How One Trader Made Billions With Ethereum, And What He's Doing Next

Tyler Durden's picture

Former Fortress Principal Michael Novogratz left the firm's colossal macro hedge fund almost two years ago, but has been discussing investments in virtual currencies since 2013 when he told a UBS conference...

"Put a little money in Bitcoin...Come back in a few years and it’s going to be worth a lot."

He was of course correct, Bitcoin was trading around $200 at the time and as recently as three weeks ago was worth $5000...

The last time we heard from Novogratz was in June 2017, at the CB Insights Future of Fintech conference in New York, where he told attendees that he has cut holdings (in Bitcoin and Ethereum) after the cryptocurrencies' latest "spectacular run," warning that "Euthereum had likely hit its highs for the year," and "cryptocurrencies were likely the biggest bubble of his lifetime."

However, while this all sounded desperately downbeat, Novogratz was still very "positively constructive" on the space overall. He should be - he has 20% of his net worth invested in the sector... and now, as Bloomberg reports, Mike Novogratz is reinventing himself as the king of bitcoin.

Novogratz has had a very good run. Aside from his epic call in Bitcoin, he has done extremely well in Ethereum, as Bloomberg details...It started with a late-2015 visit to a friend’s startup in Brooklyn.

“I expected to see Joe, a dog and one assistant. Instead I saw 30 dynamic young people crammed in a Bushwick warehouse, coding, talking on the phone, making plans for this revolution,” Novogratz said.

 

“Macro guys are instinctive. My instinct was, ‘I want to buy a chunk of this company.”

 

He decided instead to invest in ether, the cryptocurrency token used on the Ethereum network.

 

Novogratz bought about $500,000 at less than a dollar per ether and left on a vacation to India. By the time he returned a few weeks later, the price had risen more than fivefold. He bought more.

 

Over the course of 2016 and into 2017, as ether surged to almost $400 and bitcoin topped $2,500, Novogratz sold enough to make about $250 million, the biggest haul of any single trade in his career.

 

 

He said he paid tax on the profits, bought a Gulfstream G550 jet and donated an equal amount to a philanthropic project for criminal justice reform.

Novogratz was hooked, and according to a person familiar with his plans, Bloomberg reports that the outspoken macro manager is starting a $500 million hedge fund to invest in cryptocurrencies, initial coin offerings and related companies. Novogratz will put up $150 million of his own money and plans to raise $350 million more by January, mainly from family offices, wealthy individuals and fellow hedge fund managers.

“This is going to be the largest bubble of our lifetimes,” Novogratz said.

 

“Prices are going to get way ahead of where they should be. You can make a whole lot of money on the way up, and we plan on it.”

At that size, the Galaxy Digital Assets Fund would be the biggest of its kind and signal a growing acceptance of cryptocurrencies such as bitcoin and ether as legitimate investments.

Where others see volatility and liability, Novogratz, a former Goldman Sachs partner, smells opportunity.

“In a lot of ways, this is a market like any other market,” Novogratz said.

 

“You see the psychology of fear and greed in the charts the same way you’d see it in charts of the Indonesian rupiah or dollar-yen or Treasuries. They’re exaggerated because of less liquidity and because you can’t get short.

“I sold at $5,000 or $4,980,” he said.

 

“Then three weeks later I’m trying to buy it in the low $3,000s. If you’re good at that and you’re a trading junkie, it’s a lot of fun.”

And bubble or not, "Novo" as his friends call him, concluded eloquently on the extreme nature of cryptocurrencies' potential...

“Remember, bubbles happen around things that fundamentally change the way we live,” he said.

 

“The railroad bubble. Railroads really fundamentally changed the way we lived. The internet bubble changed the way we live. When I look forward five, 10 years, the possibilities really get your animal spirits going.”

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cossack55's picture

Good chance you will be a spirit within 10 years

zorba THE GREEK's picture

For every person who makes a whole lot of money there is a whole lot of people who lose their shirts

overbet's picture

There are a lot of crypto bashers on this site that cant see passed their own bias.

Ramesees's picture

Interesting technology, but it's a spec bubble right now based on what it *might* do one day.  

 

As soon as I saw Amazon, I knew brick and mortar retail was dead/changed forever.

That was 2002/3. It took 15 years for that to start to happen, but it's finally happening. Brick and mortar retail as we knew it growing up is dead. It will still exist in some form, but the way we knew it is dead.  

Same thing with crypto - it may take 15-20 years for the real change to come, but it will come.  And it's a change to a lot of stuff - not just money and banking, but investments in companies will be on the blockchain, the internet will be decentralized, not hosted in server farms owned by Google and AWS. Title to cars and real estate will be on blockchain.

