The following transcript is taken from episode twenty of The Scoop, The Block’s first podcast. Listen below and subscribe to The Scoop on Apple, Spotify, Google Play, Stitcher, or wherever you listen to podcasts. Email feedback and revision requests to [email protected]. This transcript has been edited for clarity and length.
Frank Chaparro Ladies and gentlemen thank you for tuning into what is a very special episode of The Scoop. I'm joined by Galaxy Digital CEO, Mike Novogratz. Mike might be the first guest to appear on The Scoop who really needs no introduction but I like to hear myself talk so I'm going to do so anyway. The hedge funder turned crypto advocate leads as I said Galaxy Digital an investment and trading firm based here in New York. Prior to falling down the crypto rabbit hole, Mike spent time at Goldman Sachs and Fortress and then again got gripped by the bitcoin bug. He founded and then decided to start a company. Originally a hedge fund and then that sort of transformed if you will I guess into what reports described as a merchant bank akin to investment banks like Goldman Sachs and recently you actually retweeted someone who said Galaxy is the Goldman of the crypto space and you said let's let's change the subject. I assume you didn't like the comparison. You've also compared it to Drexel but that raises an interesting question which is my first question, what is Galaxy Digital and what's its role in the market. Walk us through how that's changed and it's changed a bit since 2017.
Mike Novogratz The original thought when I talked about Drexel was like Drexel help credentialize the entire junk bond space or high yield space -- it didn't exist before them. And I thought what's our role? It's to help credentialize this space. That's where Drexel... Of course a bunch of my IR people were like, you can't compare us to Drexel.
Frank Chaparro Why is that?
Mike Novogratz Well because Drexel went bankrupt and Mike Milken spent spent time in jail.
Frank Chaparro Well hopefully Galaxy isn't...
Mike Novogratz What's interesting is when you look at the talent that was at Drexel I mean it's shocking from Leon Black at Apollo and the talent that left that place and went on to really help transform finance and Wall Street. And then Mike Milken had an amazing comeback himself and as one of the leading conference guys, leading philanthropist, leading thinkers and has an army of people that he influences and so thank God for second chances. So that was the idea with Galaxy. Let's be a credentializer. And so, Merchant Bank, why Merchant Bank? Because we invest a lot of our own capital in projects, in infrastructure projects, in protocols, in businesses and I thought early on in a nascent industry -- it's hard for me to go raise capital for your project and people say, well dude, you put money in? Oh no no I'm I putting money in but you should. It just doesn't work in an early on industry and so we have to eat our own cooking in some ways. I'm not going to ask you to invest in a project if I'm not investing in it myself or our company's not investing in it. That was the hint that -- the idea of Merchant Bank and so Galaxy now really is three or four businesses we have a trading business, an OTC and electronic trading business -- we want to be in the center of liquidity.
Frank Chaparro It was great to see a lot of the familiar faces that I've read about: Josh Lim, David Gross. Yoshi.
Mike Novogratz Yeah, so listen back in 2017 I remember at one point in 16 or 17 I think I was Circle's biggest client and I was like wait a minute, why am I paying them for the bid-ask spread? But I was too lazy. Then we thought about this and said okay let's build a desk? The margins were much better in 2016-2017. And there's so many people in and around Bitcoin liquidity that bitcoin margins have come way down. We're taking a longer term view of it. We're building a desk to provide liquidity for people: for high net worth customers, for institutional customers for competitors. And that's...
Frank Chaparro That's one business.
Mike Novogratz That's one business, that's trading. We have an advisory business...
Frank Chaparro That's the one that's kind of changed the most. Becuse it started out as an ICO advisory and now we're looking at larger clients? I've done some of my own analysis, I think it's right but I've been wrong in this podcast before. I think in 2018 you did $1 million (just about) in advisory fees. If it's not ICO's, who are you advising and what are you advising them on?
Mike Novogratz So there's a few different type of businesses that we've looked at helping raise capital for a mining project or for new venture businesses so there can be a capital raising. There could be merger activity and then there's what will be the SCO business -- the security coin offering business. We're working on a really large real estate transaction that if it got done would be a big big deal for the whole space. From here to there is always a long walk.
