Austin, Texas – Given Mike Novogratz's love of wrestling, you'd think he'd team up and take on opponents when it came to politics. After all, we're talking about a guy with a tattoo of the former doomed stablecoin project Terra/LUNA who doesn't care which side he takes. But Novogratz describes himself as a “radical centrist.”
“I'm broadly speaking a left-of-center Democrat, but I have donated to Republican candidates,” Novogratz said Thursday on the main stage at Consensus 2024. In other words, if Novogratz has a team, it's in crypto, making the Galaxy Digital CEO something of a “single-issue” voter.
There are so many voters in the United States who are increasingly concerned that the asset class has become a politically divisive issue, that the scrutiny of crypto advocates, constant lobbying of the industry, and a recent endorsement from former President Donald Trump appears to be helping to soften the stance of many Democratic officeholders on cryptocurrencies.
“The political landscape has changed dramatically in the last two weeks,” Novogratz said. “I've been trying to tell people in Washington that this is a bipartisan issue,” but Democrats seem to have lost their way for years. Or, as Novogratz put it by way of comparison, “the Democrats have been the party that hates dogs.”
Indeed, the past few weeks have seen a flurry of legislative and regulatory developments, including House and Senate votes in favor of repealing the notorious accounting pronouncement SAB 121, the House passing a cryptocurrency bill, major progress on the ETH ETF, and reports that President Joe Biden has reached out to crypto companies seeking guidance on sound policy.
“I don't know what happened,” Novogratz said. “I have a feeling someone from the White House called Gensler. [SEC Chairman] “And I said, 'I have to change my stance,'” Novogratz said. Similarly, “Elizabeth Warren had a huge influence on the presidential election,” but unfortunately for the Massachusetts senator, she “found herself under fire from this large group of crypto voters in a very tough election year.”
But Novogratz noted that Democrats are not monolithic, with many calling for aggressive regulation and consumer protections, including New York Rep. Ritchie Torres and House Democratic Leader Hakeem Jeffries, who both “get that idea.”
Sen. Tom Emmer (R-MN) said yesterday that Congress seems more willing to pass cryptocurrency legislation, but the Senate remains a potential roadblock, but Novogratz said the most important politician right now is Sen. Debbie Stabenow (D-MI), who chairs the Agriculture Committee and also sits on the Finance and Budget Committees and could determine when a vote takes place.
Driving the recent political shift is the massive amount of money being pumped into campaigns and ensuring that cryptocurrency becomes an election issue. Novogratz estimates that $250 million has already been pumped into crypto-focused super PACs, which are “effectively” garnering support for the Republican Party.
“The great thing about the decentralized movement is that it takes an army to get going,” Novogratz said, noting that prominent figures like Coinbase founder Brian Armstrong have been “constantly pushing for reform.” “A lot of people who run companies and have vested interests” have been pushing for reform. “I'd like to think Galaxy is part of it, but we can never take a lot of credit.”
So, assuming a re-empowered crypto industry becomes a real political force, what do we expect to see happen in the world?
Now, assuming Biden reverses his decision to veto Congress’ decision to repeal the Securities and Exchange Commission’s SAB 121 accounting rules, that means many TradFi custodians, such as State Street and Bank of New York, could start taking custody of crypto assets. And they will, Novogratz said.
“Firms like Citi and Jefferies are going to flood into this space. Hopefully there will be a delay so that people like us can have more leverage,” Novogratz added. But baby boomers, who Novogratz calls the richest generation in the history of the planet, with $45 trillion in assets, may not be immediately convinced of the benefits of cryptocurrency. “That's a decade away.”
But the cryptocurrency narrative will continue to persist because “governments can't stop spending money on the left or the right.” “Donald Trump and Joe Biden … normalized wasteful fiscal policies,” he said.
Relatedly, if cryptocurrency's political influence continues to grow, it will likely create pressure to change unfavorable rules. This could be the case for an ETH ETF, which likely won't allow staking of the fund's underlying assets at launch. If enough people invest in ETH, he predicts that “the rules will change to allow staking” within 12 to 24 months of launch.
“It's better to have a yield than not have a yield,” he said.
Then there's the issue of a mountain of pending and expected SEC cases, many of which Novogratz expects will be dismissed due to a confluence of factors including the end of Gensler's term, regulatory uncertainty over market structure (whether tokens are securities or commodities), and concerns about administrative overreach.
“Common sense will prevail,” he said. “I really feel that the attacks on crypto companies over the last three years have been some of the most un-American things I've seen. In my opinion, it's politically motivated and it's not good for the country, and I think most public officials and politicians feel that way too.”
Finally, there are practical considerations for Galaxy: It is listed in Canada and is seeking to list in the U.S. Novogratz explained that the company did not file paperwork during Trump's presidency and has “literally been trying to go public since the beginning of the Gensler-Biden anti-SEC litigation.”
Novogratz explained that it feels like a “long, difficult process” that has cost the company an estimated $25 million is accelerating (and it hasn't been clear until now why so many companies are on a “slow roll”), and offered a cautiously optimistic estimate that Galaxy could enter the U.S. as a publicly traded company by early next year.
“Not having access to the largest capital market in the world was a total disadvantage,” he said. Fortunately, the political backlash against crypto companies has ended.
