Cryptocurrency must transcend single assets to truly impact the entire financial market.
Compiled & Edited by: Deep Tide TechFlow
Guest: Mike Novogratz, Founder and CEO of Galaxy Digital
Hosts: David Hoffman; Ryan Sean Adams
Podcast Source: Bankless
Original Title: Bitcoin Hits Escape Velocity! Mike Novogratz on the Bond Crisis, Genius Act & AI’s Crypto Future
Broadcast Date: June 2, 2025
Key Points Summary
Mike Novogratz returns to Bankless to analyze Bitcoin's historic new high and its significance in a world of fiscal uncertainty.
This episode discusses the latest developments in the bond market crisis, how the GENIUS Act opens a new chapter for stablecoin development, the tokenization of the traditional financial system, and Galaxy's unique positioning at the intersection of cryptocurrency and artificial intelligence. It is a deep conversation about macroeconomic changes and the role of cryptocurrency in the new financial landscape.
Highlights
The growth of the Bitcoin market has entered an irreversible phase.
I do not believe the dollar will lose its status as the global reserve currency, but its appeal may weaken. Other countries may lose trust in the dollar and choose to shift part of their reserves to Bitcoin and gold. The value of Bitcoin and gold will continue to rise.
No president can compete with the bond market—the bond market is the true "behemoth" in control.
Blockchain is essentially a "trust machine," and we first need to teach people how to trust this "trust machine," otherwise it appears to be a scam.
I believe the GENIUS Act has a 99% chance of passing.
Cryptocurrency is loved by many; it should be a bipartisan technology rather than a politicized tool. For most Americans, cryptocurrency currently feels more like a speculative casino, nothing more.
What will truly capture the attention of the entire financial community is the tokenization of stocks. Cryptocurrency must transcend single assets to truly impact the entire financial market.
We are currently working with the SEC and may soon tokenize Galaxy's stock, with a much smoother collaboration than before.
Now, we have fast enough blockchain technology, and we are also in a regulatory environment that is both loose and clear. Both points are very important and complement each other.
We need to promote the establishment of decentralized systems and accelerate the tokenization of assets. In the future, we will see bank accounts, checking accounts, and even brokerage accounts existing in the form of crypto wallets.
Bitcoin Hits Historic High
Ryan:
Bitcoin reached a historic high while we were recording, with prices breaking above $109,900. Mike Novogratz, what are your thoughts on this?
Mike:
Since Larry Fink started investing in Bitcoin, we have been working together to drive the development of this market. Initially, it was like a snowball slowly rolling down a hill, gradually getting bigger. Then, the snowball reached the top of the hill, paused for a while, and now it is starting to accelerate downhill, unstoppable. This "snowball" refers to the adoption rate of Bitcoin—more and more people are beginning to accept and use it. Larry has played a very important role in this process.
But now you see sovereign wealth funds and ordinary equity investors joining in, along with many companies like MicroStrategy launching related products. Ordinary retail investors and institutions are also actively participating. This trend makes me feel that the growth of the Bitcoin market has entered an irreversible phase. If we can stabilize in the $106,107 price range for 3 to 4 days, we can further open up upward space and enter a new phase of price discovery.
Why is this happening? First, due to the increase in adoption; second, you can look at the fiscal situation in the U.S., where this year's budget deficit will be higher than last year's, a situation that many did not anticipate. I admire Scott Bessent's work; he is indeed outstanding, but he promised us that the budget deficit would be controlled at 3%, and clearly, the current situation has far exceeded expectations.
Impact of Trump's Tariffs on Bitcoin
David:
Can you provide some background? Bitcoin's historic high is not coincidental. You mentioned some local factors and recent news events. I noticed that Bitcoin's historic high coincided with the Senate's supportive vote on the GENIUS Act, which is clearly not a coincidence. But beyond that, there are other background factors, such as about four to five weeks ago, Trump announced "Tariff Day" and related tariff policies. These events all occurred against the backdrop of Bitcoin's surge. Can you interpret the logic behind these?
Mike:
The dollar as the global reserve currency is under immense pressure. It is difficult to accuse other countries of lying and stealing while asking them to continue supporting the dollar, or even to rely entirely on the dollar or become a subsidiary of the U.S. This contradictory attitude is weakening the dollar's international standing, both in terms of credibility and as an economic tool. When the dollar depreciates, the value of other assets naturally rises. Therefore, part of this reflects the market's bearish sentiment towards the dollar, and another part is concern over global fiscal stability. For example, the prices of Japan's long-term bonds have already seen a significant drop, and today, the yields on U.S. long-term bonds have also fallen below 5%. When investors lose confidence in the G10 country's bond market, they will seek other assets for hedging. Thus, gold, silver, large-cap stocks, and commodities have become popular choices. Now, Bitcoin is seen as "digital gold," joining this group.
Ryan:
**So how do you think this will all end? We previously invited Arthur Hayes, who made some predictions. His view is that the Trump administration has gone far on tariffs, but now may start to **converge. However, they might achieve their goals by weakening the reserve asset status of government bonds, even intentionally.
