Compiled & edited by TechFlow
Guest: Mike Novogratz, Founder and CEO of Galaxy Digital
Moderator: 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
Air Date: June 2, 2025
Summary of key points
Mike Novogratz returns to Bankless to break down Bitcoin's all-time high and what it means in a world of fiscal uncertainty.
This episode explores the latest developments in the bond market crisis, how the GENIUS Act opens a new chapter in the development of stablecoins, the tokenization of the traditional financial system, and Galaxy’s unique positioning at the intersection of cryptocurrency and artificial intelligence. This is an in-depth conversation about macroeconomic changes and the role of cryptocurrency in the new financial landscape.
Summary of highlights
- The growth of the Bitcoin market has entered an irreversible stage.
- I don't think the dollar will lose its status as the world's reserve currency, but its appeal may wane. Other countries may lose trust in the dollar and choose to shift some of their reserves to Bitcoin and gold. The value of Bitcoin and gold will continue to rise.
- No president can fight the bond market—the bond market is the real "big boss" in control of the situation.
- Blockchain is essentially a "trust machine". We first need to teach people how to trust this "trust machine", otherwise it will look like a scam.
- I think the GENIUS Act has a 99% chance of passing.
- Cryptocurrency is loved by many people and should be a bipartisan technology rather than a politicized tool. For most Americans, cryptocurrency is currently more like a speculative casino and nothing more.
- What will really attract the attention of the entire financial world is tokenized stocks. Cryptocurrencies must go beyond a single asset to truly affect the entire financial market.
- We are currently working with the SEC and may tokenize Galaxy shares in the near future. The smoothness of the cooperation is much different than before.
- Now, we have fast enough blockchain technology, and we also have a relaxed and clear regulatory environment. Both 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 stock brokerage accounts in the form of crypto wallets.
Bitcoin hits new all-time high
Ryan: Bitcoin is hitting an all-time high as we're recording this show, over $109,900. Mike Novogratz, how do you feel about that?
Mike : Ever since Larry Fink started investing in Bitcoin, we have been working together to drive the development of this market. At first, it was like a snowball rolling down the hill, gradually getting bigger. Later, the snowball reached the top of the mountain, stayed for a while, and now it is accelerating down and unstoppable. This "snowball" refers to the adoption rate of Bitcoin - more and more people are beginning to accept and use it. Larry played a very important role in this process.
But now you see sovereign wealth funds, ordinary equity investors are joining, and many companies like MicroStrategy are launching related products. Ordinary ordinary investors and institutions are also actively participating. This trend makes me feel that the growth of the Bitcoin market has entered an irreversible stage. If we can stabilize the price range of $106,107 for 3 to 4 days, we can further open up the upside and enter a new stage of price discovery.
Why is this happening? First, because of the increase in adoption. Second, if you look at the fiscal situation in the United States, the budget deficit this year will be higher than last year, which is something that many people did not expect. I admire Scott Bessent's work, he is really good, but he promised that we would keep the budget deficit at 3%, and now it is completely beyond expectations.
The Impact of Trump’s Tariffs on Bitcoin
David: Can you give us some context? It's not a coincidence that Bitcoin hit a new all-time high. You mentioned some local factors and recent news events. I noticed that this all-time high in Bitcoin happened right after the Senate voted in favor of the GENIUS Act, which is obviously not a coincidence. But in addition to this, there are other background factors, such as Trump's announcement of "Tariff Day" and related tariff policies about four to five weeks ago. These events all occurred against the backdrop of Bitcoin's surge. Can you explain to us the logic behind this?
Mike: The dollar is under tremendous pressure as the world's reserve currency. It is difficult to accuse other countries of lying and stealing while asking them to continue to support the dollar, or even make them completely dependent on the dollar or become a subsidiary of the United States. Such a contradictory attitude is undermining the dollar's international status, both in terms of credibility and as an economic tool. When the dollar depreciates, the value of other assets will naturally rise. Therefore, part of this reflects the market's bearish sentiment on the dollar, and part of it is concerns about global fiscal stability. For example, long-term bond prices in Japan have fallen sharply, and today the long-term bond yield in the United States has fallen below 5%. When investors lose confidence in the G10 bond market, they will look for other assets for safe havens. Therefore, gold, silver, large-cap stocks and commodities have become popular choices. And now, Bitcoin, which is regarded as "digital gold", has also joined the ranks.
Ryan: So how do you think this is going to play out? We had Arthur Hayes on board earlier, and he made some predictions. His view is that the Trump administration has gone pretty far with tariffs, but now they may be pulling back. But they may do that by weakening the reserve asset status of Treasury bonds, even intentionally.
Mike: Arthur is indeed very smart, but I have worked in the Treasury market for 35 years. I know Scott Bessent very well. No country will actively weaken the credit of the world's largest bond market when it is carrying $35 trillion in debt. This is simply self-destructive.