Frank Chaparro Especially with STO's. We've seen a lot of these deals just fall apart even after being announced.
Mike Novogratz We'll see. I don't want to jinx myself but the interesting thing about an advisory business is, we have I think eight people in it. We brought in Ian Taylor from Goldman Sach's. He's a rock star. He's now 10 months into the game, has learned crypto. The first thing you've got to teach your guy is in each vertical, to be experts. Right. I can't come in as your banker and not know more than you do. You've got to develop a lot of domain expertise -- one person knows mining as well as anybody on the planet. In each space you've got to develop domain expertise. And then you also have to wait till the industry is ready for the regulatory environment to show up. It's not a wildly high cost business. It's just human capital, there's not a lot of tech behind it as opposed to the trading business which is a high cost business. One or two transactions can pay for the.... The the revenue will be lumpy when it comes. But I'm looking at this as a three year project, not a three month project. If it doesn't come within three years maybe I'll wave the white flag. And then there's asset management and asset management has been frustrating for us in that we start off with one great piece of business, we manage $300 million dollars for Block One in a venture fund. That's a great fund, it's doing mostly E-Sports, gaming and I think that'll be a great fund. Sam Englebardt is running that fund for us. Then we said OK what's our next piece? Well because we invest the proprietary trading and a lot of our venture off our balance sheet, we said OK let's use asset management to do scalable things. We came up with this bitcoin Bloomberg crypto index which felt like a really good idea at the time. Bloomberg helping credentialize the space -- it's really the first institutional quality index where you had the right service providers. But it was a bear market and people didn't want to participate in the index and what I didn't get then and I get now is this is a new product for institutions and so by definition they're nervous. Institutions don't like to be investors -- they'd like to be allocators. It's easier for Harvard's endowment fund to allocate capital to Paradigm or Polychain than to actually just go buy Bitcoin themselves so in some weird way they're paying 1 and a half in 20 or 2 in 20 for people to be long in their beta because they say you take care of the risk. You're only investing cause you think it's going up, right? But because we're so early on, these guys want to have that arm's length.
Frank Chaparro So there's a unique struggle to sort of find people who would be willing to allocate capital as some of the fund structures that you have, at least at this point?
Mike Novogratz Well because the fund that would be easier to raise would be what we do on our balance sheet, which is... we buy and sell coins, we can short, we get long and we have a big venture portfolio. Paradigm, Polychain, Pantera: they all do that in a fund structure. We were looking at our asset management to do kind of much more scalable things, we thought the index would be a scalable product. It has been a difficult slog there because a) it was constructed, if you think about...
Frank Chaparro There are a few other indexes out there...
Mike Novogratz If you think about the macro narrative in the last 14 months it's Bitcoin Bitcoin and Bitcoin. Bitcoin outperformed index by 150% this year and so it's a staggering macro trend. The other piece was retail, right? Give Barry Silbert tons of credit that he got this bitcoin trust thing up and running before the regulators said no one else can do it. He has a kind of quasi-monopoly on this quasi ETF. He's done a great job, that's a great product, a great asset management product. I'm envious. We're working at new ways to tap into those channels but it hasn't that's been a frustrating business for us.
Frank Chaparro There was talk of a debt fund that you guys were thinking of raising
Mike Novogratz We went out. We do debt off our balance sheet and we've been really successful at it. We went out and tested the waters and the market is just not ready yet. When I think back on it -- the thesis was well this is kind of a half step for institutional investors. It's not based and in a lot of ways the thesis was pretty simple: we think we can get mid-teens returns on the same type risk that you'd be getting 6 or 7% for if it didn't have crypto associated with it. That's why I thought it's a great business. I still think it's one, it's your first allocation to crypto. It's like just put me in a fund that buys Bitcoin and a few venture things. I do think sometime in the future -- a year or two years there'll be appetite for a crypto lending fund.