Mike:
Arthur is indeed very smart, but I have worked in the bond market for 35 years. I know Scott Bessent well. No country would voluntarily undermine the credit of the world's largest bond market while carrying a $35 trillion debt; that would be self-destructive.
Ryan:
**But Arthur believes that if they want to solve the trade imbalance, they have to do so, right? For example, by implementing capital controls to restrict capital flows, or by raising *yields* to attract investment. Bessant's solution is to directly contact Fed Chair Powell to push for "quantitative easing 2.0."**
Mike:
The Fed has been restrained in this regard. You can see from Powell's press conferences that he is not willing to intervene directly in the market. Bessant may leverage his authority to push for the purchase of long-term bonds, but Powell will not proactively announce such measures because it is not within his purview. This situation is entirely a result of current government policy. If Powell believes that market stability is threatened, or that inflation and employment targets are at risk, he may take action. But his responsibilities are dual; he must focus on market stability while also considering economic growth. So if the bond market does experience severe turmoil, I believe there will be an emergency meeting within the government to try to find a solution.
Historically, in similar situations, Liz Truss in the UK was ultimately forced to resign. But the U.S. does not have a parliamentary system, and it is not easy to impeach a president. However, the U.S. has mechanisms to adjust the policies implemented by the president, such as modifying tariff agreements. In U.S. history, **no president has been able to compete with the *bond* market—the bond market is the true "behemoth" in control.**
“Liz Truss Moment 2.0”?
Ryan:
Do you think we will see a "Liz Truss moment" type of event? Do you think the market will move in that direction?
Mike:
Today's situation indeed gives me that feeling. The long-term bond market is experiencing a sell-off. A recent auction of government bonds had very poor results, and the market reacted very negatively, causing bond yields to plummet by 6% to 7%. This directly triggered a shift in the stock market from rising to falling, and Bitcoin's upward momentum also stalled, leading to a very tense overall market sentiment.
The "Liz Truss moment" refers to the situation when Liz Truss was appointed Prime Minister of the UK. At that time, her government introduced a very radical economic reform plan, attempting to rapidly transform the UK economy. However, these policies faced strong opposition from the bond market, leading investors to lose confidence, causing UK bond prices to plummet and yields to soar. Ultimately, this market pressure forced her to resign within just three weeks. The soaring yields directly led to her downfall. This is why we refer to such situations as a "Liz Truss moment."
**The bond market can be seen as the "watchdog" of economic policy. If the market believes there are serious issues with your policies, investors will stop buying government bonds or demand higher *yields* as compensation. In such cases, the government must adjust its policies.** After all, our government operates heavily on borrowing. And now, we are carrying the largest debt in history. This debt issue has been further exacerbated during the administrations of Trump and Biden. In fact, the debt problem began to worsen even before Trump took office.
Then, the COVID-19 pandemic broke out, and both parties saw it as an opportunity for a "big push." They indeed needed to take measures to respond to the impact of the pandemic, but many policies clearly exceeded the actual demand. Now, we are paying the price for these excesses.
Impact of a U.S. "Liz Truss Moment"
Ryan:
Assuming the sell-off in the bond market continues to escalate, yields keep rising, ultimately triggering a "Liz Truss moment" similar to that in the UK. What consequences could this bring in the U.S.?
Mike:
This may prompt the government to adopt more conservative fiscal policies, known as "fiscal hawk" policies. They may introduce some tax-cutting proposals, such as reducing tip taxes and overtime taxes, while claiming not to raise taxes on anyone, yet continue to increase military spending. However, the market's response is clear: the government needs to reduce spending, not increase expenditures.
I believe the U.S. must tighten fiscal policy. The Fed's situation is also very delicate. If the economy needs interest rate hikes to combat inflation, but the Fed chooses not to raise rates, this could further exacerbate inflationary pressures. The market sell-off actually reflects investors' concerns about inflation.
Additionally, tariff policies are a key factor. In the short term, increases in tariffs often drive prices up, thereby exacerbating inflation. This is unavoidable. However, in the long term, tariffs may suppress economic growth, leading to deflation. Yet, at this stage, the adjustment of tariffs resembles a disguised tax increase, complicating the issue further.
As Secretary of the Treasury, or even as President, the most important task is to rebuild market confidence. The current market downturn and the depreciation of the dollar are, in fact, warnings to the government: investors have lost confidence in U.S. economic policy. If this situation does not improve, the consequences will be severe.
Bitcoin, Gold, and the Dollar
David:
Now is the era of Bitcoin. Today, Bitcoin's price has dropped $3,000 from its peak, which may be related to the bond market you mentioned. Meanwhile, gold has remained at historical highs over the past quarter. Do you think these two are part of the same story, just with Bitcoin lagging behind? Or are they two completely different phenomena?
Mike:
It can be understood that there is a certain correlation between Bitcoin and gold, like "distant relatives." The main reason for the rise in gold prices is that central banks around the world are diversifying their assets. They are buying large amounts of gold, absorbing it from the market. This behavior mainly comes from the central banks of BRICS countries, which are reducing their dependence on U.S. assets, which makes sense. However, central banks have not yet started buying Bitcoin. Although we see some sovereign wealth funds trying, such as those that have purchased over $500 million in Bitcoin. While this is a significant move, the reserve scale of Bitcoin is still far from the trillion-dollar level of gold.
