In an interview with Bloomberg, Mike Novogratz, the founder and chief executive of Galaxy Digital and a former partner at Goldman Sachs, reiterated the bullish case for Bitcoin (BTC) on the back of institutional money flowing into cryptoassets.
Novogratz reckons bitcoin could hit $8,000 this year as the hot speculative money in the weak hands of consumers gives way to institutions.
By way of example of that, the former hedge fund manager mentioned the $29 billion Yale Endowment, the second-largest college endowment in the US, as one such institution that has already dipped its toes in to the crypto waters.
“Where Yale goes, people follow,” said Novogratz.
Just two days ago Anthony Pompliano of Morgan Creek Digital announced that two pension funds – Fairfax County’s Police Officer’s Retirement System and Employees’ Retirement System – were investing in its new $40 million venture fund.
Asked where he thought the crypto market was headed from here, Novogratz commented: “In the last year you realised just how painful bubbles can be.”
That pain is witnessed in the forcing out of the speculative retail money almost as quickly as it entered.
“All the retail frenzy washed out in the process of handing off ownership from the people’s revolution – from retail to the institutions,” Novogratz explained.
The on-ramps that are a necessary precondition of institutional entry are being put in place, Novogratz believes.
In particular he thinks the custody solutions from Fidelity, one of the world’s biggest fund managers and Bakkt from New York Stock Exchange owner, Intercontinental Exchange, will be key developments that will be coming on stream over the next month or two.
“Fidelity has got 200-300 customers lining up,” noted Novogratz.
A previous report in Bloomberg quoted sources at the asset manager pencilling a lunch date in March for Fidelity Digital Assets.
“All the architecture that institutions need to feel comfortable with this is being put in place.”
Is this the bottom for Bitcoin (BTC)?
So is it time to follow the smart money and start accumulating at these levels?
While allowing for the possibility that bitcoin could still fall lower from here, he said “$3400-600 feels like we are grinding along at the bottom.”
So what’s the uplift for the rest of the year, asked the interviewer. “Going to grind back up. Could you go to $8,000? Of course you could,” Novogratz replied.
Novogratz revisited his contention that bitcoin is digital gold, and in so doing emphasised that the digital currency was likely to become even more differentiated from the rest of the crypto pack on the basis that not everything can be a store of value.
“In the next run-up you’re going to separate bitcoin from a lot of the other cryptocurrencies. There are 118 elements on the periodic table and only one – gold – is valuable because it’s store of value.”
He continued: “Bitcoin is going to be digital gold, a place where you have sovereign money.”
Explaining his rationale, Novogratz says that not everything needs to be as secure as bitcoin. If you are moving millions of dollars security matters as opposed to buying a pair of digital glasses for a dollar.
Asking himself the same question that many critics raise, namely that bitcoin is slow and expensive, the interviewer jumped in: “Yeah what about that? It’s slow.”
By way of rebuttal, Novogratz replied: “Have you ever been to Fort Knox? [gold is] surrounded by guns and tanks, stored in deep vaults.”
In other words it is not that easy to move around, so you could call it “slow”, but it is trusted and secure.
What Novogratz is getting, then, is that bitcoin’s proof-of-work might be “expensive” – or “wasteful” as the critics would have it – but that’s what makes it so secure. Despite all the disingenuous scare stories in the mainstream media, the bitcoin protocol has never been hacked.
Alternative consensus systems such as proof-of-stake may forgo the cost of mining to verify blocks but some would argue that necessarily comes at the cost of security. Then again, running digital goods marketplaces on a blockchain is not require the same security levels for transferring millions of dollars across borders.
A New Kind of FOMO
If it was fear of missing out (FOMO) among retail investors that characterised last year’s bubble action, then this year that could be the sentiment taking hold among institutions.
But before we get too excited, the money is not going to flood in all at once as there is still a lot of caution out there.
Part of that reticence is that lack of clarity, if not understanding, of what is going on in the industry.
A sign of that came today with the news that XBT Provider, the issuer of the bitcoin and Ethereum exchange traded notes traded on the Swedish stock market, has abandoned its plan to launch a crypto basket tracker fund because of uncertainty surrounding upgrade developments affecting various coins, where hard forks see chains split with new coins created.
Nevertheless, the tiny size of the crypto sector compared to traditional asset classes means that only a tiny fraction would need to be diverted into crypto by institutions for it to realise an inflection point for the market, forcing the bears to give way to the bulls.
“Over the next six to 12 months you are going to see institutions put a small amount of their assets,” said Novogratz in the Bloomberg interview. “A small amount of institutional assets is a lot of money.”
Disclaimer: This article does not constitute an offer or a financial advice to buy or sell any digital currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.