy. You need job training, skills training. Often you need mental health work or anger management. You need programs to help yourself reintegrate. You’re not going to get most guys that come in, and next thing you know, they’re going to Yale. I have a friend, Dwayne Betts, jail to Yale, right? He went to jail at age 15 for eight years.

Tom (31:55):

Mike (31:55):
Got out. 15. For a crime where no one got hurt. Got caught with his friend, they carjacked a guy. They had a small gun, they took the guy’s car. 15 and 16 year old, because their friend had left them in a mall. They got caught. Eight and nine years in jail.

Tom (32:16):
For stealing a car?

Mike (32:17):
It was the same mall I used to actually take the bus to to shoplift. That was like, I had this adrenaline shot. We had no money, my buddy and I would go to this mall and shoplift presents for our siblings. I finally got caught, and that was the end of my shoplifting career.

Tom (32:33):
You didn’t go to jail for eight years though?

Mike (32:34):
I got not even a slap on the hand. They cut my fake ID up and sent me home. These two young black kids went to jail eight and nine years. Now listen, they had a gun, I didn’t have a gun. But they didn’t hurt anybody. I’m not saying they should’ve gotten nothing. But 15 years old, 8 and 9 years.

Tom (32:49):
[crosstalk 00:32:49].

Mike (32:48):
Anyway, Dwayne ended up going to Yale Law School. He’s one of the smartest guys. Just a righteous son of a gun. So there’s stories like that, but not many. We don’t need everyone to go to Yale Law School. We just need a process where people can come out and be productive in their community again.

Tom (33:09):
There’s got to be a massive amount of people that we just never hear about. I could name five or six off the top of my head that are exceptions. But there’s millions of people in the jail system now?

Mike (33:18):
Well, we put roughly … There’s five or six million that go through the system every year.

Tom (33:25):
Oh my God.

Mike (33:26):
A year, every year. Right? 15% are just for parole violations. Think about that. New York State’s the worst state in terms of keeping people in jail for parole violations. A parole violation could be, you made an illegal U-turn. It could be you had a dog at your house when your parole officer told you not to have a dog.

Tom (33:46):
I mean, you can’t pay bail, then you’re stuck.

Mike (33:51):
We have a screwed up system. It’s so hard to change, because systems get calcified. Everyone I talk to is like, “Of course they should change. We should switch parole officers to life coaches.” Parole officer makes about $3,000 per person. We spend about $3,000 per parolee in New York State.

Tom (34:12):
Oh my God.

Mike (34:13):
So if we took that $3,000 and spent it on a life coach, meet with the guy once week for two hours.

Tom (34:20):
And then people would provide real economic value to the whole economy.

Mike (34:26):
You say, everyone’s like, “Of course we should do that.” But it never changes. That’s what we’re trying to change. We’re trying to fund programs, pilot programs. We’re trying to lobby, we’re trying to change the cultural narrative. In lots of different places, in bail, and probation, parole, in profiteering in prisons.

Tom (34:44):
Who’s got the power to change it in an accelerated timeline? What could be done that changes this in the next 10 years?

Mike (34:50):
You know, what was interesting was, you would’ve thought, you had Obama and Eric Holder, right? You had a black president and a black attorney general. They didn’t really get engaged in criminal justice reform until the very end. Trump did a little bit because Jared Kushner’s father had been in jail and Jared pushed it. Listen, they did some good work with the First Step Act. But Trump was so schizophrenic, on the one hand, he’s pushing the death penalty back. Whatever his whim of the day was, whatever he thought made him look good.

Tom (35:23):
Yeah. Whatever got the most retweets.

Mike (35:28):
Joe Biden, he’s got shit to make up for, right? He was part of the crime bill in the late ’90s, the Clinton Crime Bill, which caused a lot of the problem. Kamala was a pretty tough prosecutor. So listen, you would love to see them take a lead on it. But they picked Merrick Garland as the attorney general. He’s not a criminal justice reform guy. He’s a straight down the middle centrist. There’s a woman named Vanita Gupta, who’s one of his assistants. She’d be great, and I hope she will be great. But it takes [inaudible 00:36:00]. What I’ve been pushing for, is I want them to pick a criminal justice czar, that works in the White House like a cabinet officer and says, “We are going to fix this goddamn broken system and we’re going to get it done.”