Ryan:
Mike, do you mean that the Trump administration may not have intentionally weakened the status of government bonds as a global reserve asset, but this situation may be happening regardless of their intentions?
Mike:
This is indeed a very delicate balance. For example, when Robert Edward Rubin served as Secretary of the Treasury, he publicly supported a strong dollar policy. Scott Bessent might say he also supports a strong dollar, but cyclically, they sometimes hope for a moderate depreciation of the dollar. So how do you find a balance between "strong dollar" and "cyclical depreciation"? The common saying is that, in the long run, we support a strong dollar, but in the short term, adjustments may be necessary. The problem is that when the dollar depreciates, as Americans, our purchasing power declines. For instance, the cost of traveling to Europe increases, and the cost of buying Italian furniture or a Mercedes-Benz also rises. In other words, we become "poorer."
Ryan:
**But some argue that when you say "become poorer," you are actually referring to those who can afford to travel to Europe and buy expensive furniture. An important argument for the depreciation of the dollar is that the U.S. needs to revive domestic manufacturing by adjusting its *trade deficit* with other countries. After all, economic theories like the "Triffin Dilemma" suggest that a country with both the status of a global reserve currency and a strong currency finds it difficult to maintain the competitiveness of its domestic manufacturing.**
Mike:
That is indeed the case. The Trump administration's efforts to bring some manufacturing back to the U.S. are commendable, and they have made some progress. However, reversing the global supply chains established over the past 30 years in a short time is nearly impossible. For example, some critical resources are simply not located in the U.S., such as lithium mines, which are primarily found in Argentina and Chile. These supply chains are often labor-intensive, and merely compensating for a 30% cost gap is insufficient.
Let's also look at wage disparities. The median income in the U.S. is about $50,000 to $60,000, which is already close to the top 1% globally. This huge wage gap gives countries like Vietnam a competitive advantage, even if their costs are 30% higher than those in the U.S. Without fully automated production, many manufacturing sectors cannot return to the U.S. Even with robotic production, it cannot create enough job opportunities.
Bitcoin as a New World Asset
Ryan:
Regarding the status of government bonds as a global reserve asset, we have seen some marginal phenomena in recent years that may indicate this status is gradually weakening. This is closely related to the rise of cryptocurrencies over the past decade. Especially Bitcoin, whose role as a new type of global reserve asset is gradually emerging. So if the status of government bonds is indeed declining, what would its alternatives be? Do you think Bitcoin will be the answer for this decade?
Mike:
Historically, the global reserve asset has typically been the dollar. The dollar's status as a reserve currency has lasted for about 80 years, and this cycle usually does not change easily. A country becomes a global reserve currency mainly because it controls the dominant power of maritime transport. Whoever has the strongest navy can become the reserve currency. However, with the diversification of global transportation methods, naval superiority is no longer the only determining factor.
Today, the key to becoming a global reserve currency lies in providing global security guarantees and having a widely trusted legal system. Currently, U.S. military spending accounts for 3.8% of GDP, which, although lower than the past 5%, is still far higher than other countries' 0.5% to 1.5%. This high expenditure is the cost of maintaining reserve currency status, while also bringing significant economic and political advantages. However, the Trump administration seems not to fully recognize this. For example, withdrawing from NATO or weakening NATO's influence, as well as retreating from the global economic network established after World War II, may undermine the dollar's long-term reserve currency status.
Declining Demand for Government Bonds
Ryan:
Scottish monetary historian Russell Napier believes that as the status of U.S. government bonds as a global reserve asset gradually changes, a substitute may emerge. The world may split into two major economic blocs. On one side is the bloc led by the U.S. and its allies, who still use government bonds as their main reserve asset; on the other side is the bloc centered around China. In China's bloc, the renminbi may be partially supported by gold, as historically, the renminbi has not been widely used as a store of value. The renminbi is more of a means of payment than a store of value. What is your view on the possibility of this world dividing into two economic systems?
Mike:
I do think there is a possibility of such a trend emerging. For example, BRICS countries may introduce a stablecoin partially backed by gold. However, this stablecoin will not be fully backed by gold; rather, a portion of gold will be included in the reserves. Of course, this is just my personal speculation. For a major or strong country, their currency typically will not be completely unsupported.
Now, these countries might say, "Our currency is backed by national reserves; we are a wealthy country." In a sense, the value of a currency is supported by the country's assets and tax capacity. However, theoretically, each country's currency should be regarded as "AAA" domestically, meaning it should be absolutely trustworthy. Because a country can print its own currency at any time, the likelihood of defaulting on domestic currency debt is very low. But the question is whether other countries will choose to borrow across borders or whether they are willing to store wealth in such currency.
Currently, the returns on the dollar remain attractive, and the renminbi is the only potential competitor. However, I believe the renminbi is not yet sufficient to replace the dollar's status; China has a long way to go in gaining global trust. Therefore, I do not believe the dollar will lose its status as a global reserve currency, but its appeal may weaken. Other countries may lose trust in the dollar and choose to shift part of their reserves to Bitcoin and gold.