Ryan: But Arthur thinks that if they want to solve the trade imbalance, they have to do this, right? For example, restricting the flow of funds through capital controls, or attracting investment by raising yields. And Besant's solution is to directly contact Federal Reserve Chairman Powell and promote "Quantitative Easing 2.0".
Mike: The Fed has been restrained in this regard. You can see from every press conference that Powell is reluctant to intervene directly in the market. Besant may use his authority to promote the purchase of long-term bonds, but Powell will not take the initiative to announce this measure because it is not within his scope of responsibility. This situation is entirely caused by the current government policy. If Powell believes that market stability is threatened or inflation and employment goals are hit, he may take action. But his responsibility is twofold, focusing on market stability as well as economic growth. So if there is really serious turmoil in the bond market, I believe that there will be emergency meetings within the government to try to find a solution.
Historically, in a similar situation in the UK, Liz Truss was eventually forced to resign. But the United States does not have a parliamentary system, so it is not easy to remove the president. However, the United States has a mechanism to adjust the policies implemented by the president, such as modifying tariff agreements. In the history of the United States, no president has been able to compete with the bond market - the bond market is the "giant" that really controls the situation.
"Liz Truss moment 2.0"?
Ryan: Do you think we are going to have a Liz Truss moment? Do you think the market is going to move in that direction?
Mike: Today's situation really makes me feel that way. There was a sell-off in the long-term bond market. The results of a Treasury auction that just took place were very unsatisfactory, and the market reacted very negatively, causing bond yields to plummet by 6% to 7%. This directly triggered the stock market to turn from rising to falling, and the rise of Bitcoin also stagnated. The overall market sentiment became very nervous.
The "Liz Truss moment" refers to the situation when Liz Truss became Prime Minister of the United Kingdom. At that time, her government launched a very radical economic reform plan to try to quickly promote the transformation of the British economy. However, these policies triggered a strong backlash in the bond market, and investors lost confidence in them, causing UK bond prices to plummet and yields to soar. Ultimately, this market pressure forced her to resign in just three weeks. The soaring yields at the time directly led to her resignation. This is why we call this situation the "Liz Truss moment."
The bond market can be seen as the "night watchman" of economic policy. If the market believes that there are serious problems with your policies, investors will stop buying government bonds or demand higher yields as compensation. In this case, the government has to adjust its policies. After all, our government operation mechanism is highly dependent on borrowing. And now, we are carrying the largest debt in history. This debt problem has been further expanded during the Trump and Biden administrations. In fact, the debt problem has begun to worsen long before Trump took office.
Then the coronavirus pandemic hit, and both parties saw it as an opportunity to "do something big." They did need to take some measures to deal with the impact of the pandemic, but many of the policies went beyond what was actually needed. Now we are paying the price for these excesses.
The impact of the American version of the "Liz Truss moment"
Ryan: Let’s assume that the sell-off in the bond market continues to intensify, yields keep rising, and eventually trigger a “Liz Truss moment” similar to the UK. What consequences might this scenario have in the US?
Mike: This may prompt the government to adopt a more conservative fiscal policy, the so-called "fiscal hawk" policy. They may introduce some tax cuts, such as reducing the tip tax and overtime tax, while claiming that they will not increase taxes on anyone, but continue to increase military spending. However, the market's response is clear: the government needs to spend less, not more.
I think the United States must tighten fiscal policy. The Fed is also in a very delicate position. If the economy needs to raise interest rates to deal with inflation, but the Fed chooses not to raise interest rates, this may further increase inflationary pressure. The market sell-off actually reflects investors' concerns about inflation.
In addition, tariff policy is also a key factor. In the short term, an increase in tariffs tends to push up prices, thereby exacerbating inflation. This is inevitable. But in the long term, tariffs may suppress economic growth and lead to deflation. However, at this stage, the adjustment of tariffs is more like a disguised tax increase, which makes the problem more complicated.
As the Secretary of the Treasury, or even the President, the most important task is to rebuild market confidence. The current market decline and the depreciation of the dollar are actually warning the government that investors have lost confidence in US economic policies. If this situation is not improved, the consequences will be very serious.
Bitcoin, Gold and the US Dollar
David: Now is the time for Bitcoin. Today, the price of Bitcoin is down $3,000 from its high, which may be related to the Treasury market you mentioned. Meanwhile, gold has been at an all-time high over the past quarter. Do you think these are the same story, 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, just like "distant relatives". The main reason for the rise in gold prices is that central banks are diversifying their asset allocation. They buy a lot of gold and absorb gold from the market. This behavior mainly comes from the central banks of the BRICS countries, and their dependence on US assets is decreasing, which is also logical. However, central banks have not started buying Bitcoin yet. Although we have seen some sovereign wealth funds are already trying, for example, they have purchased more than $500 million in Bitcoin. Although this is a big move, the scale of Bitcoin reserves is far from the trillion-dollar level of gold.
