Mike Novogratz Lost $136 Million in the Bubble, But Says He Could Still Be the ‘Laird Hamilton of Crypto’
12.11.2018

You can’t avoid a certain grudging respect for Mike Novogratz. Over the past couple of years, the investor has made the right predictions about crypto markets again and again—he’s just failed to actually use those calls to make any money for customers. Yet he keeps on plugging away, and according to a new interview with Bloomberg, he’s still convinced “bitcoin is going to be digital gold.”

Maybe it’s because he feels #blessed: Novogratz made a $7 million personal bet on bitcoin in 2013 that even he attributes to a kind of dumb luck. According to a recent, excellent New Yorker profile, he’s prone to calling himself the “Forrest Gump of bitcoin.” Things got more serious in September of 2017, when Novogratz started talking about founding a crypto hedge fund, saying at the same time that crypto could be the “largest bubble of our lifetimes.”

That sounds about right. Unfortunately, Novogratz must have been busy getting his head waxed for the next two months, since come December 22 he was shelving the idea of the fund. In explaining the decision, he declared that the price of bitcoin—which had peaked near $20,000 just three days before—would continue sliding all the way to $8,000.

OK, so he’d missed something like 4x returns in two months by not spinning up a fund. But hey, I’ve never started a hedge fund; I assume it involves some paperwork. At least he pretty much precisely called the top of the market, and predicted exactly what the next five months would look like (bitcoin dropped to around $8,000 by May of this year). We should probably keep listening to this guy!

Except he seems to have a hard time actually listening to himself. Almost immediately after calling the market top and giving up on a crypto hedge fund, he started up a crypto merchant bank, Galaxy Digital. Mostly thanks to buying bitcoin, ETH, and XRP while the market was in its long slide, and despite presumably sophisticated trading strategies, the operation lost $136 million, more than 50% of managed assets, in nine months.

In his new talk with Bloomberg, Novogratz blamed a lot of that on buying what he thought were bottoms—Ether at $400, bitcoin at $6,200—then watching them keep sliding. As the kids put it, DOUBLE KILL.

This isn’t Novogratz’s first time at the losing-a-ton-of-money rodeo. His adventure with crypto began after his 2015 exit from mainstream Wall Street, when he hit a big losing streak as a hedge-fund manager at Fortress Capital Management. And that wasn’t his first failure—that would be his 2000 departure from Goldman Sachs, for reasons that remain opaque but which Novogratz has attributed to “partying like a rock star.”

But he came back from all that, and says he feels destined to come back from his crypto losses. In today’s Bloomberg interview, in addition to reaffirming his core faith in crypto, Novogratz reveals that Galaxy’s strategy hasn’t changed “as dramatically as one would think,” and that he thinks they’ll at least break even in 2019. “I keep telling my guys we’re a surfer getting ourselves in shape for when the next wave comes,” he elaborates. “And when the wave comes we’d better be the Laird Hamilton of crypto.”

Novogratz doesn’t seem like a bad guy. He’s a major backer of both the A.C.L.U. and The Bail Project, a noble effort to fight the cash-bail system. And his ability to brush off failure and look toward the future is not so much delusional as a fundamental trait of a certain kind of investor. Failures like Novogratz’s are a constant on Wall Street, even during good times, and retaining your convictions after getting “blown up” (losing big) may be all that separates good traders from bad ones. Novogratz even seems self-aware about his own varied shortcomings: in a self-mocking mode, he confessed to the New Yorker that he experienced constant delusions of grandeur while on a meditation retreat.

After all that, the question becomes why the rest of us spend so much energy listening to him. For a time, it made sense: the crypto community was hungry for legitimation from a Wall Street veteran, even a slightly tarnished one. (It’s the same sort of conflicted impulse that leads a gang of cypherpunks to dream of an SEC-approved ETF). But in the end, it’s pretty clear that Novogratz may not understand crypto markets any better than the rest of us.