Tom (36:14):

Mike (36:15):
But yeah, I’ve got some to say but not enough to say, evidently.

Tom (36:18):
No, that’s totally fair, Mike. Let’s zoom back out a bit. Let’s just go to the US. Obviously criminal justice reform, the things you’re doing is amazing. But thinking if we zoom back out to just the US competitively, when we go back to Crypto, regulations, things like that. How do you think about the US maintaining its status as the world empire? From a Crypto lens, I don’t think it’s fantastic.

Mike (36:44):
Well, I think you’ve got to start with Stablecoins. There’s a battle that’s going to happen in Stablecoins, right? Right now, there’s more $100 bills in circulation than the ones, the dollar is the reserve currency of the world. It’s also the currency in all developing places with unstable economies. People keep dollars in their mattresses, they keep dollars in bank accounts, they keep dollars off shore. As we switch to digital dollars or Crypto dollars, it’s essential that there’s a dollar stable coin that people can … Because we have the biggest deficit we’ve ever had. We just added 10% of GDP to the deficit with this $1.9 trillion, supplemental budget four that passed tonight. People don’t get it. It’s a 10% stimulus.

Tom (37:39):
The numbers get stupid, yeah.

Mike (37:41):
How are you going to fund that? You need people to buy your bonds, i.e. buy your dollars. The treasury gets this now. It’s why Bryan Brook, when he was in the OCC, was pushing hard. It’s why I wish I’d bought Circle when I had the chance. I think USDC is certainly going to be a contender. I’m really interested to see how Diem, the Facebook project, rolls out. But there’s going to be a dollar Stablecoin, because you’re going to have to fight the Chinese Stablecoin. There’s a debate to be ha about where control of that Stablecoin Blockchain goes, where control of the privacy stuff goes. Right in China, you’ve got no privacy. It’s Crypto.

Mike (38:29):
I remember I did a panel with Sam Lessing. I don’t know if you know Sam.

Tom (38:34):
I don’t.

Mike (38:34):
But he’s a brilliant, brilliant, early Facebook guy.

Tom (38:37):
I should.

Mike (38:39):
And a Crypto investor. This was probably 2017, he said, “You know, there’s just as good of a chance Crypto’s going to be used to screw us out of our privacy than it is to liberate us.” He’s right. There’s a battle going to go on, right? Are we going to have an authoritarian version, i.e. China, or are we going to have a freedom version, i.e. US. What does that freedom version actually mean? What does the government get to see?

Tom (39:07):
You don’t view it as Crypto versus established economies. You view it as the US having its free version, and then, say, China having its pretty much …

Mike (39:16):
Listen. No government is going to give up their right to print currency. They’re going to flip from printing paper currency to a Crypto currency. If the government’s doing a shit job of managing the float of that digital or Cryptocurrency, right, or paper currency, the world is going to say, “I don’t trust you. I’ll put my money in gold, I’ll put my money in Beeple paintings, I’ll put my money in Bitcoin, I’ll put my money in anything but your shitty dollar, your shitty Euro, your shitty Yen.” We’re not there yet. We’re not. They haven’t lost control. We haven’t hit the Minsky moment, where people just give up on the treasury and the Fed. But the probability that we’re getting there is going up.

Mike (40:07):
I think that’s why Bitcoin has hit this inflection, where now if you don’t own it, you’re short.

Tom (40:13):
How do you think that inflection happens, though? Do you think it’s a slow grind, where Crypto’s a hedge over regular shoulders?

Mike (40:20):
Crypto is a report card on the treasury and the Fed.

Tom (40:26):
[crosstalk 00:40:26].

Mike (40:25):
That’s what it is. If the treasury and Fed pull off what Ray Dalio used to call a beautiful deleveraging, right, we have so much leverage in the system. How do you get that out gracefully? Can you run 3% inflation but not 14% inflation? If you thread that needle, Bitcoin will hit an equilibrium and then probably not go up.

Tom (40:50):
It seems so unlikely, it seems so hard to do.

Mike (40:53):
I was out talking to Ray about this. Ray wrote a beautiful, beautiful, everyone should read this paper after the financial crises about how do you get out of these? Because remember, the financial crisis, we blew the deficit out. You were probably too young for that, ’08.