Ryan: Mike, what you're saying is that the Trump administration may not be deliberately trying to weaken Treasuries as a global reserve asset, but that may be happening regardless of their original intentions, right?
Mike: It is indeed a very delicate balance. For example, when Robert Edward Rubin was the Secretary of the Treasury, he publicly supported a strong dollar policy. And Scott Bessent might say that he also supports a strong dollar, but from a cyclical perspective, they sometimes also hope that the dollar will depreciate appropriately. So, how to find a balance between "strong dollar" and "cyclical depreciation"? The general saying is that in the long run, we support a strong dollar, but adjustments may be needed in the short term. The problem is that when the dollar depreciates, as Americans, our purchasing power will decrease. For example, the cost of traveling to Europe will increase, and the cost of buying Italian furniture or a Mercedes-Benz car will also increase. In other words, we will "become poorer."
Ryan: But some people think that when you say "poorer," you actually mean people who can afford to travel to Europe and buy expensive furniture. And an important argument for a devaluation of the dollar is that the United States needs to revive its domestic manufacturing industry by adjusting its trade deficit with other countries. After all, economic theories like the "Triffin Dilemma" show that it is difficult for a country to maintain the competitiveness of its domestic manufacturing industry if it has both the status of a global reserve currency and a strong currency.
Mike: That's true. The Trump administration is working to bring some manufacturing back to the United States, which is something to be commended, and some progress has indeed been made. But it is almost impossible to reverse the global supply chain established over the past 30 years in a short period of time. For example, some key resources are not in the United States at all, such as lithium mines, which are mainly distributed in Argentina and Chile. And these supply chains are often labor-intensive, and it is not enough to just make up for the 30% cost gap.
Let’s look at the wage gap. The median income in the United States is about $50,000 to $60,000, which is close to the top 1% of income worldwide. This huge wage gap allows countries like Vietnam to have a competitive advantage even if their costs are 30% higher than in the United States. Without fully automated production, it is impossible for a lot of manufacturing to return to the United States. Even if robotized production is achieved, it will not create enough jobs.
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 that this status is gradually weakening. This is closely related to the rise of cryptocurrencies in the past decade. In particular, Bitcoin is gradually emerging as a new type of global reserve asset. So, if the status of government bonds is really declining, what will be its replacement? Do you think Bitcoin will be the answer this decade?
Mike: Historically, the global reserve asset is usually the US dollar. The US dollar has been the reserve currency for about 80 years, and this cycle usually does not change easily. In the past, the reason why a country can become the global reserve currency is mainly because it controls the dominance of ocean transportation. Whoever has the most powerful 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 is also to provide global security and have a widely trusted legal system. The United States' military spending currently accounts for 3.8% of GDP, which is lower than the 5% in the past, but still much higher than the 0.5% to 1.5% of other countries. This high expenditure is the price of maintaining reserve currency status, but it also brings huge economic and political advantages. However, the Trump administration does not seem to fully realize this. For example, withdrawing from NATO or weakening NATO's influence, and retreating from the global economic network established after World War II, these measures may weaken the dollar's long-term reserve currency status.
Demand for government bonds falls
Ryan: Russell Napier, a Scottish monetary historian, believes that as the status of U.S. Treasuries as a global reserve asset gradually changes, a replacement may emerge. The world may split into two major economic blocks. On the one hand, there is a block dominated by the United States and its allies, who still use Treasuries as their main reserve asset; on the other hand, there is a block centered on China. In the Chinese block, the renminbi may be partially backed by gold because 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 do you think of this view that the world may split into two economic systems?
Mike: I think there is indeed a possibility of such a trend. For example, the BRICS countries may launch a stablecoin that is partially backed by gold. However, this stablecoin will not be fully backed by gold, but will contain a portion of gold in its reserves. Of course, this is just my personal speculation. For a large or powerful country, their currency is usually not completely without any support.
Now, these countries may say, "We have national reserves behind our currency, and we are a wealthy country." In a sense, the value of a currency is backed by the country's assets and ability to pay taxes. However, in theory, each country's currency should be considered "AAA" in its own country, that is, it should be absolutely trustworthy. Because a country can print its own currency at any time, the probability of defaulting on debt in its own currency is very low. But the question is, will other countries choose to borrow across borders, or are they willing to store their wealth in this currency?
At the moment, the return on the dollar is still attractive enough, and the renminbi is the only possible competitor. However, I don't think the renminbi is strong enough to replace the dollar, and China still has a long way to go in gaining global trust. Therefore, I don't think the dollar will lose its position 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.
I have been following Bitcoin and gold for four years, and it has had a big impact on my investment philosophy. I also have my own podcast dedicated to discussing these topics. Not only that, I also collect gold coins and often give them away. Since I was 16, I have told my friends: "Don't ever sell these gold coins. One day they will be worth $3,000." Now, I think they may be worth $10,000. I even need to reconsider how to store this gold safely, because if 50 ounces of gold are stolen, it will not be a small matter. But I believe that the value of Bitcoin and gold will continue to rise, and this view is now becoming more and more widely accepted.
