While the first installment addressed the economic fallout from COVID-19, this part will focus on the role of what Novogratz describes as inflation hedges during the economic recession, in particular Bitcoin and gold.
Novogratz, a former hedge fund trader, sees the world through the lens of a macro economic investor, which could be one of his secret weapons. According to him, “every portfolio needs to have inflation hedges” considering there is “money in essence growing on trees.”
“We are entering a really unstable period. It’s not going to be two weeks that it lasts, it’s going to be years. I think gold and Bitcoin are setting themselves up for a multi-year bull market and quite frankly, the feeling that it’s imperative they’re part of portfolios is growing,” said Novogratz on the call.
And while gold has “won the idea as a store of value,” for reasons ranging from the fact that you can wear it or physically store total supply in a couple of Olympic-sized swimming pools, there may be a new sheriff in town — or at least a new deputy.
Novogratz owns some gold. But he also has more than 10% of his portfolio in Bitcoin, and there’s a good reason for that. He explained,
“Having part of your portfolio in gold makes sense to me. I think what is unique about Bitcoin relative to gold is that you’re getting the hard-asset story but you’re getting it really early on in its life cycle.”
Bitcoin, by way of comparison to its rival store-of-value asset, has only been around for a little over a decade. Its history is a spec of dust compared to gold’s 3,000-year track record. And that’s the beauty of the digital asset. Novogratz explained,
If Bitcoin were already as mature as gold, you wouldn’t have a chance to buy it at these prices — at a $150 billion market cap and not $10 trillion.
While the nascent nature of bitcoin serves as one of its greatest strengths, it could also be its biggest weakness when it comes to regulation. History may not be kind to the way that regulators have thus far treated the cryptocurrency community. But governments around the world are beginning to embrace the idea of a digital currency, including the PBoC and Federal Reserve, all of which bodes well for cryptocurrency adoption.
“We’re in this transition now where at the same time we move from fiat to digital, we’re debasing fiat. So both of those rays are drivers for Bitcoin adoption,” said Novogratz.
One hurdle to Bitcoin adoption, he explained, has been that buying it is not as easy as calling up your broker and putting in an order. But with mobile apps like Robinhood, Square’s Cash App and even Facebook Messenger entering the fray —, in addition to native cryptocurrency platforms — the infrastructure is only getting stronger.
And while the flagship cryptocurrency may have its risks, it is off to a running start.
“I’d step back and say it’s the most unique and awesome experiment of the last 20 years. In 11 years, as a brand, as a social construct and store of value, Bitcoin is now owned by over 100 million people in every country across the world,” said Novogratz, adding that even if everyone in the giant army doesn’t own a full BTC, they own a piece of one.
Galaxy Digital also boasts a Bitcoin fund that they’ve designed for easy access, good liquidity and low fees using familiar brands such as Fidelity and the ICE to custody the funds, Bloomberg for pricing and E&Y for auditing, which should “give investors comfort.” For those who are interested, the minimum investment is $25K.
There was a proverbial fire under the Galaxy Digital chief’s feet for investors to move on Bitcoin sooner then later, before the herd — comprised of major hedge funds, endowments, and investment advisors — arrives. And from the evidence Novogratz is seeing, that herd is already on its way.