I have been following Bitcoin and gold for four years, which has greatly influenced my investment perspective. I even started my own podcast to discuss these topics. Not only that, but I also collect gold coins and often give them to others. Since I was 16, I have been telling my friends, "Never sell these gold coins; one day they will be worth $3,000." Now, I believe their value could reach $10,000. I even need to reconsider how to store these gold coins safely because if 50 ounces of gold were stolen, it would be a serious matter. But I believe the value of Bitcoin and gold will continue to rise, and this view is increasingly being accepted.
Galaxy's Listing Plan
David:
Galaxy successfully listed on NASDAQ on May 16. It is said that the entire listing process took 13 months, while it was originally expected to take only 90 days. Can you share this journey with us? Did this process frustrate you?
Mike:
The preparation process took longer than we expected, causing us to miss the optimal listing window. During the tenure of Jay Clayton and the Trump administration, Coinbase and some mining companies successfully passed the review. However, we encountered a stricter regulatory attitude during Gary Gensler's chairmanship of the SEC.
David:
How many attempts did you make? Or did you know from the beginning that he would not approve?
Mike:
There is no denying that there are many scams and scandals in the cryptocurrency space. For example, the Sam Bankman-Fried incident may have set public trust in cryptocurrencies back by 18 months to 2 years. This is very ironic because most of us entered the cryptocurrency space to shift from relying on government trust to relying on trust in cryptography. Blockchain is essentially a "trust machine," but we overlooked one point: we first need to teach people how to trust this "trust machine," otherwise it appears to be a scam.
However, I am pleased to see that more and more Republicans and Democrats are beginning to understand the value of cryptocurrency. For instance, Senator Warner and Senator Gaegos have taken a relatively neutral stance in promoting cryptocurrency-related legislation and have received support from the left. Although Elizabeth Warren has a critical view of cryptocurrency, her opinions are gradually being challenged. She has pointed out that cryptocurrency has once again become a tool for a few to get rich, and this unfair phenomenon needs to be curbed. However, supporters of cryptocurrency are also actively fighting back.
In this era of political polarization, pushing for cryptocurrency legislation is not an easy task. However, what makes me optimistic is that we have achieved bipartisan cooperation on the stablecoin bill. In contrast, advancing the market structure bill may be more challenging. This is not due to partisan disagreements, but rather the conflicts of interest within the cryptocurrency industry itself. For example, can Coinbase serve as a custodian, broker, and exchange operator at the same time? This is prohibited in traditional finance, but should it be allowed in the cryptocurrency space? If you are Coinbase, you would naturally support this model; if you are a competitor of Coinbase, you might oppose it. The market structure bill involves many stakeholders, making it more complex to push forward than the stablecoin bill.
GENIUS Bill
Ryan:
Congress is currently discussing two important bills related to cryptocurrency. The first is the GENIUS bill, and the second is the market structure bill. Let's talk about the GENIUS bill first. I would like to hear your thoughts on this bill.
This vote is mainly to decide whether to submit the bill for further discussion, so the bill still needs to go through multiple rounds of voting before it can be finally passed. I heard that the final vote may take place after Memorial Day. Do you think the current number of supporting votes is enough to ensure the bill's passage?
The bill needs to return to the House for a vote and complete the entire legislative process. However, the Senate's approval is the most critical step. So, what changes do you think have occurred in the Senate over the past year that have made this support possible?
Mike:
I can say that this is almost a done deal. Unless something extremely unexpected happens, the bill will not be rejected. I believe the probability of passage is as high as 99%.
From the perspective of the crypto industry, the Democrats realized too late during the election. They overlooked an important fact: the number of people in the U.S. who own cryptocurrencies has surpassed the number of dog owners. This phrase first appeared on Twitter, and I borrowed it and promoted it further, gaining widespread recognition. I even joked that the Democrats have become the "anti-dog party." This is clearly unwise.
Cryptocurrency is loved by many; it should be a bipartisan technology rather than a politicized tool. However, the Democrats only realized the seriousness of the issue after the election. They tried to respond hastily but missed the opportunity due to excessive caution. Elizabeth Warren's influence within the party has left many dissatisfied, and her hardline stance has almost dominated the party's policy direction. Ultimately, this internal division led to widespread anger.
Meanwhile, the Republicans seized the opportunity. For example, Trump raised a significant amount of funds from the cryptocurrency community, and the tech industry gradually aligned with the Republican Party. After the election results came out, I communicated with some Democrats, and they generally believed that their erroneous attitude toward cryptocurrency might have cost them some voter support. They did not want to make the same mistake again. Therefore, some forward-thinking individuals within the party proposed that instead of continuing to argue, it would be better to pass these two bills and remove cryptocurrency from the political agenda. This way, even if they cannot achieve complete victory, they can avoid more controversy and losses.
The Anti-Crypto Camp Disappearing?
Ryan:
So you mean the Democrats are no longer opposed to crypto? Have those forces opposing cryptocurrency disappeared? Is this all over?
Mike:
You could say that. However, you can go to Washington and ask anyone if they understand blockchain and ask them to explain it. To be honest, how many cryptocurrency-related apps do you have on your phone?