Tom (41:05):
I lost my thousand bucks in high school.

Mike (41:10):
Ray was now saying, he was talking to me, he said he’s skeptical that we’ll be able to get out of this without a financial restructuring in the US, which is almost unheard of. Well it is unheard of. So he’s pessimistic. He was not pessimistic in ’08.

Tom (41:28):
What does that mean though? Does that just mean everyone knows Cryptos are so much better off, and they’re Gods post this restructuring? How does that play out?

Mike (41:36):
Well all of this is, in some ways. Think of a pizza pie. Right? That used to be six inches. It was an individual pan pizza, a little circle. Because the Fed and treasury are pouring so much money, that pizza keeps growing, right? Now we’ve got a fucking, it’s nine feet across in diameter. It’s a big fucking pizza. Crypto is becoming a bigger and bigger slice of that pizza. It’s not the only asset that’s going up. This apartment is worth more, the art is worth more, Beeple was worth more. Tesla stock’s worth a whole lot more than it was a year ago. Snowflake.

Tom (42:16):
Riscon. Yeah.

Mike (42:17):
All assets are going up, Crypto’s just taking a piece of that pie. People with assets are getting richer. Oh fuck, the rich people are getting richer, in general and old assets. What’s good about Crypto at least, is young people are getting richer. Because young people are so screwed with our deficit. I call it generational theft. I stole that term from Stan Druckenmiller. When you look at what the baby boomers have done to the debt, they were supposed to be this woke generation, and they turned out to be the selfish generation. What they’re going to leave Gen Z with, it’s an abomination. There’s one stat I love to throw out, and I remember talking to Mike Milken about this, he got all mad at me. Because George Bush, Bill Clinton, Donald Trump were all born the same year. Think about that. Three presidents, born in the same year. They had 20 years of representation.

Tom (43:17):
That’s crazy.

Mike (43:17):
They’re supposed to get one year of representation, right? If you think about each year should get a year representation. The baby boomers had this excess power because there were so many of them. When they went in, when they were 50, 18% of America was roughly under the poverty line, and 18% of children were under the poverty line. I’m sorry, 18% of seniors and 18% of children. Today, 18% of children are still under the poverty line, but about 3% of seniors are. They paid themselves instead of their grandkids. They literally, the extra hip instead of education.

Tom (44:00):
They [crosstalk 00:44:01].

Mike (44:01):
There’s not a grandparent I know that would take a morsel out of their grandkid’s mouth and feed themselves consciously. But subconsciously, and in practice, that’s what happened.

Tom (44:11):
That’s a crazy stat.

Mike (44:13):
It’s an amazing stat.

Tom (44:15):
It’s literally the opposite of what you want.

Mike (44:16):
It’s an amazing stat. It’s the exact opposite of what you want. Listen, you can play with the stats a little bit. We had a lot more immigrants come in, they’re younger people. So it’s not an apples to apples. But it’s a macro, that gives you the sense of where the money’s going.

Tom (44:27):

Mike (44:29):
Old people, again, are you going to vote to cut Medicare when the bulk of people voting are 60? No, they’re going to say, “Let’s expand it. Of course I want my Viagra on Medicare.”

Tom (44:41):
It seems so dog eat dog though. I’m a huge Crypto person, obviously I’m younger, do I just watch the country burn as my Crypto goes up? How do I pay for cops and fire departments? How does it all work?

Mike (44:55):
I think about this all the time. Do I really want Crypto at 500,000? Because it’s 500,000 I wonder what the hell’s going on around …

Tom (45:01):
You’d be a king on a world on fire.

Mike (45:04):
Well, and listen. I think why you’re seeing … I’ve been doing podcasts with the hip hop community. A, because I like the guys, I find their stories awesome. But B, I have this sense of trying to provide some financial education to underserved communities that don’t get it. It’s amazing, the first question every hip hop clubhouse is, “What do you think about Dogecoin?” It’s going down, not up. But you know again, your communities get their own information from their community. How do we get better information? I think it’s important for young people to own some Bitcoin, just in case shit hits the fan.