Galaxy Launch Plan
David: Galaxy successfully listed on Nasdaq on May 16. It is said that your entire listing process took 13 months, while it was originally expected to take only 90 days. Can you share with us this journey? Was this process frustrating for you?
Mike: The preparation process took longer than we expected, and we missed the best listing window. During the Jay Clayton and Trump administrations, Coinbase and some mining companies successfully passed the review. But we encountered a stricter regulatory attitude during Gary Gensler's tenure as chairman of the Securities and Exchange Commission (SEC).
David: How many times did you try? Or did you know from the beginning that he wouldn't approve it?
Mike: It is undeniable that there are indeed many scams and scandals in the cryptocurrency field. For example, the Sam Bankman-Fried incident may have set back the public's trust in cryptocurrency by 18 months to 2 years. This situation is very ironic because most of us entered the cryptocurrency field in order to shift from relying on government trust to relying on cryptography trust. Blockchain is essentially a "trust machine", but we overlooked the point that we first need to teach people how to trust this "trust machine", otherwise it will look like a scam.
However, I am glad to see that more and more Republicans and Democrats are beginning to understand the value of cryptocurrencies. For example, Senator Warner and Senator Gaegos took a relatively neutral stance in promoting cryptocurrency-related legislation and received support from the left. Although Elizabeth Warren is critical of cryptocurrencies, her opinions are gradually being challenged. She once pointed out that cryptocurrencies have once again become a tool for a few people to get rich, and this unfair phenomenon needs to be curbed. However, those who support cryptocurrencies are also actively fighting back.
In this era of political polarization, it is not easy to promote cryptocurrency legislation. But what makes me optimistic is that we have achieved bipartisan cooperation on the stablecoin bill. In contrast, the advancement of the market structure bill may be more difficult. This is not because of partisan differences, but because of conflicts of interest within the cryptocurrency industry. For example, can Coinbase serve as a custodian, broker, and exchange operator at the same time? In the traditional financial field, this is prohibited, but should it be allowed in the cryptocurrency field? If you are Coinbase, you will naturally support this model; if you are a competitor of Coinbase, you may oppose it. The market structure bill involves many stakeholders, so it is more complicated to promote than the stablecoin bill.
GENIUS Act
Ryan: There are two important bills related to cryptocurrency that are currently being debated in Congress. The first is the GENIUS Act, and the second is the Market Structure Act. Let's talk about the GENIUS Act first. I'd 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 needs to go through several more rounds of voting before it can be finally passed. I heard that the final vote may take place after the anniversary. Do you think the current number of votes in favor is enough to ensure the passage of the bill?
The bill needs to go back to the House for a vote and complete the legislative process. However, Senate passage is the most critical step. So what do you think has changed in the Senate over the past year to make this support possible?
Mike: I can say that this is almost a done deal. Unless something extremely unexpected happens, the bill will not be vetoed. I think the probability of passing is as high as 99%.
From the perspective of the crypto industry, the Democratic Party realized it too late in the election. They ignored an important fact, that the number of people who own cryptocurrencies in the United States has exceeded the number of people who own dogs. This sentence first appeared on Twitter, and I borrowed it and promoted it further, which was widely recognized. I even joked that the Democratic Party has become the "party against dogs." This is obviously unwise.
Cryptocurrency is loved by many people, and it should be a bipartisan technology rather than a politicized tool. However, the Democratic Party did not realize the seriousness of the problem until after the election. They tried to respond hastily, but missed the opportunity due to excessive caution. Elizabeth Warren's influence in the party made many people dissatisfied, and her tough attitude almost dominated the policy direction of the entire party. In the end, this internal division led to widespread anger.
At the same time, the Republican Party seized the opportunity. For example, Trump raised a lot of money from the cryptocurrency community, and the technology industry gradually moved closer to the Republican Party. After the election results came out, I communicated with some Democrats, and they generally believed that the wrong attitude towards cryptocurrency may have caused them to lose some voter support. They don't want to make the same mistake again. Therefore, some visionary people in the party proposed that instead of continuing to argue, it would be better to pass these two bills to remove cryptocurrency from the political agenda. In this way, even if it cannot win completely, it can avoid more controversy and losses.
Anti-crypto camp disappears?
Ryan: So what you're saying is that the Democratic Party is no longer against crypto? Is the anti-cryptocurrency faction gone? Is this all over?
Mike: You can say that. But you can go to Washington and ask anyone if they know about blockchain and ask them to explain it. Honestly, how many cryptocurrency apps do you have on your phone?