Even so, most of these apps mainly just allow you to buy and sell cryptocurrency prices. They do not enable you to use cryptocurrency to buy tickets, hail an Uber, or do the everyday things that ordinary Americans do. Therefore, for most Americans, cryptocurrency currently feels more like a speculative casino, and nothing more. So, the attitudes of politicians reflect this.
As an industry, what we really need to do now is realize the potential of cryptocurrency. We need to promote the establishment of decentralized systems and accelerate the tokenization of assets. I believe that in the future, we will see bank accounts, checking accounts, and even brokerage accounts existing in the form of crypto wallets. Once this is achieved, the cryptocurrency industry will truly provide practical value to the American public.
However, there are always people in the industry emphasizing "how important we are." Frankly, if I hear another speech like that, I might go crazy. Yes, Bitcoin is indeed important; there is no doubt about that. But we cannot limit ourselves to being a "Bitcoin industry," right? We are an industry that encompasses digital assets and cryptocurrencies. Aside from Bitcoin and some stablecoins primarily serving overseas users, when was the last time you used a stablecoin to buy something? Do you do it often? Probably not that much. So, at present, aside from gambling and investing, the cryptocurrency industry has not really touched on the areas that most people care about.
Policy does not allow us to do this, but this is precisely the huge opportunity we face. Now, we have fast enough blockchain technology, and we are also entering a regulatory environment that is both lenient and clear. Both of these points are very important and complementary. The new SEC is welcoming to the crypto industry, while the old SEC was completely different. They not only did not support it but often suppressed and prosecuted the industry. The current SEC is more open, and this change will provide fertile ground for an explosion of innovation, allowing more people to try some very interesting new ideas.
The U.S. Consumer Crypto Market
Ryan:
I haven't delved into the GENIUS bill before, but now we know it is basically going to pass. Can you briefly explain the role of this bill? For example, there are currently $250 billion worth of stablecoins on the blockchain, which could reach $2 trillion in the future. So what changes does the GENIUS bill bring? Does it pave the way for the U.S. to promote cryptocurrency and the dollar globally? How significant is its potential?
Mike:
This could become a very important turning point. **We need participation from companies in the payment sector, such as Stripe, **Visa, and Mastercard. Now, when you go to McDonald's, you might use Apple Pay, but imagine what it would be like if you could pay with stablecoins? This requires deep cooperation between payment companies and technology platforms. Stripe, Visa, and Mastercard are likely to become the winners in this ecosystem. Why is this important? Because Bessent and others mentioned that **the U.S. needs to raise $35 trillion. We want global users to store their *digital currencies* in dollars rather than other currencies.** This not only proves the value of the dollar but also attracts more overseas funds to fill the U.S. fiscal deficit.
Even more exciting is that once stablecoins are legalized, businesses can use them with confidence without worrying about legal risks. For example, for Tether, the bill will specify a compliance period—will it be two years, three years, or 18 months? While the length of this time may be contentious, Tether's team is very experienced, and no matter how long it takes, they will find a solution.
However, the bill does restrict some non-financial institutions, such as Facebook (Meta) and X (formerly Twitter), from issuing their own stablecoins. The banking industry is very sensitive to this, especially community banks, which is similar to how Walmart has tried to start a bank but has been blocked for years. Banks are concerned that if non-financial companies enter this field, it could have a huge impact on traditional banking. I believe Meta is certainly very unhappy about this.
They cannot issue their own stablecoins, but they can use stablecoins issued by other companies. Even so, I believe this will still bring about significant capital flows. We have not even seen the full application of the Internet of Things (IoT) and micropayments yet because many companies are afraid to take risks in an unclear regulatory environment. But with the passage of the bill, these areas will welcome new development opportunities.
Another point of contention is whether stablecoins should be allowed to earn interest. The banking sector generally opposes this because if stablecoins can earn interest, it could trigger bank runs, especially impacting community banks significantly. If there is any factor that could hinder this bill, it would be the opposition from the banking industry.
For example, can State Street issue both money market funds and stablecoins while allowing users to freely switch assets in their wallets? This sounds very much like an interest-bearing stablecoin. While this is just my hypothesis, such products may emerge in the future. In fact, Chad Pasquale has already launched offshore interest rate stablecoins. These stablecoins may become as popular as ETFs in the future, becoming a part of everyone's daily life.
Tokenizing Galaxy Assets on Ethereum
David:
The tokenization of stablecoins is an area worth paying attention to. I know this sounds very interesting and exciting. Galaxy plans to go public on NASDAQ, but I want to ask, why choose NASDAQ? Why trade on NASDAQ? This is because the U.S. has always been the center of global capital. However, recently we have seen poor performance in the bond market, and government bond sales have also been disappointing. People’s interest in the U.S. as a global capital center seems to be waning. U.S. capital and bonds are flowing elsewhere, with one new direction being the internet capital market. This is precisely where the tokenization of stablecoins is happening, and all of this is occurring on the first layer of the Ethereum network.
If NASDAQ or the dominance of U.S. financial centers gradually weakens, Mike, when will you consider tokenizing Galaxy's assets on Ethereum?