 

Crypto is a speculative bubble based on the current usage, but *IF* the technology and usage does come around, it's way, way, way under capitalized. 

The Forecast Calls for Pain's picture

This one won't take more than a few years to unfold, it won't take any 15 years.  Watch for the "spend" when there is actual real usage of the coins.  That's when it's real.

 

TheDude1224's picture

Ugh, this brazen jerkoff is literally rubbing it in people's faces that "Bitcoin" and "Ethereum" are total scams and he is going to wipe people's real wealth out trading this imagniary garbage. When "Bitcoin" and the other "cryptos" get wiped out by governments, there will be a whole lot of death.

On a side note, I still can't believe it's not butter!

Ramesees's picture

How are they going to get wiped out by governments? Maybe China with its Great Firewall can stop them (although I'll bet that they will come around when they see that they can use their advantages to advance China's interests via crypto), but it'll be hard for more or less "free" countries like the US, EU, Canada, Australia, and the better countries in Central and South America to stop it. 

I mean, Russia is going all in on it - the US won't ban because it'll be like a new space race.

playnstocks's picture

Make it a felony to buy sell trade or own it...??

ReZn8r's picture

and then just say fuck you and still trade it.

ergatz's picture

"This is going to be the largest bubble of our lifetimes... "

All because of the Fed. http://wp.me/p4OZ4v-2GY

Kotzbomber747's picture

Can someone please explain me how absolutely NOTHING (a bunch of zeros and ones in the cloud) be a "store of wealth/value?"

americanreality's picture

Would you feel better if these currencies issued some sort of paper receipt that represented the zeros and ones?  Maybe put a picture of a dead person on the front, along with some fancy artwork? 

fattail's picture

Was there something intrinsically valuable in seashells or large stone wheels?  People agreed to use them as a medium of exchange.  I can trade seashells to the rice farmer for a bag of rice.  He can trade the seashellls for some fish.  As long as there is an element of scarcity to the medium of exchange its value will remain stable.  But if confidence waivers then there will be no store of value and we go back to bartering real goods and services.

That's where cryptos have kind of lost me.  There unlimited ability to "fork", and magically, more crypto coins appear.  Software is a deflationary force, and I see no reason why it won't have the same affect on crypto currencies.

fx's picture

“Remember, bubbles happen around things that fundamentally change the way we live,”

 

Uhm, no. I have a hard time to imagine how tulip bulbs were in any way capable to fundamentally change the way of people's lifes

tmosley's picture

That just moves the markets into the anonymous cryptos, and forces current cryptos to adopt anonymity-enhancing features.

GodHelpAmerica's picture

Governments can and will use the equivalent of the NSA--hundreds of billions of your taxpayer money per year--to pay thousands of the best scientists and engineers to ensure you play by their rules and use only the currencies that they control.

You cannot change the primary mode of currency before you change government. Until then, your taxpayer money will be funded to destroy your libertarian ideology.

This remains a play on technology, and with the current establishment in power it has the makings of Orwellian control to facilitate a cashless society--the globalists wet dream.

OverTheHedge's picture

Looking at the charts, this guy sold at the peak, both for bitcoin and for etherium. Clever.

Or, more likely, he caused the drop by flooding the market, as he is the biggest fish in the pond.

This guy can buy to move the market up, sell to drop it down, rinse and repeat, as they say, and all of this is extracting YOUR money. I assume this chap is in George Carlin's club? I know I'm not.

golden kafir's picture

I agree bitcoin still behaves like a stock, therefore a big player could pump it and dump it. also what's with all the downvoters on this thread....?

tmosley's picture

>to pay thousands of the best scientists and engineers

With what? Their increasingly worthless dollars? Don't make me laugh.

SybilDefense's picture

I guess I just don't get it.  If "my" bitcoin is 1010010111001, what's to stop me from buying something w/ coin #1010010111002 if its anonymous?  I could buy a fleet of Yugo's and corner the Lyft market before any of the bitcoin cops caught onto my scam.  Oh wait, there aren't any bitcoin cops... That's the value of bitcoin.

I think I'll stick with dead presidents, embossed on gold and silver coins.  .999% is a number I can wrap my head around more easily

tmosley's picture

Your problem is that you don't bother to learn about a thing before making a decision.

You can choose to stop being stupid.

Ramesees's picture

I hope it doesn't - I hope it happens in 24 months! Significant part of my NW is in crypto. Too much, TBH. Staying up late every night and watching Tokyo and Seoul wake up and start trading to be sure I don't have to dump is not healthy. 

I was buying BTC 30-40 at a time in 2013 during Silkroad. Wish I had just saved it and I'd be fucking retired right now rather than working my ass off, taking care of kids, and watching 20% of my NW on a fucking knife's edge every night.

cheech_wizard's picture

Have you ever seen a down market in your life time?

