Crypto Is Having a Moment. 5 Questions on the Future With Galaxy Digital's CEO. — Barrons.com

By Nate WolfLike it or not, we have entered the crypto era — or at least a crypto era.Bitcoin is lingering just below its $111,891 record high, having jumped nearly 60% over the last 12 months. In the stock market, stablecoin issuer Circle Internet Group is off to a blazing start after its early June initial public offering, and MicroStrategy has turned itself from a ho-hum software company into the world's largest corporate holder of Bitcoin, leading imitators and admirers to follow suit.In Washington, D.C., the Securities and Exchange Commission has dropped enforcement actions against companies like Coinbase Global and Kraken, instead forming a task force to provide regulatory clarity to the industry. Vice President JD Vance also addressed the Bitcoin 2025 conference in Las Vegas last month, promising attendees that "crypto finally has a champion and an ally in the White House."The laundry list of positive headlines must feel vindicating for crypto bulls, who have been banging the drum about digital assets for more than 10 years now. One of those bulls is Mike Novogratz, the CEO of Galaxy Digital, a crypto investment and data center business he founded in 2017, which began trading on Nasdaq last month.Novogratz got his start at Goldman Sachs and moved up the ranks there for more than a decade before leaving in 2000. He then joined Fortress Investment Group as a partner to run the firm's macro trading fund, which shut down in 2015. At 60, Novogratz is older than many crypto die-hards. Given his long career on Wall Street, he's comfortable navigating both the buttoned-up world of high finance and the Wild West of crypto.Barron's spoke with Novogratz to better understand Galaxy, this new crypto moment, and where digital assets are going next.On Galaxy Going Public in the U.S.Galaxy's data-center business — not its crypto operations — has most captivated Wall Street analysts since the May public offering. The company, which has traded on the Toronto Stock Exchange since 2020, is building a 1,000-acre data center campus in rural Texas with 800 megawatts in approved capacity and a further 1.7 gigawatts under consideration.The capital raised in the IPO is the "down payment" on the financing Galaxy will need to expand the Texas data center, Novogratz told Barron's. He added that the company is in talks with lenders, most likely European banks, to secure $4 billion in equity — and the IPO gives Galaxy additional leverage in those negotiations."The good news is we think we now have raised enough capital that by the time we would need more, it's being spit out from the machine," Novogratz said, estimating the data center would generate $550 million in free cash flow within two years.That isn't to say a Nasdaq listing doesn't help Galaxy's crypto operations, too. The crypto lending business, for instance, can lend out cash raised in public offerings to generate yields. It's just that digital asset businesses are more difficult for analysts to feed into their spreadsheets, he said."If you're an equity investor, the data center business is really easy to model," Novogratz said, before running through some back-of-the-napkin math. "The crypto business is harder for people to get their arms around because every asset we have, every business we have, has some correlation to the underlying asset."On the Future of StablecoinsNovogratz was a vocal backer of Luna, a token linked to the algorithmic stablecoin TerraUSD, which collapsed in spectacular fashion in May 2022. Earlier this year, Galaxy reached a settlement with the New York Attorney General's Office to pay a $200 million fine over allegations it promoted Luna while clandestinely selling the token."This was not an easy decision and one that we considered carefully," Galaxy said in a statement provided to Barron's. "Settling this matter has helped Galaxy move forward and minimize distractions so that we can focus on our mission of driving innovation and growth in digital assets and artificial intelligence infrastructure."But stablecoins — blockchain-transacted coins pegged to less volatile assets — have made a swift comeback, most notably with Circle's blockbuster IPO. Circle issues USDC, a cryptocurrency pegged to the U.S. dollar. Novogratz said observers need to start distinguishing between algorithmic coins, like the failed TerraUSD, and those backed by Treasury debt."I think all stablecoins should be backed by treasuries," he said. "If you have a different kind of coin, call it something else."The GENIUS Act, a bipartisan bill close to passage in the Senate, will require stablecoins to hold reserves of safe assets like Treasury bonds, with Novogratz saying it will help in "credentializing the space." As for where stablecoins will go next, the Wall Street veteran seemed convinced the assets are the future of day-to-day payments, if not finance writ large.People overseas already use stablecoins for payments and transfers, he added, and he predicts the coins will soon make their way into remittances, transactions between AI agents, and even banking rails."I think the biggest players coming down the road are not necessarily going to be Circle and Tether, but are going to be Visa and Mastercard