Mike:
We will achieve this goal as soon as possible. Currently, we are working with the SEC (Securities and Exchange Commission) and may tokenize Galaxy's stock in the near future as a first step. I believe there will be many innovations regarding equity tokenization in the future, such as exploring perpetual contracts for equity. These innovations could change the industry landscape. The SEC is also encouraging the exploration of new ideas, which makes companies bolder and no longer afraid of legal risks or regulatory suppression.
David:
So how is the process of working with the SEC? Has it been effective?
Mike:
It has been very effective; it is a world of difference compared to before. Therefore, I believe there will be exciting progress in the second half of this year. It may take until next year for the market to truly benefit from it. Meanwhile, we also need to observe the direction of capital flows, as it is still unclear which areas will truly benefit. But it is certain that this will create more activity in the blockchain space.
Last night, I had dinner with some very smart and influential people in the industry, and we discussed many issues. Through these discussions, you realize the complexity of the current market structure. For example, which blockchains are suitable for displaying stablecoins? Is a simple database sufficient? What level of decentralization does a blockchain need to achieve? These questions are actually very critical, but I hadn't realized it before. Clearly, a large multinational European organization has already established some rules regarding these issues, and everyone present believed these rules were reasonable, although I haven't delved into them deeply.
Currently, there are various options in the market, such as whether Tron is suitable for stablecoins? Is Ripple suitable? Or must we choose Ethereum? Should the government decide which blockchains can operate stablecoins? Or should buyers bear the risks themselves? These questions involve security and protection, sparking widespread discussion and enthusiasm. Therefore, I believe we have not fully resolved all issues yet, but I am confident we will eventually find answers.
The Future Roadmap from the SEC?
Ryan:
I am optimistic about the SEC (Securities and Exchange Commission), which I have not felt in the past four years. Clearly, the situation was completely opposite before. But this time, the reason is not only because Gensler has left, but also because the new SEC, under Hester Peirce's leadership, seems to be genuinely pushing for some substantial progress. Paul Atkins' tweets and speeches have also inspired me; he compared traditional markets to fax machines and the crypto market and blockchain to the internet. He emphasized that we need to achieve the tokenization of securities in this "internet age" of new technologies.
I am not sure if there is a gap between their statements and your actual feelings when working with the SEC, but do you think the SEC might provide a complete roadmap in the next one to two years to guide how to put securities and U.S. stocks on-chain? This way, we can not only achieve the tokenization of Galaxy but also build a complete market and ecosystem on-chain?
Mike:
Yes, think about how quickly decentralized platforms like Hyperliquid and Uniswap are growing. If Uniswap can develop to the point where token holders can truly participate in business dividends, then why wouldn't more liquidity prioritize flowing to these platforms?
Therefore, I believe the first thing that will happen is a shift in liquidity. For example, once Apple's stock is tokenized, you will see its liquidity enabling 24/7 trading, allowing those who previously had no opportunity to buy Apple stock to participate. This process may start slowly but will then accelerate rapidly. It is worth mentioning that currently, all tokenization projects still face certain technical bottlenecks. However, as more operations shift to the blockchain rather than relying on traditional ledger systems, we will see a significant increase in efficiency. I am not sure about the specific timing of this transition, but when it happens, we will witness an industry transformation akin to a "Cambrian explosion."
Ryan:
To clarify, the main reason hindering the tokenization of securities is that we need a market structure bill, and we also need the SEC's approval. Both are essential, right?
Mike:
Additionally, it needs to be clear on which platforms these tokenized securities can be traded. Currently, they need to be traded on regulated platforms known as ATS (Alternative Trading Systems), such as Republic Crypto, which has such a platform, or at least they planned to acquire one until the relevant rules changed. Now, the SEC has begun discussing rapidly adjusting these rules. Therefore, while we have not fully entered this stage, we are gradually approaching the goal.
The Year of Cryptocurrency IPOs?
Ryan:
It seems we are not far from the emergence of cryptocurrency IPOs. Galaxy is already listed on NASDAQ; do you think we will see more of this happening this year? Will this year be the year of cryptocurrency IPOs?
Mike:
I believe there will be a series of cryptocurrency companies going public this year. Kraken is also considering an IPO. In fact, many crypto companies are evaluating this opportunity.
Ryan:
This will further promote the legitimacy of cryptocurrency, right? This way, cryptocurrency can gain the attention of Wall Street, and they can invest. Even Coinbase recently received recognition from S&P, which is a huge boost in legitimacy for cryptocurrency, making it an undeniable force. So how are we doing in terms of raising funds?
Mike:
Currently, the legitimacy of cryptocurrency is much stronger than before. Although the crypto community may be reluctant to admit it, what truly drives legitimacy is the transformation of cryptocurrency from a "casino" to a service provider. For example, I want to have more functional crypto apps on my phone, not just for buying, staking, and selling. In the U.S., we even lack payment functionalities. The contribution of cryptocurrency to ordinary people so far has mainly been Bitcoin as a savings tool or for cross-border payments overseas, especially in Latin America, which is a significant issue. We have invested in three to four venture capital firms that have made a lot of money through these means. So I do not underestimate the achievements that have been made, but we need an "aha" moment for ordinary Americans to truly understand the value of cryptocurrency. And that moment may come with the emergence of tokenized stocks.
