Bitcoin advocate Michael Novogratz wants to punch crypto titans Sam Bankman-Fried and Barry Silbert in the face

The bad news in crypto, meanwhile, just keeps raining down. Sam Bankman-Fried is on bail and wearing an electronic monitoring bracelet at his parents’ home. Cameron Winklevoss, whose Gemini exchange has been tarnished by links with fledgling crypto lender Genesis, is feuding with Silbert, demanding he step down as head of Digital Currency Group. Coinbase, following in DCG’s footsteps, is slashing huge swaths of its staff. Three Arrows Capital and Celsius are long gone – doomed by the stablecoin Luna tattooed on Novogratz.

And yet, even now, hedge-fund legend Stanley Druckenmiller says he’d consider tossing money to Novogratz. Sure, Novogratz is down, says Druckenmiller, who famously led George Soros’ daring bet against the British pound in 1992. But say this for the guy: he didn’t screw up the way some other people did.

“He can feel pretty good about the mistakes he didn’t make,” Druckenmiller says. “He’s alive. He’s still in the game. He’s still at it.”

Seeking redemption

Crypto was supposed be Novogratz’s shot at redemption. He famously flamed out twice before, first at Goldman Sachs, in 2000, over what’s been characterised as “lifestyle issues” (he’s long had a reputation as a notorious party animal), and then again at Fortress Investment Group, in 2015, after a string of bad currency bets.

And so, on this mid-December Monday, Novogratz is again contemplating an uncertain future. He’s leaning back in his chair, arms crossed, in his space-agey offices. At 58, he looks fit as ever. Bald as a cue ball, he nonetheless resembles the Princeton wrestler of his 20s, right before he joined the National Guard and served as a helicopter pilot.

Novogratz is a huge Star Wars fan, hence the name “Galaxy” (as in, “a long time ago … far, far away”). Step out of the elevator and glance at the ceiling. Words scroll by like stars in the night sky. They’re from the 2008 white paper attributed to Satoshi Nakamoto, the elusive creator of bitcoin, whose identity is one of the great mysteries of the crypto age. Beyond pink couches, Novogratz is at work in his rounded, glass fishbowl of an office.

Friends have been calling to ask if he’s OK. On his desk is a blue Post-It, a thank-you from Galaxy’s PR chief, who just quit. A Lucite trophy with an FTX logo sits on the shelf. It’s a “deal toy” for a company that Galaxy helped sell to Bankman-Fried, a man Novogratz now calls a liar, even a sociopath. A bar, which employees tend to raid, is stocked with top-shelf gin, rum and wine. (Novogratz notes he’s a “huge drinker” but doesn’t imbibe at work.)

“This was one of those years where the woulda, coulda, shoulda – it was painful,” Novogratz says. He glances at the FTX trophy. “I’m not sure what we should do with that thing now.”

Time is short. Galaxy, he says, can withstand 18 more months of this pain. Four years? He doubts his employees would fight through that.

The FTX fiasco directly cost Galaxy $US77 million, Novogratz says. It could have been worse. A billionaire friend who’d talked to Bankman-Fried warned Novogratz that the 30-year-old’s exchange-cum-hedge-fund was missing billions.

“The toxic masculine side of me would like to punch them both in the jaw,” Novogratz says of Bankman-Fried and Silbert.

‘Like, really?’

Of Bankman-Fried, he adds: “You’ve got to be f—ing kidding me. Like, really, you arsehole?”

Novogratz says his big regret is not dumping more crypto, both earlier last year and just before FTX collapsed. He still got $US1 billion-plus out before last year began.

With the benefit of hindsight, he says he should have better sized up Bankman-Fried and Do Kwon, the South Korean entrepreneur behind TerraUSD and Luna. Kwon, the disgraced founder of Singapore-based Terraform Labs, is believed to be hiding out in Serbia.

Novogratz insists he always told people to be careful, to pocket profits when they could. That’s what he did. He just didn’t make a lot of noise about it.

Galaxy employees are torn. Some have privately questioned Novogratz’s judgment, not seeing crypto’s bad actors for what they were, and sometimes for hiring employees who weren’t good fits for Galaxy. But they also characterise him as the gutsiest trader in the place. Go big or go home – that’s just how he rolls.

Wall Street is full of second, third and even fourth acts. Losing client money doesn’t necessarily mean it’s game over.

Bitcoin’s going to $US500,000 in five years? Novogratz insists he believed everything he said while he was saying it (he’s extended the timeframe on that one).

This, of course, is how Wall Street has always played the game. Buy on the cheap and talk it up, then go quiet while cashing out. Galaxy disclosed what it was up to, but through regulatory filings rather than Novogratz tweets.

“Did people fall for a mania? Yes,” Novogratz says. “We bought at great levels, we sold them the whole way up.”

He goes on: “It’s an awkward place when you made money and everyone else loses money.”

On the hunt for firesale assets

But, he recalls: “I’ve told people from the very start of this business, you better be diversified and better manage risk and take profits along the way.”

Meantime, opportunity beckons. Novogratz is on the hunt for assets to buy on the cheap during fire sales as his industry is ablaze in bankruptcies. He’s leaning on his deputy who has a background in distress to make the right picks.

Regulation, as always, looms large. Washington power players – as well as about a million customers – are furious over the billions that Bankman-Fried allegedly used to buy luxury homes, political favour and favourable media treatment.

“He’s got to figure out where he goes from here,” Pete Briger, a founder of Fortress who’s long worked with Novogratz said of his friend’s plans. “So much of what the opportunity will be in the future is a function of where policymakers and regulators come down.”

So, what now? If in three years bitcoin is still limping along around $US18,000– down from its peak of almost $US69,000 – Novogratz says that dream about Goldman-ising crypto will face a harsh reality.

“You can take 18 months of misery – you can’t take four years of misery,” he says. “Your people lose faith.”

As for the hit to his personal wealth, that was mostly on paper anyway. He says he never got the chance to sell Galaxy stock. He’s still worth a fortune.

Novogratz thinks it over.

“We’re gonna walk through the mud,” he goes on. “We’re gonna fight with establishment clients to get them on board, we’re gonna have to convince people again. We’re going to litigate the same shit we litigated two years ago with banking relationships.”

And then? Novogratz, ever the salesman, doesn’t miss a bit.

“I think when we get through the mud, it’s gonna be really sunny,” he says.

— Bloomberg Wealth