Mike (45:51):
And listen, it’s okay that the chair decks get shifted. This group of people used to be rich. What right did the Vanderbilts have to be rich forever? Or the Rockefellers, right? What, is there some God given right, it’s like the freaking queen of England.

Tom (46:08):
Royalty, yeah.

Mike (46:09):
The royals, right? There’s no set of rules that just because you’re rich, you get to stay rich. But it’s going to be really interesting socially. Again, I looked at that Beeple today. $69 million, and they’d just [inaudible 00:46:26] did 60. There were two people willing to pay over $60 million for this piece of digital art. It tells you something. It tells you that some people have made so much money that it’s F you money, you’re throwing it away. Because I had this thesis, you don’t buy a piece of art unless you’re a crazy man for more than 1% of your net worth, right? That’s a billionaire might spend 10 million on a piece of art. Might. Might.

Tom (46:55):
Makes the current valuation stupid.

Mike (46:56):
Right. That means the guy buying that Beeple was probably worth, theoretically, $7 to $10 billion. The only people I know ever that have tried to buy art that expensive are deca billionaires.

Tom (47:14):
Yeah, Jesus. They’re not even probably consciously buying, right? For them it’s just where to move your assets, right? Or is it, I don’t know.

Mike (47:18):
Yeah. Either it was a wild man in Crypto, or people have made a lot more money in Crypto than we all notice.

Tom (47:29):
Let’s switch to NFTs for a little bit, we’ve got 10 minutes left. When you think about famous art and value, do you ever think that the Picassos of the world will be NFTs, from the physical world?

Mike (47:41):

Tom (47:41):
Or are you more bullish on the …

Mike (47:42):
I think you’re going to have two different and confusing roads going down. There’s a guy named Scott Lynn, that’s got a company called Artworks, right, they take great works of art and fractionalize them. I will sell you one one hundredth of that Thornton Dial painting. Or a Warhol, or a Banksy, or a KAWS or a Matisse, right? That’s becoming an asset class. I want to buy the art index. I have a friend that literally is putting an eight digit check into an art index. Just, again, it’s the same thing, I think they’re going to debase currency. I want to own hard assets. Art’s a hard asset, he just wants to buy the index. I think you’re going to see the fractionalization.

Mike (48:32):
Now, right now that stuff’s not done on the Blockchain, it’s all done on spreadsheets. It will probably move to the Blockchain in time. If you were smart, you would give someone a digital representation of the physical thing they bought, and it would look like an NFT but it wouldn’t be an NFT. It would just be a replication of a piece of physical art that you own. I think NFTs are here for good. I don’t think these prices are here for good. I think we’re going to have a bubble just like we had an ICO bubble, whenever there’s a supply response like this, where anyone can issue … I thought about issuing my own NFT. When I knew I could just mint an NFT and sell it.

Mike (49:14):
But in the long run, you’re going to get great digitally native artists who build communities, and people say, “Oh my God, I remember that.” You’re going to get art that evokes memory and time. When we’re thinking of sports collectibles, I think of, in my era, Joe Namath running off the field with the number one up, or Reggie Jackson hitting three home runs in game five of the World Series. So that memorabilia, that art from that day, that moment, I’ll pay anything for it.

Tom (49:44):
Do you think, though, that the traditional artwork gets crushed by this? There’s so many issues with traditional artwork.

Mike (49:51):
No, not at all. Not at all.

Tom (49:53):
What about all the stories you hear about the artwork? It’s not real providence, and the wine bottles are fake, and [crosstalk 00:49:59].

Mike (49:59):
That’s still on the fringe, of the 10,000 great pieces of art that transact every couple years, that’s two.

Tom (50:07):
I’m just hearing about the people that get screwed, yeah.

Mike (50:09):
Yeah, most people don’t get screwed. Listen, there’s not as much transparency in the art world. There’s a lot of spoofing. There’s a lot of spoofing in the Crypto world, too.