Decline of Traditional Finance, Rise of Crypto
Ryan:
Talk about the saturation of the traditional financial market. You mentioned that we have been working hard to promote the development of cryptocurrency, like pushing a snowball up a hill, but everything changed with Larry Fink's involvement, and now we seem to have more support.
Has the traditional financial sector basically accepted cryptocurrency? Are institutional investors starting to turn to the crypto space, or do we still face some obstacles that need to be overcome to convince them that cryptocurrency and blockchain are the trends of the future?
Mike:
There is no doubt that the traditional financial sector is more accepting of cryptocurrency than in the past, but their actions are still relatively slow, which is indeed somewhat unfair. Even so, the current size of the crypto market is still not enough to make the CEOs of U.S. banks feel worried.
I believe that what will truly draw the attention of the entire financial sector is tokenized stocks. When the "darlings" of traditional finance start to be tokenized and traded in the market, every asset will become crucial, and everyone will realize, "I must transition from the old era to the new era." But I don't think this will be Bitcoin. Even if Bitcoin continues to trade, its role may be more like gold. While large companies have a gold trading desk, gold is not a core part of their business. Cryptocurrency must transcend being a single asset to truly impact the entire financial market.
The Terra Luna Case
David:
I have a question about the settlement of the Terra Luna case; it seems not many people are discussing it outside of Galaxy. The news is that Galaxy was fined $200 million for selling Luna while supporting Luna. Please share your feelings about the entire event and the discussions within Galaxy, and what you learned from it?
Mike:
I need to clarify that when you reach a settlement with any institution, especially with the New York Attorney General, you sign a document called an AOD, in which you neither admit nor deny their allegations. Therefore, we cannot discuss this issue in detail. I can only say that when we received the call, it was certainly not a pleasant moment. What surprised me was that this matter dragged on for too long and occurred at an inopportune time because I saw the new government providing us with a clear outlook. At the same time, we were also planning to go public. We had just gone public and might collaborate with bankers to raise funds, and these bankers typically only support you when your financial situation is good. Considering these factors, although I felt an urge to fight back, it was wiser to let it go and move on. The benefit of being a trader is that bad trades are like goldfish; you forget quickly and move on. Therefore, I did not think too much about this issue. It was a significant settlement, very painful, but I haven't thought about it since two days after it happened. Our motto is: don't talk about it, keep doing business in New York, and keep living.
Ryan:
I think a lesson for the entire crypto industry is how great the risks of algorithmic stablecoins are, right? They can spiral out of control quickly. In fact, I imagine different scenarios.
Mike:
Yes, there are many ecosystems in the market, and I have been discussing market structure, but we need to be very careful in labeling things. I have never believed that algorithmic stablecoins should be called stablecoins. In fact, bank run events contributed to the collapse of that ecosystem to some extent. Naming conventions are really important.
Think back to the situations with Celsius, BlockFi, and Voyager. I believe they had disclosures, but most people thought they were making deposits, and everyone's deposits were guaranteed. In reality, they were investing in a highly leveraged hedge fund that had asset-liability mismatch issues. Therefore, I hope to see something from Washington that is a shorter but more powerful disclosure about what the products actually provide. When was the last time you saw any disclosure? Never. None of us have done it.
But for example, just like the warning on cigarette labels that says it may cause cancer, it's really simple. Is it government-backed or not? Are you taking on our credit risk or not?
There should be a "foolproof" disclosure. In our industry, especially because we have many novice investors who lack experience, we have a lot of hype. Therefore, I know Paul Atkins places great importance on disclosure. If I were sitting here now, I would suggest to him to create a "foolproof" disclosure.
Ryan:
Is this content part of the Genius Bill? Does the Genius Bill define stablecoins as needing to be fully backed by reserves, like government bonds, and not something like Terra Luna?
Mike:
Indeed. I don't have the exact details. I believe it is 40-day NT bills or deposits from the U.S. Treasury.
The Future of Galaxy and Cryptocurrency
Ryan:
This will help standardize definitions and naming, right? And passing such legislation in 2022 is almost a good thing. Regarding Galaxy, you have done some cool things in the combination of cryptocurrency and artificial intelligence. Although I hadn't paid special attention before, while preparing for this conversation, I learned that you purchased a Bitcoin mining facility in Texas in December 2022, the 160-acre Helius facility.
Mike:
It seems Galaxy plans to use it for the AI industry, establishing an AI cloud. I am curious about your plans for this. Will there be more Bitcoin mining facilities like this in the future?
Mike:
Galaxy is a holding company with two independent business segments. One is the cryptocurrency business we discussed, and the other is our existing data center business. We have at least signed one similar lease agreement, which will bring in $14 billion in rent over the next 15 years, accounting for only one-third of the current data center. Therefore, this is a massive project, including a $6 billion construction investment on our side, along with another $6 to $8 billion for equipment procurement. This is a total capital expenditure project of $14 billion, planned to be completed in Texas over two years.
