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Mike Novogratz: Crypto is ‘Good in Price Action, Spirit and Narrative’ But US Outlook ‘Bad’

The founder and CEO of Galaxy Digital, Mike Novogratz latest remarks in the company’s fourth-quarter earnings call on Tuesday find a bullish market with prices waking up after taking a breather since late last week—and particularly for Bitcoin and Ethereum.

Bitcoin leads its peers with a 6.5% move to trade at $28,400 on Tuesday, with Ethereum closely following in its footstep with a 6% move to $1,818.

This is the first major move in both assets following the news that the United States Commodities Futures Trading Commission (CFTC) had sued Binance, its CEO Changpeng Zhao (CZ), and the former COO Samuel Lim for allegedly disregarding derivatives rules.

Altcoins are also depicting strength led by XRP’s 18% rally in 24 hours. The cross-border money transfer token has been bullish this week as Ripple and the Securities and Exchange Commission (SEC) move closer to the final ruling in the case that has dragged on for more than two years, since December 2020.

Other tokens showing strength on the day include Cardano, which is up 11.5%, Dogecoin up 5%, Polygon up 9%, Solana 7.5%, and Polkadot 7%. Cumulatively, the total market capitalization increased by 5% to $1.23 trillion.

Is Crypto The Answer To The Banking Crisis?

The banking crisis in the US may have blown up in March with the collapse of three banks, Signature Bank, Silvergate Bank, and Silicon Valley Bank (SVB), but Novogratz told shareholders during the earnings call on Tuesday it is a result of actions taken by the government and regulators over time – possibly as far back as 2009.

“To remind you that our system is fragile, we have been on a debt orgy, literally, gorging ourselves with cheap money for years—really, post ’08, certainly—and have built up a debt to GDP ratio in this country that might be unsustainable, Novogratz said in his opening statement.

Satoshi Nakamoto, the author of the Bitcoin whitepaper saw the gaps and the shortcomings in the traditional financial sector and was unsettled about the many shocks the system could endure before collapsing and ruining everyone and everything.

Actions based on populist agenda, politics, and the need to constantly print fiat currencies coupled with the debasement of money created a niche where Bitcoin could prosper. “Bitcoin really is the first decentralized store of value, or money, which then really gave birth to this whole industry of a decentralized revolution,” Novogratz added.

In his opinion, the global financial turmoil, including the banking crisis in the US is a reminder why BTC was created and this gives Bitcoin “unbelievable resilience.”

What’s The Good?

Novogratz reckons that Bitcoin and Ethereum have been the two best-performing assets globally over the last three years. His sentiments come at a time when the largest cryptocurrency has rallied to $28,000, although it traded around $16,500 at the beginning of the year. Similarly, Ethereum is trading over $1,800 up from $1,200 on January 1.

Regulators in the US are “wrong, and the world knows that,” the CEO continued, stating that Galaxy Digital got involved in the crypto business to bring institutions into the market.

Crypto is “good in price action, it’s good in spirit, it’s good in narrative, and it’s good, quite frankly, overseas we see unbelievable adoption.” Novogratz is among the most vocal crypto executives championing a clear regulatory framework.

On March 22, the billionaire investor threw a jab at the US government and its call for robust oversight of the crypto industry, directly telling the agencies to focus on regulating banks and the treasuries, which have shown dire vulnerabilities in recent weeks.

Crypto executives in the US like Ripple’s CEO Brad Garlinghouse, Coinbase CEO Brian Armstrong, and Cardano’s co-founder Charles Hoskinson agree that the lack of clear regulatory guidelines in the country is stifling innovation in the world’s biggest economy while other regions like Europe, Asia and the Middle East focus on understanding the technology and creating a conducive environment for growth by providing a proper regulatory regime.

Hong Kong recently released a new regulatory proposal to oversee the operations of crypto exchange companies. As Business 2 Community reported earlier in the week, companies are now rushing to the city—some driven by the need to move away from the uncertain regulatory environment in the US.

The recent developments in Hong Kong have incited speculations on whether China is changing its tune toward cryptocurrencies. Hong Kong, although an independent city, is under close supervision from mainland China.

For that reason, excitement is building up supported by the willingness of Chinese state banks with branches in Hong Kong to support crypto businesses through the opening of bank accounts. Chinese officials have also been spotted in Hong Kong’s Web3 events openly mingling and requesting industry reports.

What’s The Bad?

Novogratz believes “the regulatory regime in the United States is very tough.” A lot of progress had been achieved up until the implosion of Sam Bankman-Fried’s FTX. Actions taken by the agencies since November show a disappointed regulatory lot.

The SEC and the CFTC were “so close to Sam Bankman-Fried” yet they couldn’t see what was happening. Instead of correcting what went wrong, they are willing to “say the whole thing is bad.”

Since the collapse of the three banks in the US, there have been allegations of banks closing accounts belonging to crypto companies without prior warning or sternly refusing to open new accounts.

Just two weeks ago, the Blockchain Association (BA), a crypto lobbyist group, filed a Freedom of Information Act request to the Federal Deposit Insurance Corporation, the board of governors of the Federal Reserve System, and the Office of the Comptroller of the Currency for data regarding unfair actions taken against the crypto industry by US regulators following the banking crisis.

Kristin Smith, the CEO of BA argued that crypto companies deserved to “be treated like any other law-abiding business” in the US to freely access banking services.

“BA is investigating troubling allegations — including account closures and refusal to open new accounts — which have grown more concerning in the wake of this week’s banking crisis,” said the lobbyist said, adding, “A crisis that long-term crypto opponents have rushed to blame, incorrectly, on the technology.”

The Galaxy Digital CEO foresees an increase in the judicial proceedings backlog if the SEC, the CFTC, and other law enforcement regulators keep “issuing Wells letters weekly.”

However, as Novogratz puts it, such actions are not “good for innovation” and certainly “not good for America’s chance to lead the industry” because it is driving people offshore.

He reckons that there’s a need for education, or at least make the case to the Biden administration that the “attack on crypto is shortsighted,” Novogratz continued with his remarks in the earnings call.

The Ugly – Galaxy Digital Stock Price Falters Despite Key Business Strides

By now you must have picked it up that Novogratz’s Q4 earnings call remarks were titled “The Good, the Bad, and the Ugly.” Meanwhile, he told investors that the company’s main focus this year is to break up all its businesses into markets – the Asset Management business and the Infrastructure business.

In Markets, Galaxy Digital expects to complete and launch Galaxy Prime, the firm’s G1 offering while in Asset Management they are working toward improving active “as opposed to passive, asset management.”

On the Infrastructure side, Novogratz is looking forward to launching Helios, a big data center the company bought at the end of last year. Helios will see Galaxy Digital delve into the mining industry.

However, not everything is sailing smoothly as Galaxy Digital’s share price has been sweeping the floor, held back by a persistent crypto winter. Novogratz reckoned that GLXY.TO is “lower with Bitcoin, it’s higher and it’s lower with our Company doing better.”

At the time of the earnings call, the stock was trading around CAD$4.00 but had seen a 3.56% increase in value on Wednesday to trade at $4.19, as seen on Yahoo Finance. Nonetheless, the CEO believes they will break even this year and he feels the stock price has bottomed.

“The way I look at things is we have an operating business that I think will make money, or at least break even this year, and if not, should come close, and, again, I said by next reporting, we’re going to break that out in a more clear way for people to see it. We’ve got a book that certainly feels like it’s bottomed,” Novogratz told investors.

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