Tom (50:21):

Mike (50:22):
But again, I’m not down on NFTs. I think you need to be really careful what you buy. In the long run, only great artists are going to hold value. Those are going to be great physical artists that transition to using digital as a new medium. When I started this in 2014, talking about Crypto, and going on the road as a Crypto evangelist, I guess, I talked about art almost more than I talked about anything. I was like, “At one point, artists will trust that they’ll be able to create, and it will not be able to be counterfeit.” For a simple macro guy that’s not a computer scientist, the best I ever did with the Satoshi Whitepaper, and all the explanations of Bitcoin was, it’s the first digital asset we couldn’t counterfeit. The first digital signature we couldn’t counterfeit. That helped me understand Bitcoin.

Mike (51:17):
Then it helped me understand all the other applications of Blockchain, right? Where I can do iPay, where I can do art. It took art a lot longer than I thought it would to show up. Now it’s shown up in a huge way. It’ll be fascinating. We’re investing a ton of money in the space. Not NFTs exactly, per se, but all the architecture around them.

Tom (51:42):
I’m jealous of the architecture investments. I’d love to buy OpenSea, [inaudible 00:51:46], those guys.

Mike (51:47):

Tom (51:47):
Yeah. What do you feel, though, you’ve been through a lot of Crypto bubbles. How do you feel though about NFT bubbles? Do you feel that every kid is going to be playing Magic cards and got some chain instead, or collecting artist NFTs, or yield generating axes?

Mike (52:01):
I think there’s going to be different lanes. I think something like the $69 million Beeple, the great art, I think we’re really early in that. I think that Beeple is going to come way down. I don’t think the great artists … There are some great Blockchain native artists or digital native artists. But most people that have been drawn to art haven’t gone into that medium yet, because they didn’t think they could. They’re all starting. I’ve called two young artists I know, they’re like, “Dude, spend the next two months just playing with this stuff.”

Tom (52:40):

Mike (52:42):
For a project I’m working on. I think let’s talk in five years and we’ll see what digital native art really holds value.

Tom (52:52):

Mike (52:53):
Then there’s collectibles, right? Momentos, collectibles. That stuff usually is linked to time and memory. Babe Ruth’s first home run, if it’s sports. Imagine when Travis Scott played that concert on Fortnite.

Tom (53:11):
Oh my God. Yeah, that was …

Mike (53:12):
KAWS did the album cover, but it wasn’t NFT. If KAWS had floated one of his giant balloons over that concert, and made it an NFT, everyone who was at that concert, right, the 100 million people would’ve seen it and would’ve said, “I’ve got to buy that thing.”

Tom (53:28):
That’s a really good point, yeah, it evokes memory, you’re there.

Mike (53:30):
That would have immense value. Because in 15 years, I’ll remember that was the first one. I remember my first concert was Kiss. Pretty freaking cool. AC/DC played backup band. We were like, “Get off the stage, we want Kiss.” Right? People have memories.

Tom (53:49):
Yeah, yeah. Sure.

Mike (53:51):
Then there’s a third piece, which are going to be almost consumables. Most Top Shop cars. Top Shop’s a lottery, you’re playing the lottery. Other than the good ones, all the other cars just end up being worth nothing. But there’ll be a consumer business of selling digital stuff that people will buy for the dopamine hit or whatever. Not just in sports, but in all kinds of, your CR. This gaming culture is just going to come to the rest of the world.

Tom (54:25):
Yeah, yeah. I’m a huge fan of yield generating NFTs, I told you that earlier. It just makes more sense to me, because I’m not a big art guy, yet. But yeah, I definitely see where you’re coming from.

Mike (54:35):
You will be.

Tom (54:35):
Hopefully. Mike, this has been incredible. I’m out of questions. I really appreciate your time. I want to respect it. Thanks so much for coming on.

Mike (54:44):
I appreciate it. Thanks, guys.

Show Notes:

(2:51) – (First Question) The elevator pitch for Galaxy

(5:16) – Galaxy’s Team

(10:21) – Mike thoughts on Traditional Banks

(12:58) – Mike’s favorite DeFi project.

(16:34) – How do you keep your eye on DeFi, but also where it’s worth it financially to invest?

(18:09) – Mike’s advice to young people in DeFi.

(25:17) – Justice System / What is Mike trying to achieve?

(34:40) – Thought on the US status as the World’s most powerful country

(38:19) – Bitcoin’s inflection point

(45:07) – Thoughts on NFTs / Traditional Artwork.

(49:11) – Thoughts on NFTS being in a bubble.