Frank Chaparro It's interesting that you mentioned looking at Bitcoin in the macro environment there's been lots of talk about whether or not in the face of a recession if it's a safe haven asset. But if you look at the volatility against gold which is traditionally thought of as being a safe haven asset or even Japanese yen or won which traditionally had been the safe haven assets. It's just way too volatile from my perspective.
Mike Novogratz We are early. We're still in elementary school as an industry. When you think about it, bitcoin is 10 years old, Ethereum is what? 4 years old. Gold is 3,000 years old and while I fundamentally believe bitcoin is going to supplement people's gold allocation, right? If you think of it bitcoin is digital gold, more and more people are buying into that
Frank Chaparro Sure and like maybe over the next 10 years that shift will happen. I think it could accelerate, one way to think about all of these coins was that until there's a huge underlying economy which you don't have yet because the technology is still being built in almost everything other than Bitcoin. They're all speculative just like gold is speculative and so what I mean by speculative -- you need more people to buy to get the price to go up. And we're not generating any real business, we're buying it to hold it because we think it's going to go up. In some ways it's like a viral marketing scheme. What's promising about Bitcoin is you can draw a circle and say, who are the cheerleaders? I can kind of off the top my head name 15 billionaires that made their money something not in bitcoin not in crypto, that made their money in other parts of the financial world -- [...] or [...] or Pete Briger or Abby Johnson or Bill Miller that are big advocates of Bitcoin. You're getting a bigger and bigger cheerleading team that has influence. You're also creating more and more ways, easier ways for people to buy into Bitcoin. I think that train is working, it's not going to go straight up -- we went up from 3,000 to 14,000. I got criticized on Twitter for saying I should have sold more because I should have sold more and then I sold some and then I bought some back and I think we're going to consolidate around here for a while and the next leg is gonna be a big leg higher.
Frank Chaparro It's interesting because I feel like Galaxy if you go back to 2017 and some of the things that you said or focused on back then it seemed like the focus was centralized or was focused around gaming, whether it was EOS or token economics as opposed to Bitcoin being the kingpin and being what's going to drive us forward...
Mike Novogratz My philanthropy is funded, my lifestyle is funded in lots of ways. All the fun extra stuff from the Ethereum trade. I bought a lot of Ethereum when it was 1 and 5 and 10 and I sold it from 350 to 1,350. We were Ethereum and EOS, I made lots of money on EOS -- we managed money for them and so as a trader...
Frank Chaparro It's not just you though, I mean the market overall is...
Mike Novogratz As a trader and speculator you go where the energy is, right? Your long term venture portfolio goes where the long term world is gonna go but your speculative portfolio and your trading portfolio and the energy of the month goes to where the energy is. The energy all shifted to Bitcoin, partly and it's funny there's been a group of people that helped shape this narrative. The narrative being, Bitcoin is kind of a finished product it's hard to change, it's digital gold. Where we've got to get to Ethereum too, we're 3-5 years away from these blockchain's really being scalable and buildable in an economy changing way.
Frank Chaparro Especially in a way where you can convince investors, especially traditional investors to allocate any sort of meaningful capital to it.
Mike Novogratz And so in some ways Bitcoin is just ahead of the adoption curve and I think it'll remain that way for at least the next 12 months or if not longer. What's frustrating about crypto is when you try to explain it to my mother, it's not one story, right? It's it's 3 or 4 stories. Bitcoin's got it's own story then Web 3.0, it's got a story that tokenization of everything has a story. The focus on gaming is a good one because that will probably be the first area where you see adoption and you're seeing it already. I have a terrible memory for the game we're invested in but it's the number 2 use case on ethereum network right now. Only behind the DeFi stuff. I do think that business is going to be exciting and that might be the first place we see how a decentralized blockchain based economy works.
Frank Chaparro Is there a business you think that you have the biggest interest in, in terms of you whether you're a... I have to deal a lot with a micromanagement on the part of my CEO. Do you think you're a micromanager sometimes? Is there one particular business that you have your hands in?