You need to complete the project on time and within budget. Therefore, such a large business has made me start to understand the significance of scale. If we fully build the data center, the current scale is 800 megawatts, but we believe it can be increased to 1,600 megawatts, totaling 2,600 megawatts, which could make it one of the largest or top three data centers in the U.S., located in a remote area. This will be a $70 billion capital expenditure project.
$70 billion is equivalent to Uruguay's GDP, used to build a massive computing center. This intuitively makes me realize how astonishing the investments from companies like Microsoft, Google, OpenAI, Tesla, and Amazon in the future of AI are. We should start thinking in a non-linear way, while our thinking habits have not yet adapted to this change. Think about the cars your parents drove and the car you drive.
We will grow in this incremental way. Our thinking is not accustomed to such enormous progress. Therefore, this is a brave new world. Honestly, when you see people willing to invest huge sums to build, you realize it is real. This feels very real to me. It is a good business because it is predictable. Of course, there are risks involved. We must complete the construction on time, deliver, and operate the data center well, but we are also transitioning into real estate developers. Therefore, for the past decade, half of my balance sheet has been operating in a highly volatile world.
Yes, having a stable high cash flow alongside the cryptocurrency business would be great. And the cryptocurrency business itself has great potential and may evolve into a great business in the future.
We are still uncertain about how tokenization will develop or where the value in this field will come from. But what we know, or at least believe, is that Bitcoin will appreciate. So you won't hold a large amount of Bitcoin, but I also won't hold it just for storage.
For me, the fun of cryptocurrency lies in whether we can create a decentralized revolution. Can we tokenize everything and provide a democracy of finance and currency? We are at this starting point.
David:
The starting point of cryptocurrency is actually the data center, right? Everything began with the specialization of Bitcoin miners, which was also the first large-scale business in the cryptocurrency field. In fact, cryptocurrency and AI have developed almost simultaneously, and the core reason behind this is the drive of data.
Is there really a deep connection between the futures of AI and cryptocurrency, or is it merely a historical coincidence?
Mike:
Yes, the emergence of data centers is indeed a historical coincidence. It is a matter of luck. Bitcoin miners have grand visions, and so do we. But this industry requires a massive amount of electricity, and we are one of the few participants capable of harnessing vast electrical resources. People often ask me why other large data center companies haven't entered this field. The answer is simple: they lack electrical resources. When I started researching this field, we already had the largest data center in the world, with a capacity of 800 megawatts. Before that, no one had built such a super-large data center. Therefore, whoever can secure power contracts can gain an advantage in this industry.
David:
Do you think there will be intersections between AI and blockchain technology in the future?
Mike:
I believe there will definitely be intersections in the future. The characteristic of blockchain is decentralization, while AI is a powerful centralized force. There will certainly be some competition between the two. For example, in the future, your AI entity might help you purchase daily necessities through certain channels, and these channels are likely to be based on cryptocurrency technology. We have already invested in some companies in our venture capital business that hope to become such channels, aiming to facilitate the transfer of stablecoins through their own tokens. In the future, there may even be blockchain technologies specifically designed for AI. Therefore, I believe there will be many synergies between AI and cryptocurrency.
As for the data center business, its rise is mainly due to our control over substantial electrical resources. So I don't want to completely conflate AI and cryptocurrency, but the connection between them is indeed a very interesting story. I have been trying to create collisions between the two to find new possibilities. For instance, when we collaborate with tenants, who are they? They are companies like Google, Microsoft, OpenAI, and Tesla that are driving AI technology forward. Collaborating with these companies brings us closer to the core of the AI field, rather than just asking Jeff Bezos what he is doing over the phone. Working with these companies is not only commercially beneficial but also brings us intellectually closer to the forefront of exploration in this industry.
Building and Expanding Data Centers
Ryan:
The data center business is indeed fascinating. While it may seem very "tangible," ten years ago, I might have viewed data centers as ordinary infrastructure. Now, their importance has risen to a geopolitical level, especially in the AI race between the U.S. and China. The key is, can we build and expand data centers faster than China or other competitors? Can we acquire energy more efficiently?
Mike:
In Texas, this is not difficult, which is why many data centers choose to establish there. A person from the UAE involved in the data center business once mentioned a saying: Einstein's formula E=mc² can now be reinterpreted as E=I, where energy equals intelligence. Indeed, the more electricity, the more wisdom. The current demand for electricity has far exceeded supply because electricity directly drives the creation of intelligence. Zuckerberg mentioned in an interview that many things in the past could predict the future's direction, but this time he said he couldn't predict because everything seems to be growing exponentially. I believe that at least in the next three to four years, we will see a sustained bull market.
Ryan:
Do you think the U.S. can maintain its lead over China in the energy and data sectors?
Mike:
I am not an expert in this area, but I have always been confident in the U.S. Although we occasionally make mistakes, we always find ways to solve problems. I recently read that 36% of Nobel Prize winners and scientists are immigrants, and 50% of unicorn company CEOs are also immigrants. As long as we can maintain an open flow of talent, protect our education system, and avoid undermining academic institutions due to political factors, I believe the U.S. can continue to maintain its leading position in the field of AI.
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