One of the smartest minds in the cryptocurrency industry is billionaire Mike Novogratz, CEO of cryptocurrency investment firm Galaxy Digital Holdings (Galaxy -3.38%). Former hedge fund manager and partner Goldman Sachs Group (P.S -0.58%)Novogratz is particularly talented at bringing ideas from Wall Street and traditional finance to the Wild West world of cryptocurrencies.
For now, Novogratz is very optimistic Bitcoin (BTC -3.39%), which he believes could rise in the coming years. This is based on two basic insights into how traditional financial markets work. Let’s take a closer look.
Spot Bitcoin ETF
According to Novogratz, the SEC’s approval of a Bitcoin ETF spot investment product will be huge for Bitcoin’s future prospects. In fact, at the end of December, he told CNBC that he believes Bitcoin could eventually become parabolic.
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If institutional investors and wealth managers decide to allocate only a small percentage (even as much as 1%) of their assets under management to cryptocurrencies, it could cause the price of Bitcoin to rise significantly. It’s really just basic supply and demand. Bitcoin has a lifetime supply of 21 million coins, so the influx of new demand from Wall Street is likely to have a major impact. In fact, Novogratz says, there may be a “supply crisis,” and that’s when bitcoin could become truly parabolic.
Of course, it remains to be seen whether the impact of the new Bitcoin ETFs will be as significant as some people think. For example, some investors believe that there will simply be a reallocation of funds from existing financial instruments linked to Bitcoin (such as futures-based Bitcoin ETFs) and into new spot Bitcoin ETFs. If this is the case, Bitcoin’s future upside potential may be more limited.
Bitcoin vs US economy
Then there is the issue of the US economy, which is burdened with massive debt and an annual budget deficit that seems to widen with each passing year. Over the winter holidays, one of the big economic stories was that the US national debt swelled to an all-time high of $34 trillion. Moreover, there is a risk that the Fed will not be able to engineer a “soft landing” for the US economy. If this is the case, slow growth and high inflation could become a fact of life for the foreseeable future.
This is of course bad news for the US economy, but it could be positive for cryptocurrencies, Novogratz says. This is because Bitcoin and other cryptocurrencies were originally created as an alternative to the fiat currency system. In fact, written in the first block of the Bitcoin blockchain is a cryptic message about overconfidence in the traditional financial system: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” (The letter refers to a newspaper article about the British government’s failure to stimulate the economy during the 2007-2008 financial crisis.)
From this perspective, the current state of the US economy is, in many ways, a vindication of the ideas of the original Bitcoin pioneers. Thus, while it may seem counter-intuitive at first, what is bad for the US economy may actually be good for cryptocurrencies. Taking a holistic view, this narrative could lead to investors moving their money from fiat currencies to cryptocurrencies. They will trust less in the US dollar and more in Bitcoin. That’s basically the message Novogratz told CNBC listeners in December, so clearly this story is gaining a lot more mainstream attention than you might think.
Before you invest everything in Bitcoin
Just keep in mind that billionaire Mike Novogratz runs a cryptocurrency investment company and a large portion of his net worth is tied to cryptocurrencies. So it is clear that he will have a bullish sentiment towards Bitcoin. Before you decide to move forward with Bitcoin, you should decide for yourself whether his arguments make sense or not.
As for me, he included me in the “Bitcoin ETF”. I am long term bullish on Bitcoin. Although Bitcoin may not go parabolic, it seems very likely at the moment that Bitcoin will soon test its all-time high of nearly $68,000 in November 2021. For me, the question is not whether to invest In Bitcoin or not, but rather, how. I have to allocate a lot of my wallet to Bitcoin.
Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.