and Stripe and J.P. Morgan and lots of banks," Novogratz said.The Wall Street Journal reported Friday that Walmart, Amazon.com, Expedia Group, and other companies recently have discussed issuing their own stablecoins.On the Changing Regulatory EnvironmentThe crypto community was often at odds with Biden-era SEC chair Gary Gensler, who appeared skeptical of digital assets and pursued investigations against a slew of crypto-related companies. The Trump administration has portrayed itself as doing a 180-degree flip on the asset class.Novogratz thinks that depiction isn't untrue. "It feels almost a 180. I would say it's probably a 165," he said.With regulators returning Galaxy's calls and the GENIUS Act close to passage, Novogratz is now hoping lawmakers pass the CLARITY ACT. That bill, which passed through the House Committee on Financial Services on Wednesday, would move most crypto oversight to the Commodity Futures Trading Commission and create a "functional regulatory framework for digital assets," according to sponsor Rep. French Hill (R-Ark.).Under the current regulatory regime, companies have been hesitant to issue tokens due to fears of running afoul of the SEC or even criminal authorities, Novogratz said. "Giving clarity around what's a digital asset, what's a digital commodity, what's a digital security, and having lanes is going to unleash people that were holding back," he added.On MicroStrategy, Michael Saylor, and Crypto TreasuriesSince his decision to turn an enterprise software company into a massive Bitcoin treasury beginning in 2021, MicroStrategy CEO Michael Saylor has earned plenty of admirers in the crypto world. Novogratz counts himself among them.MicroStrategy's stock has gained nearly 1,800% over the past three years — and trades at a premium compared with the amount of Bitcoin the company holds on its balance sheet. But as other small-listed companies have started selling debt and shares to stockpile crypto, Novogratz isn't so sure the strategy can work without Saylor steering the ship.The MicroStrategy executive "created a community around himself," Novogratz said, which has helped attract new investors and turn the stock into almost its own form of cryptocurrency. The way Novogratz described MicroStrategy's business model, however, would make most financial advisors wince."While it feels like the new investors are subsidizing the old investors — that's true, that's just math — if the flywheel goes long enough, they get in the queue and they get subsidized," he said. "Now, by definition, the last man loses."MicroStrategy didn't immediately respond to requests for comment.Shareholders seem fine entrusting Saylor with that risk, and many have been handsomely rewarded for it. As for the imitators? Novogratz doesn't think they'll bring in the same following in the long run. "I guess I'm long Saylor, short the rest," he said. "For me, if I want my Bitcoin exposure, I'm buying Bitcoin."On Changing Crypto's ReputationThe demise of FTX and the conviction of Sam Bankman-Fried. Memecoins issued by President Donald Trump and first lady Melania Trump. A spate of kidnappings tied to Bitcoin. The crypto world doesn't exactly have a reputation for stability and seriousness, and Novogratz is quick to admit that."You go to the Bitcoin conference in Las Vegas, and it looks like a three-ring circus," he said. But there's a growing cohort of "stone-cold serious" players in the crypto world — he counts Galaxy among them — including some big names that used to be skeptical of digital assets.Last year, BlackRock and several other asset managers issued their first Bitcoin exchange-traded funds after more than a decade of regulatory battles over the idea. Galaxy itself got in on the action, partnering with Invesco to launch a fund. "Bringing [BlackRock CEO] Larry Fink into the crypto tent was the single most important thing that happened last year," Novogratz declared.For the Galaxy CEO, winning the trust of more leaders from the traditional financial world is key, and it's finally getting easier. "I think as you get more serious people in the game, people just trust them, " he said. The next step is convincing registered investment advisors to sell ETFs, stablecoins, and other crypto-based assets — a process that has taken longer than Novogratz and other crypto believers first expected.But Bitcoin ETFs are just the start of that process, Novogratz said. He's quick to point out that the future of crypto and blockchain technology doesn't need to be tied to any one asset, especially one as volatile as Bitcoin — however helpful it has been at bringing money and energy into the crypto ecosystem.Instead, Novogratz predicts the lasting impact of crypto will be the blockchain infrastructure sweeping through business, finance, and everyday life — from payments at the grocery store to rapid quantitative trading."The crypto revolution from an institutional perspective is starting today," he said. "Up until now, it was all the warm-up."Write to Nate Wolf at [email protected] & Amplifications: Michael Novogratz didn't call Tether Holdings, which issues the stablecoin Tether, a "stablecoin issuer." An earlier version of this article incorrectly quoted him using that description.This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.