...and it's gone.

JamesBond's picture

Not many people here remember double digit inflation, unemployment, and interest rrates. I do.

skm343's picture

Zackly. Entries in a computer started by a fictitious guy selling for $4000+? Sure, that's gonna end well. Can you make money? Sure, tulip bulbs went up 600% in the final 6 months.

Oliver Klozoff's picture

This is why I could never be a central banker or a global warming shill, how in hell can you make "billions" on something that doesn't exist?

 

Ranger4564's picture

You don't have to believe in something, you need to know whether other people believe in something, or convince them to believe in something. That's how the crooked half lives.

Oliver Klozoff's picture

I believe we're one solar flare away from the dark ages.

 

fattail's picture

Fear of the unknown, the uncontrollable, our own mortality.  All excellent selling points, and many a fortune has been made ripping off the faithful and the credulous.

chubbyjjfong's picture

Just ask the guys who made billions on e-stocks that essentially didnt exist. Whats the difference? I dont see any difference between cryptos and paper claims to stocks. Its all fucking made up horeshit in the end. Same old shit, different launch pad, thats it.

Games Without Frontiers's picture

Thats a coversation I had about investing with a friend of mine. I asked him what he owned when he bought a stock. He replied a piece of a company. I asked him where that piece was, and I got a blank stare in return. I didn't bother with the lecture on the BIS because....well I would've been talking to myself.

therover's picture

Remember odd/even gas days ?

slightlyskeptical's picture

Huge markdown by the time you sell. Once this turns there will be no one on the other side.

SybilDefense's picture

That's nothing.  My NW is in miners.  Ive lost 100's of 1000's for no appearant reason except the manipulates wanted it more.  I'd be lucky to have a technical indicator to watch all night that actually had an cause and effect impact.

For example:  H Bomb explodes over Japan = Gold goes down $18.00

WTF

AlexCharting's picture

Cant someone please ICO classic bitcoin, official bitcoin, certified bitcoin, bitcoinn, bittcoin, and bitcooin.... just to be a dick

garypaul's picture

So how do you use a "coin" that might triple tomorrow, or be cut in half tomorrow?

chubbyjjfong's picture

Same as you do with venezualan money, or Chinese Yuan just before they devalue again. Easy.

The Forecast Calls for Pain's picture

This one won't take more than a few years to unfold, it won't take any 15 years.  Watch for the "spend" when there is actual real usage of the coins.  That's when it's real.

 

Peak Finance's picture

Not exactly sure what you mean by the "Spend"

I can use my bitcoins, ETH & LTC literally anywhere that takes debt cards.

I think you might be a bit behind the curve here

cro_maat's picture

The blockchain will disintermediate the entire global financial system and we will see significant disruption in 3-5 years maybe sooner.

There was a WSJ article recently that stated that AI will cause 30% of Wall Street to be laid off in 3 years. They were right about the layoffs but it won't be AI but the blockchain and smart contracts.

I have recruiters still trying to get me back in the legacy finance industry but I have no interest in institutionalized fraud that creates NOTHING (except Ponzi schemes). My last boss made over $250k per year. I could write a smart contract on a blockchain that would eliminate his job completely and make his reports more accurate and more timely.

oDumbo's picture

Is it lost on everyone that this guy "cashed out" much if not most of his bitcoin / ether winnings into hard currency in order to buy boats, houses and start a new hedge fund?  He won.  He cashed his chips into actual currency and assets.  Who paid for his big score?  You, me and other dumb animals chasing him off a cliff.  Of course, he stopped short.        

post turtle saver's picture

"It's not money until you sell it."

Now we know which is the commodity and which is considered "money"

JamesBond's picture

The article doesn’t,t mention HOW he converted those coins into so much cash. I,m interested in how that transaction was completed or he he buy a plane with coins? Is so, which company accepted them?

wafm's picture

these guys have their own channels, not like what is accessible to you or the average joe... no disrespect meant

BallAndChained's picture

tmosley was pumping day and night to make this guy a Billionaire.

Definition of Stooge:

a person who serves merely to support or assist others, particularly in doing unpleasant work.
Golden Phoenix's picture

We got us a 5 weeker who doesn't remember when people were savaged for telling ZH members they should buy at $200 just like the guy in the story did. Same shit, different day.

malek's picture

Same shit different day survivorship bias bullshit comparison:

How many other things were ZH members told to buy, by "helpful" commentators, that didn't turn out so swell?

Golden Phoenix's picture

People who hate winners plan to be losers by definition. Be careful what you plan.

malek's picture

A blockchain has absolutely nothing to do with AI.