Mike Novogratz I run the trading risk, not the day to day trading risk but the macro risk. When I wanted to short XRP token against the bitcoin portfolio... I've got a bunch of smart guys I talk to for ideas and whatnot but I make those decisions: when to double up on bitcoin, when to sell, I've done speculative trading for 25 odd years. I think that's one of my advantages or edges and one of our firm's edges is that I came from a macro world and I was pretty good at it. This is just trading macro in lots of ways.
Frank Chaparro Sure. In a lot of ways you can plug and play those same skills in.
Mike Novogratz What macro guys learn in some cold way is not to be too emotional. It's just another chart. And I just remember in 2017 I would tell my guys to sell and they wouldn't want to sell. No we can't sell and I'm like dude it's my money, sell. But so many of my friends in the crypto space, they would just... this was a revolution to them, it was religion to them. They just couldn't get themselves to sell and if we've done anything well it's not just buying -- we've sold. Even this year I had a seed stake investment in Cosmos, great project everyone's telling me and they're raving about Cosmos. I just realized hey I bought it when Ethereum was 40 or something and when Cosmos came out Ethereum was only trading at 120 or so that would make 3x and I made like 50x on my Cosmos and I was like ah let's just sell it all and we didn't pick the highs but it's 50% of where we sold it now and I was like guys these market caps on these new protocols that we come out with which are so exciting have a really hard time lasting because they don't have that same 20 cheerleaders that bitcoin does. They've got 1 or 2 or 3 or 4 whose voices dwindle and they have guys that all of a sudden on paper seem to be really really rich and they're like I just need to sell my coins. I'm really skeptical.
Frank Chaparro And a lot of them are pretty strange.
Mike Novogratz I'm really skeptical at a lot of these big new protocol launches because they don't have anyone in the box yet. You've got to get developers in the box. You've got to get constantly... Putting people in the box is hard.
Frank Chaparro How do you get
Mike Novogratz In the box?
Mike Novogratz Well we get in early because a part of being a speculator is you're sensing well what's going to have some excitement for a while? But how do you get them to stay in the box? You've got to build real business. I'm really fascinated to watch Telegram because Telegram's 280 million customers and so we'll see what they come out with and how quick people adopt. They're TON token but I think trading is going to be interesting in it because most people that have been in crypto -- if you think about when they made the Telegram investment which would have been January of 17'. Everything is down somewhere between 40 and...
Frank Chaparro Did you get in?
Mike Novogratz No I didn't. I tried to get in late. All my guys hated it. The white paper sucked and I woke up one day and I was like wait a minute what am I talking about? They've got a world class CEO. They have 225 million customers at that point and who cares about the white paper, all of this stuff is open source, you can just copy and paste someone else's white paper. I called [...] and we did a long call and I was like dude, I know you've closed the first round, the first round was $.37 cents. The second round was a buck and a quarter. That seemed bizarre. I was like hold on, your company is worth 4x. A week later, no. That just doesn't work. Well there's different liquidity, I don't care. I was going to write a giant check on behalf of myself and a big customer.
Frank Chaparro It's really interesting because a lot of the even big ticket investors, the ones that I talked to at least, couldn't get on the phone with these guys. It was very secretive around launch.
Mike Novogratz Well and they had they had called 15-20 times to try to get me. And I said no no my guys hate it and then I changed my mind and I changed my mind about three weeks too late and he's like dude I can't help you. I was like, it's funny it was the first time the crypto industry was growing up a little bit because all the other deals you could always get yourself in, even when they were closed because you had a good name or they wanted you on their cap table. The guy was like I got Benchmark and they're not going to let someone in after the rounds closed and we're already raising a second round. He said but I'll gladly give you a lot of the second round.
Frank Chaparro When you think about the deal flow that's coming in. I think in traditional Silicon Valley venture capital you always have three big firms or five big firms that can basically get in on any deal that they want and in crypto you're kind of seeing the same thing play out whether it's Paradigm which has launched fairly recently and then obviously some of the bigger ones like Pantera, Union Square Ventures.
Mike Novogratz I think Paradigm is now the biggest fund out there.