But even then, most of these apps only let you buy and sell crypto prices. They don't let you use crypto to buy tickets, call an Uber, or do the things that ordinary Americans do on a daily basis. So for most Americans, crypto is currently more like a speculative casino, nothing more. So, politicians' attitudes 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 stock brokerage accounts exist in the form of crypto wallets. When all this is achieved, the cryptocurrency industry will truly provide practical value to the American public.
However, there are always people in the industry who emphasize "how important we are". Frankly speaking, if I hear a similar speech again, I might go crazy. Yes, Bitcoin is indeed important, there is no doubt about that. But we can't limit ourselves to a "Bitcoin industry", right? We are an industry covering digital assets and cryptocurrencies. In addition to Bitcoin and some stablecoins that mainly serve overseas users, when was the last time you bought something with a stablecoin? Do you do it often? Probably not much. So for now, apart from gambling and investment, the cryptocurrency industry does not really touch the areas that most people care about.
Policy does not allow us to do this, but this is the huge opportunity we face. Now, we have fast enough blockchain technology, and we also usher in a regulatory environment that is both relaxed and clear. Both points are very important and complement each other. The new Securities and Exchange Commission (SEC) welcomes the crypto industry, while the old SEC is completely different. Not only do they not support it, they often suppress and prosecute the industry. The current SEC is more open, and this change will provide soil for the outbreak of innovation, allowing more people to try some very interesting new ideas.
US Consumer Crypto Market
Ryan: I haven't studied the GENIUS Act in depth before, and now we know that it will basically pass. Can you briefly explain the role of this bill? For example, there are already $250 billion worth of stablecoins on the blockchain, and it may reach $2 trillion in the future. So, what changes does the GENIUS Act bring? Does it pave the way for the United States to promote cryptocurrencies and the US dollar around the world? How big is its potential?
Mike: This could be a very important turning point. We need companies in the payment field to get involved, such as Stripe, Visa, and Mastercard. Now you might use Apple Pay when you go to McDonald's, but imagine what would happen if you paid with a stablecoin? This requires deep cooperation between payment companies and technology platforms. Stripe, Visa, and Mastercard are likely to be the winners in this ecosystem. Why is this important? Because Bessent and others mentioned that the United States needs to raise $35 trillion in funds. We want global users to store their digital currencies in US dollars rather than other currencies. This will not only prove the value of the US dollar, but also attract more overseas funds to make up for the US fiscal deficit.
What’s even more exciting is that once stablecoins are legalized, companies can use them with confidence without worrying about legal risks. For example, for Tether, the bill will stipulate a compliance period, two years, three years or 18 months? Although the length of time may be controversial, the Tether team is very experienced and will find a solution no matter how long it takes.
However, the bill does restrict some non-financial institutions, such as Facebook (Meta) and X (the predecessor of Twitter), from issuing their own stablecoins. The banking industry is very sensitive to this, especially community banks, which is similar to the situation where Walmart tried to open a bank for many years but was blocked. Banks are worried that if non-financial companies enter this field, it may have a huge impact on the traditional banking industry. I believe Meta must be very unhappy about this.
They cannot issue their own stablecoins, but they can use stablecoins issued by other companies. Even so, I think this will still bring huge capital flows. We haven't even seen the full application of the Internet of Things (IoT) and micropayments because many companies are afraid to take risks in an unclear regulatory environment. But with the passage of the bill, these areas will usher in new development opportunities.
Another controversial point is whether stablecoins are allowed to generate interest. The banking industry generally opposes this because if stablecoins can generate interest, it may trigger a bank run, especially for community banks. If there is any factor that may hinder this bill, it is the opposition of the banking industry.
For example, could State Street issue both a money market fund and a stablecoin and allow users to switch between assets in their wallets? This sounds a lot like an interest-bearing stablecoin. Although this is just my hypothesis, such products may appear in the future. In fact, Chad Pasquale has already launched an offshore interest-bearing stablecoin. These stablecoins may become as popular as ETFs in the future and become part of everyone's daily life.
Tokenizing Galaxy Assets on Ethereum
David: The tokenization of stablecoins is an area worth watching. I know it sounds interesting and exciting. Galaxy plans to list on Nasdaq, but I want to ask, why Nasdaq? Why trade on Nasdaq? This is because the United States has always been the center of global capital. However, recently we have seen that the bond market has not performed well and the sales of treasury bonds have not been satisfactory. People's interest in the United States as a global capital center seems to be waning. Capital and bonds in the United States are flowing to other places, and one of the new flows is the Internet capital market. This is exactly where the tokenization of stablecoins is happening, and it all happens on the first layer network of Ethereum.
If the dominance of Nasdaq or US financial centers gradually weakens, Mike, when would you consider tokenizing Galaxy's assets on Ethereum?
