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

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.”

Comments

Ramesees overbet Tue, 09/26/2017 - 16:24 Permalink

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. 

In reply to by overbet

TheDude1224 Kotzbomber747 Tue, 09/26/2017 - 17:40 Permalink

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!

In reply to by Kotzbomber747

Ramesees TheDude1224 Tue, 09/26/2017 - 17:45 Permalink

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.

In reply to by TheDude1224

fattail Kotzbomber747 Wed, 09/27/2017 - 07:19 Permalink

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.

In reply to by Kotzbomber747

GodHelpAmerica tmosley Tue, 09/26/2017 - 23:16 Permalink

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.

In reply to by tmosley

OverTheHedge GodHelpAmerica Wed, 09/27/2017 - 01:49 Permalink

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.

In reply to by GodHelpAmerica

SybilDefense tmosley Wed, 09/27/2017 - 08:39 Permalink

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

In reply to by tmosley

Ramesees The Forecast C… Tue, 09/26/2017 - 17:41 Permalink

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.

In reply to by The Forecast C…

cro_maat Ramesees Tue, 09/26/2017 - 16:55 Permalink

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.

In reply to by Ramesees

oDumbo cro_maat Tue, 09/26/2017 - 17:34 Permalink

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.        

In reply to by cro_maat