Frank Chaparro I think they manage $400 million.
Mike Novogratz No, the year they started bitcoin was at 3,000.
Frank Chaparro Pantera's at about $600 million
Mike Novogratz I bet you Paradigm's over a billion dollars. I bet you Polychain's over a billion dollars. I don't know but if you call them I bet you could find out.
Frank Chaparro That would be a great scoop. When you look at that landscape I mean these are serious players and really impressive investors. How do you as you kind of alluded to elbow your way in but actually get on the deal that you want to get in?
Mike Novogratz . It's interesting. you got to be value added but you have to have the money and then you have to be value added. We're gonna start a San Francisco office.
Mike Novogratz We have a job offer to somebody I think he accepted. Soon the locus of a lot of the space has moved back to San Francisco.
Frank Chaparro And that's how you're going to get better deal flow.
Mike Novogratz We're still getting good deal flow now.
Frank Chaparro You think so relative to some of the firms we mentioned?
Mike Novogratz Yeah but I think being in San Francisco will help as well and then aligning with... I mean we're friends with most people in this space... And so...
Frank Chaparro Emphasis on most. There's still some.
Mike Novogratz If you're a merchant bank and you want to provide service to customers, being close to your customer helps. I want to do the trading for Pantera and Polychain and the rest of the guys.
Frank Chaparro Now that makes a lot of sense. It's funny, New York Stock Exchange did something similar. They realized they weren't getting some of these tech IPO's so they also opened up a San Francisco office. It's a great way to break in and get new businesses, is going where the businesses are. Goldman's doing something similar to get mid, those mid tier investment banking deals are going to cities like Houston or Salt Lake City. So it makes a lot of sense. Speaking of Goldman just since I randomly brought it up and you were there. The New Yorker article about you that was really interesting describing the brutal, what they called up and out culture at Goldman -- do you think that when you think about your time, obviously it was a tough exit for you. How does that inform the business you lead now and what's the culture like at Galaxy? Is it brutal, up or out?
Mike Novogratz It's not as brutal up or out as people think. Goldman's got an amazing culture it's a cult and it's a cult in that people, they hire the best and the brightest and people grade themselves on how their bosses think about them. And so that creates this very strange bubble like the guys there think those are the only really important people and great businesses are cults in lots of ways -- they retain and nurture unbelievable amounts of talent at that place. Someone called me yesterday, there's a bunch of departures, like oh my God is it the end of Goldman? It's been around for 130 years and it's going to continue to be around and they literally, I just see the talent they suck in every year. You do need to push the older guys out at one point. Listen this is a younger industry and it's a newer and more entrepreneurial industry. if we've made some mistakes it's not pivoting fast enough, it's being a little too slow. This is kind of half startup and half Wall Street firm. No matter where you are in our space not just because it's Galaxy. I think we're going to have to be a lot more flexible than Goldman needs to be.
Frank Chaparro Would you describe Galaxy as a cult? I mean there is the tinted blue entrance and you have to call to get up, there's a level of mystique
Mike Novogratz There was the non crypto related security threat unfortunately about a year ago and it got instituted, I'm like OK so the threats over open the elevator's back up. my lawyers and my insistence they just feel much safer...
Frank Chaparro Not having to worry about journalists sneaking in finding out something they shouldn't
Frank Chaparro Speaking of culture, we reported in November almost a year ago now. So time to sort of sit on it and think about and reflect on what's changed here at the firm but you had Michael Maloney, Richard Tavoso, David Namdar, Jason Raziano all sort of leave around the same time in November. Was there an inflection point or something that happened at that time?
Mike Novogratz Listen putting a business together and a management team together that all clicks is challenging. We went from 8 employees a year earlier to we're 82 at today and growing that fast is hard. And so getting the right personalities. Guys that want to do it for me. Like one of the advantages of being 54 and I have already made a whole bunch of money is like...
Frank Chaparro You get to stay out late into the evening.