Mike: We will achieve this goal as soon as possible. We are currently working with the SEC (Securities and Exchange Commission) and may tokenize Galaxy shares in the near future as a first step. I think there will be many innovations in equity tokenization in the future, such as the exploration of equity perpetual contracts. These innovations may change the industry landscape. Now the SEC is also encouraging trying new things, which makes companies more bold and no longer afraid of legal risks or regulatory suppression.
David: So what was the process like working with the SEC? Was it productive?
Mike: It’s very effective, and it’s a world of difference compared to what happened before. So I think there will be exciting progress in the second half of this year. It may take until next year for the market to really benefit from it. In the meantime, we still need to see where the funds flow, because it’s not clear which areas will really benefit. But it’s certain that this will create more activities in the blockchain field.
Last night I had dinner with some very smart and influential people in the industry and we discussed a lot of issues. Through these discussions, you realize the complexity of the current market structure. For example, which blockchains are suitable for displaying stablecoins? If it is just a simple database, is it enough? How decentralized does the blockchain need to be? These questions are actually very critical, but I didn't realize it before. Apparently, some large multinational European organization has set some rules for these issues, and everyone in the room thinks these rules are reasonable, but I haven't dug into them yet.
There are multiple options in the market right now, such as is Tron suitable for stablecoins? Is Ripple suitable? Or must we choose Ethereum? Should the government decide which blockchains can run stablecoins? Or should buyers bear the risk themselves? These questions involve safety and security, which have sparked widespread discussion and enthusiasm. Therefore, I don't think we have completely solved all the problems yet, but I believe we will find the answers eventually.
Future roadmap from the SEC?
Ryan: I am optimistic about the SEC, and I have never felt this way in the past four years. Obviously, the situation was completely the opposite in the past. But this time the reason is not only because Gensler left, but also because the new SEC, under the leadership of Hester Peirce, seems to be really starting to push some substantive progress. I am also encouraged by Paul Atkins' tweets and speeches, where he compared traditional markets to fax machines and crypto markets and blockchain to the Internet. He emphasized that we need to tokenize securities in this new technology of the "Internet age."
I don't know if there's a gap between what they're saying and what you're actually feeling when you're working with the SEC, but do you think it's possible that in the next one to two years, the SEC will provide a complete roadmap for how to get securities and US stocks on the chain, so that we can not only tokenize Galaxy, but also build a complete market and ecosystem on the chain?
Mike: Yes, think about decentralized platforms like Hyperliquid and Uniswap, how fast they are growing. If Uniswap can grow to the point where token holders can actually participate in the business dividends, then why wouldn't more liquidity flow to these platforms first?
Therefore, I think there will be a transfer of liquidity first. For example, once Apple's stock is tokenized, you will see that its liquidity can be traded 24 hours a day, and people who did not have the opportunity to buy Apple stock before will be able to participate. This process may be slow at first, but then it will accelerate rapidly. It should be mentioned that all the tokenization projects currently have certain technical bottlenecks. But as more operations move to the blockchain instead of relying on traditional ledger systems, we will see a significant increase in efficiency. I am not sure about the specific time point of this transition, but when it happens, we will usher in an industry change similar to the "Cambrian Explosion".
Ryan: To make it clearer, the main reason that is holding back the tokenization of securities right now is that we need a market structure bill, and we also need SEC approval. You can’t have one without the other, right?
Mike: Also, there needs to be clarity on what platforms these tokenized securities can be traded on. Currently, they need to be traded on regulated platforms called ATSs (alternative trading systems), and Republic Crypto has one, or at least they were planning to acquire one until the rules changed. Now, the SEC has started talking about quickly adjusting those rules. So while we're not quite there yet, we're getting closer.
The first year for cryptocurrency IPOs?
Ryan: It seems like we are not far away from the emergence of cryptocurrency IPOs. Galaxy has already gone public on the Nasdaq, do you think we will see more of this this year? Will this be the year of cryptocurrency IPOs?
Mike: I think 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 legitimize crypto, right? So that crypto can get the attention of Wall Street and they can invest. Even Coinbase recently got the S&P stamp of approval, which is a huge legitimacy boost for crypto and makes it a force to be reckoned with. So how are we doing in terms of raising funds?
Mike: The legitimacy of cryptocurrency is much stronger now than it was before. Although the crypto community may not like to admit it, what really drives legitimization is the transformation of cryptocurrency from a "casino" to a service provider. For example, I want a crypto app on my phone that has more features than just buying, staking, and selling. In the United States, we even lack payment capabilities. The contribution of cryptocurrency to the average person so far is mainly Bitcoin as a savings tool, or making cross-border payments overseas, especially in Latin America, which is a big problem. We have invested in three or four venture capital firms that have made a lot of money in these ways. So I don't underestimate what has been achieved, but we need an "aha" moment for the average American to truly understand the value of cryptocurrency. And that moment may come with the emergence of tokenized stocks.
Traditional finance declines, crypto rises
Ryan: Let's talk about the current situation of saturation in the traditional financial market. You mentioned that we have been working hard to promote the development of cryptocurrency, just like pushing a snowball uphill, but with the joining of Larry Fink, everything has changed, and now we seem to have more support.