Mike Novogratz There's less of that anxiety of we gotta do it, right? I don't need you to work for me I need you to work in the job if you think it's the right job for you. And so I spent a lot of time people say I owe it to you -- no one owes me anything. I'm doing just fine, I got four kids, a big house and so.
Frank Chaparro Robert DeNiro's house, right?
Mike Novogratz I want people to be in jobs where they can be self actualized. And when you're growing a firm there's not the right seat for everybody and so you, either people realize on their own or you usher them out and try to get people in the right seats. What's hard is I started with this, the overall economy of our space isn't growing that fast right. If you just think of the amount of businesses that are, business getting done. I talked about the bid ask spread coming down and trading in volumes coming down even though we're getting more more market share, it's still a mediocre business and quite frankly it's a mediocre business at DRW and at Circle and all the other places where it was a great business 18 months ago.
Frank Chaparro Oh yeah and they've seen their fair amount of, their fair share of executive turnover.
Mike Novogratz Because say I'm not going to make as much money as I used to make because I had this inflated sense of self-importance because you're making this money and maybe we're just lucky to be in the seat.
Frank Chaparro Well this is a great point to sort of focus in on that and explore how Galaxy might approach that space differently. Despite fee compression and despite maybe the lack of new counterparties coming into the market which is my sense, we're kind of still dealing with the same family offices, crypto hedge funds, maybe there's a DE Shaw that's kicking the tires on some things but it's really mostly the same folks. And the fees are compressing. How do you operate in that landscape?
Mike Novogratz You try to grow market share, you try to provide service to clients, listen the money you're not making is not going to be trading Bitcoin per se but it's, there are liquids they need. You have a new issue business at one point and you tighten your belt a little bit.
Frank Chaparro Options, you guys are writing options for certain clients?
Mike Novogratz Yeah. I think the derivative market will show up at one point and so I usually write that out of my own proprietary book just to try to provide liquidity. It's taking a longer view of this thing. Listen. You have to be honest with your employees. People have to know this is the bet they're making as well, right? I don't, if you're a 34 year old trader who's at that meat of their career you've got to look at yourself and say is this the right seat for me? Because it might not. That giant inflection might not be two or three years. And so people came in 16-17 not just to Galaxy, everywhere, thinking this is the new revolution and crypto is going to explode and make tons of money. And there's a much more sober outlook I think and how long it takes to grow businesses. Peloton is going to go public this week and everyone's like Oh my God what a great story it's going to go public at $7 or $8 billion dollars right. And everyone wants to be the next Peloton. I was looking like I invested in day one. That was like seven eight years ago. It takes a long time to grow great businesses. Even the homerun unicorns and so we're not even 18 months old. But the crypto space really isn't, if you really want to think about the crypto space forget the early bitcoins and the Ethereum at $1 dollar, it started in kind of earnest in 2016. So we're three years old as an industry
Frank Chaparro And galaxy is 18 months old. What do you think when you hearken back might be the biggest mistake you've made from a business perspective tunning Galaxy?
Mike Novogratz I don't think going public was a mistake per se but I was bearish in the market and I raised capital anyway because I thought permanent capital would give us an advantage. And that I could hedge out my bearishness and we did that brilliantly really for the first 60% down in 18. We were up on the year and the market was collapsed
Frank Chaparro You think you could ever bring Galaxy private again.
Mike Novogratz Our plan isn't that but listen you never take options off the table if right now we're in a market with almost no liquidity so our stock price doesn't necessarily represent much. We trade sometimes below book, at book giving us zero enterprise value and that doesn't make a lot of sense to me because I think we're building a pretty cool enterprise. And so at one point if you're stocks are so cheap you just keep buying it back yourself. Company announced a few days ago that you have the right or the option to buy stock when we want. But I would rather us tell the story better up in Canada and abroad because we have a hard time telling it in the US because we're not based here in the US even though we are based here in the US but not from a regulatory perspective.
Frank Chaparro We'll put out the episode in Canada.