Has the traditional financial world largely accepted cryptocurrencies? Are institutional investors all starting to turn to crypto, or do we still have some hurdles to overcome to convince them that cryptocurrencies and blockchain are the future?
Mike: There is no doubt that the traditional financial world is more receptive to cryptocurrencies than in the past, but they are still slow to act, which is indeed somewhat unfair. Even so, the current size of the crypto market is not enough to worry the CEO of Bank of America.
I think what will really catch the attention of the entire financial world is tokenized stocks. When the "darlings" of traditional finance begin to be tokenized and traded on the market, each asset will become critical, and everyone will realize: "I have to move from the old era to the new era." But I don't think it will be Bitcoin. Even if Bitcoin continues to trade, its role may be more like gold. Although large companies have a gold trading desk, gold is not a core part of their business. Cryptocurrency must go beyond a single asset to truly affect the entire financial market.
Terra Luna Case
David: I have a question about the Terra Luna settlement, which doesn't seem to be discussed much outside of Galaxy. The news is that Galaxy was fined $200 million for selling Luna while supporting Luna. Please share your feelings about this whole incident and the discussions within Galaxy, and what you learned from it?
Mike: I should be clear that when you settle 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. So we can't discuss this in detail. I can only say that when we got the call, it was never a pleasant moment. What surprised me was that this matter had been dragging on for so long and it happened at an unfavorable time because I saw that the new administration was providing us with a clear outlook. At the same time, we were also planning to go public. We had just gone public and might work with bankers to raise funds in the future, and these bankers usually only support you when you are financially strong. Considering these factors, although there was an urge in my heart to fight, it was the wisest choice to let it go and move on. The good thing about being a trader is that bad trades are like goldfish, you quickly forget them and move on. So I didn't think too much about it. It was a big settlement and it was very painful, but I haven't thought about it since two days after it happened. Our motto is: don't talk about it, continue to do business in New York, and move on with life.
Ryan: I think one lesson for the entire crypto industry is how risky algorithmic stablecoins are, right? They can get out of control very quickly. I actually imagine a different scenario.
Mike: Yes, there are a lot of ecosystems in the market, and I've been talking about market structure, but we need to be very careful about labeling things. I never thought that algorithmic stablecoins should be called stablecoins. In fact, the bank runs led to the collapse of that ecosystem to some extent. Nomenclature is really important.
Think back to Celsius, BlockFi, and Voyager. I believe they had disclosures, but most people thought they were taking deposits and that everyone's deposits were protected. In reality, they were investing in a heavily leveraged hedge fund that had an asset-liability mismatch. So what I would like to see coming out of Washington is a shorter but more robust disclosure about what the product actually offers. When was the last time you saw a disclosure on anything? Never. None of us did.
But like, let's say, it says on the cigarette label, it may cause cancer, it's really simple. Is this guaranteed by the government, or is it not? Are you taking our credit risk, or are you not?
There should be a fool-proof disclosure. In our industry, especially because we have a lot of new investors who don't have experience yet, we have a lot of hype. So I know Paul Atkins takes disclosure very seriously. If I were sitting here right now, I would suggest to him that we make a fool-proof disclosure.
Ryan: Is this part of the Genius Act? Does the Genius Act define stablecoins as having to be fully backed by reserves, like treasuries, and not something like Terra Luna?
Mike: It is. I don't have the exact details. I believe it was a 40-day NT note, or a deposit with the U.S. Treasury.
Galaxy and the Future of Cryptocurrency
Ryan: That would help normalize standards and nomenclature, right? And it's almost a good thing that we pass legislation like this in 2022. Regarding Galaxy, you guys are doing some cool things with the combination of cryptocurrency and AI. While I hadn't been paying much attention before, in preparing for this conversation, I learned that you guys purchased a Bitcoin mining farm in Texas, the 160-acre Helius facility, in December 2022.
Mike, it looks like Galaxy is planning to use it for the AI industry, building an AI cloud. I'm curious what your plans are for this? Will there be more Bitcoin mining farms like this in the future?
Mike: Galaxy is a holding company with two separate business units. One is the cryptocurrency business that we've discussed, and the other is the data center business that we already have. We have signed at least one similar lease agreement, which will bring in $14 billion in rent over the next 15 years, which is only one-third of the current data center. So this is a huge project, including a $6 billion construction investment on our side, and another $6 billion to $8 billion in equipment purchases. This is a total of $14 billion in capital expenditure projects that are scheduled to be completed in two years in Texas.
You need to get it done on time and on budget. So, this is a big business that I started to understand the meaning of scale. If we fully built out the data center, the scale is now 800 megawatts, but we think we can increase it to 1,600 megawatts, a total of 2,600 megawatts, which would probably be one of the largest or top three data centers in the United States, located in a remote area. It would be a $70 billion capital expenditure project.
$70 billion, equivalent to the GDP of Uruguay, to build a massive computing center. This made me intuitively realize how amazing the investment in the future of artificial intelligence by companies such as Microsoft, Google, OpenAI, Tesla, and Amazon is. We should start thinking in a nonlinear way, and our thinking habits have not yet adapted to this change. Think about the car your parents drove and the car you drive.
We're going to grow in this incremental way. Our minds are not used to such huge advances. So this is a brave new world. And honestly, when you see people willing to invest huge amounts of money to build, you realize that this is real. It feels very real to me. This is a good business because it's predictable. Of course, there are risks. We have to build, deliver and operate good data centers on time, but we are also transforming into a real estate developer. So half of my balance sheet for the last dozen years has been operating in a world of extreme volatility.
Yes, it would be nice to have a stable high cash flow and the other side of the cryptocurrency business. And the cryptocurrency business itself also has great potential and could evolve into a great business in the future.
We are not sure yet how tokenization will develop, or where the value in this space will come from. But what we do know, or at least believe, is that Bitcoin will appreciate in value. So you wouldn't hold a lot of Bitcoin, but I wouldn't hold it just for storage either.
To me, the fun of crypto is can we create a decentralized revolution? Can we tokenize everything and provide a financial and monetary democracy? We are at the beginning of that.
David: The starting point of cryptocurrency is actually the data center, right? Everything started with the professionalization of Bitcoin miners, which is also the first large-scale business in the cryptocurrency field. In fact, cryptocurrency and artificial intelligence developed almost at the same time, and the core reason behind this is data-driven.
Are the futures of AI and cryptocurrency really connected in some deep way? Or is this just a historical accident?
Mike: Yes, the emergence of data centers is indeed a historical coincidence. It is a kind of luck. Bitcoin miners have grand visions, and so do we. But this industry consumes a lot of electricity, and we are one of the few players who can control huge power resources. People often ask me why other large data center companies have not entered this field? The answer is simple, they don’t have power resources. When I started to study this field, we already had one of the largest data centers in the world, with a capacity of 800 megawatts. Before that, no one had built such a large data center. Therefore, whoever can control the power contract will have an advantage in this industry.
David: Do you think there will be an intersection between artificial intelligence and blockchain technology in the future?
Mike: I think there will definitely be intersections in the future. Blockchain is characterized by decentralization, while artificial intelligence is a strong centralized force. There will definitely be some competition between the two. For example, in the future your AI agent may help you buy daily necessities through certain channels, and these channels are likely to be based on cryptocurrency technology. We have invested in some companies in our venture capital business that hope to become such channels, and their goal is to complete the transmission of stablecoins through their own tokens. In the future, there may even be blockchain technology designed specifically for artificial intelligence. Therefore, I believe that there will be many synergies between artificial intelligence and cryptocurrency.
As for the data center business, its rise is mainly due to the fact that we have a lot of power resources. So I don't want to completely conflate artificial intelligence and cryptocurrency, but the connection between them is indeed a very interesting story. I have been trying to make the two collide and find new possibilities from them. For example, when we work with tenants, who are these tenants? They are companies like Google, Microsoft, OpenAI, and Tesla that are driving the development of artificial intelligence technology. Working with these companies brings us closer to the core of the field of artificial intelligence, rather than just asking Jeff Bezos what he is doing over the phone. Working with these companies is not only helpful in business, but also brings us closer to the cutting-edge exploration of this industry at an intellectual level.
Building and expanding data centers
Ryan: The data center business is fascinating. Although it looks "physical," ten years ago, I might have considered data centers as ordinary infrastructure. Now, its importance has almost risen to the level of geopolitics, especially in the artificial intelligence race between the United States and China. The key is, can we build and expand data centers faster than China or other competitors? Can we obtain energy more efficiently?
Mike: In Texas, it is not difficult, which is why many data centers choose to land there. A person from the UAE who is engaged in the data center business once mentioned a sentence. He said that Einstein's formula E=mc² can now be reinterpreted as E=I, energy equals intelligence. It is true that the more electricity, the more intelligence. The demand for electricity now far exceeds the supply because electricity directly drives the creation of intelligence. Zuckerberg mentioned in an interview that many things in the past could predict the future direction, but this time he said that he could not predict it because everything seemed to be growing exponentially. I think we will see a sustained bull market for at least the next three to four years.
Ryan: Do you think the United States can maintain its lead over China in energy and data?
Mike: I’m not an expert on this, but I have faith in America. Even though we make mistakes from time to time, we always find ways to fix them. I recently read that 36% of Nobel Prize winners and scientists are immigrants, and 50% of unicorn CEOs are immigrants. As long as we keep the flow of talent open, protect our education system, and avoid political corruption of academic institutions, I believe the United States can continue to lead in AI.