Mike Novogratz To try to shift from the TSX V which is a Venture Exchange to the big board up there which will help tell the story because I would far rather have public capital markets to fund the growth of this business and actually fund our balance sheet. My one real frustration this year is we were really bullish bitcoin at 4,000. And because the public capital markets were closed we couldn't get any more money into the company to buy more stuff. If capital markets were open you wouldn't raise more capital you'd put it to work in your proprietary business at least which is the business that's generating all the revenue. The other businesses are grinding along. And that was always the plan. You're subsidizing these growth businesses and over time those businesses are making lots of real money and you get a big enterprise multiple. I just think it could take longer than we had hoped.
Frank Chaparro It's interesting. Do you ever anticipate bringing the firm public in the States?
Mike Novogratz Yeah I do. Actually I think. You say do you make mistakes or not? In some ways knowing how tough the bear market was it might have been smarter to stay private. Keep building the business and go public on Nasdaq at one point. Why do we pick Canada? Because Canada lets you go public on a business plan on the Venture Exchange and we had a business plan and eight employees. We raised money at a decent evaluation. Now we thought we had. We thought the enterprise would be easy. My arbitrage trading business was making a fortune and then it shut down like everyone shut down because chain street and Susquehanna and all the other smart guys said free money and then free money went away. And so just on the simple calculation of how our trading business was doing in the old ICO business and just buying ICOs and flipping it was just a profitable business. At least we'll make that much in revenue. That's the big mistake. Bear markets are so much more painful than you think. And even if you can trade them well all the businesses disappear. So the Mike Maloney business disappeared. That was the miscalculation was too cute by half. Were bearish we'll get short but we're still going to build businesses which oh they just disappeared.
Frank Chaparro So now we're into a bull market.
Mike Novogratz We're not in a bull market, we're in a grind. We're in a bull market in bitcoin and we're in a recovering grinding market in the economy.
Frank Chaparro So what does that mean for Galaxy?
Mike Novogratz It means that we need to trade smart. Luckily we have a real big balance sheet and lots of money. We don't want to burn that money. Like you want to burn the chairs around your kitchen table but you want to run the business as tight as you can until you see that inflection point. And so it probably means bonuses aren't as good as everyone thinks they're going to be. You can't fund your operating business just because you have a good proprietary year, you got to have businesses actually rationalize so they can make money over time.
Frank Chaparro Do you think the advisory business will be, I mean if we anticipate or at least I anticipate a wave of consolidation and mergers in the crypto market especially among some of these exchanges I mean you'll look at...
Mike Novogratz I think the advisory business is a great cheap option on this space. The guy said it's not that expensive it's just human capital. It doesn't have a tech component to it. We have great access. We get in most rooms and so you don't need a bunch of deals before it's a profitable business. And you could foresee, if you do one big real estate token. There are 19 other people that are going to line up to do it. So listen how do you do a real estate token? There's all kinds of regulatory hurdles and whatnot but once you get it done you're going to sell to real estate buyers you're not going to sell it to crypto guys.
Frank Chaparro Yeah. That's the thing though right. Why are these real estate folks traditionally older? Why are they going to want it.
Mike Novogratz Because quite frankly it's going to look like the same thing they're just buying great real estate assets in a world where yield has gone to hell in a handbasket right where the 10 year yield is one and a half percent. If you can show someone a 7 1/2 percent piece of paper with great assets underlying it.
Frank Chaparro Much better than liquidity.
Mike Novogratz And saying unlike private placement there is an option at least on liquidity and transferability is easier in time. It's a decent sales story but you're not selling it to Paradigm
Frank Chaparro What do they know about investing in real estate?
Mike Novogratz You're selling it to people that buy triple net lease real estate or whatever type real estate you're you're selling.
Frank Chaparro We'll see, I think it definitely is gonna take a bit of time, maybe a year.
Mike Novogratz It's somewhat deal specific. You get the right deal and you get the right buyers. These things go in big chunks as well. When you look at how that private placement work market works. While it's not the classic tokenization of everything it's a start right. When you think tokenization, everything you think, OK we're going to it's just a bunch of B.S. No it's not like I'm looking at three different businesses to either buy in the Galaxy or in the family office that have lots of assets that