Michael Novogratz calls himself âthe Forrest Gump of bitcoin,â citing his luck at being in the right place at the right time.
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download the Audm app for your iPhone.Michael Novogratz was in a good mood. It was the thirtieth reunion of Princetonâs class of 1987, and the on-again, off-again billionaire was getting a lot of respect. âI want to hit you up about something,â a two-star general said. âThose are the freshest kicks,â a young bro in a dressing gown observed, complimenting Novogratzâs black patent shoes with orange piping and matching tassels. (âItâs all about peacocking,â Novogratz later told me, of his sartorial extravagance.) He huddled with Joseph Lubin, a former roommate and one of the co-founders of the hit cryptocurrency platform Ethereum. It was a warm June day, last year, and the Princetonians were amiably crushing cans of Bud amid chants of âTiger, tiger, tiger, sis sis sis, boom boom boom, ah!â
The alumni parade, known as the P-rade, started to wind through the neo-Gothic campus, its mob of participants marching past signs for a symposium entitled âCan America Still Lead?â As we joined the P-rade, we heard shouts of âNovo! Novo! Novo!â He stopped by a gaggle of young wrestlers, all of whom seemed monumentally drunker than the rest of Princetonâs populationâa notable distinction. Novogratz, formerly the captain of the collegeâs wrestling team, slapped a half-naked man on the back so hard that he left a red palm print. âI five-starred a guy!â he shouted as we continued down the P-rade, men running up to him as if he were the mayor of a small Sicilian hill town. âMr. Novogratz! Iâm Goldman corporate trading!â
Princeton, like Wall Street, where Novogratz has made at least three fortunes and lost at least two, is full of stories about him. There was the story of how Novogratz never showed up for R.O.T.C. (he was admitted to Princeton on an R.O.T.C. scholarship). And the time, at the previous reunion, when he flew a helicopterâNovogratz did a yearâs worth of helicopter-pilot training, at the Armyâs flight school in Alabamaâdown Prospect Avenue, nearly clipping a gate. âHeâs bombastic and heâs full of shit,â one of his friends said, âbut he doesnât have a mean bone in his body.â Novogratz, who is properly bald, with a pair of sharp blue eyes and a gravelly voice that can go full Muppet after a volley of drinks, was, uncharacteristically, sober. At the behest of his wife, he was preparing himself for an eleven-day Vipassana meditation retreat in Wales. âIâm trying to regrow my discipline muscle,â he told me as we approached the Tudor hulk of the Tiger Inn, his eating club, where a beer-pong tournament was already well under way in the basement.
Novogratz had risen quickly, at Goldman Sachs and in the hedge-fund world, but each rise was met with a stunning, often humiliating reversalâfirst a parting with Goldman, in 2000, over what has been referred to in the press as âlifestyle issues,â and then the removal from his partnership, in 2015, at the high-flying Fortress Group after losing a series of currency bets. Once worth north of two billion dollars, Novogratz had been reduced to the ranks of mere centimillionaires. But 2017 was proving to be pivotal for him and a motley band of other sidelined investors seeking redemptionâthink the Winklevoss twinsâas they tethered themselves to the yearâs most befuddling financial event: the rise of cryptocurrency.
Novogratz had recognized its potential when one of his partners at Fortress, Peter Briger, introduced him to one of its earlier evangelists, an Argentinean investor named Wences Casares. In 2013, Novogratz put seven million dollars of his own money in cryptocurrency investments when bitcoin was selling at around a hundred dollars a coin. (A single coin currently sells for more than sixty times that amount.) Citing his luck at being in the right place at the right time, Novogratz has called himself âthe Forrest Gump of bitcoin.â
Novogratzâs crypto bets had coaxed him out of self-imposed retirement, and soon sprang him back onto CNBC and Bloomberg. Late last year, as the G.O.P.âs tax bill barrelled through Congress, he called Steve Mnuchin, the Treasury Secretary, an âidiotâ (spelling out the word, for good measure) and rebuked Trumpâs economic adviser Gary Cohn for the tax overhaul, saying that he âshouldnât be able to live with himself.â Both Mnuchin and Cohn had been partners alongside Novogratz at Goldman Sachs, and this made for an unusual breach of Goldman etiquette.
To cap off the reunion, Novogratz had paid for a concert by Duran Duran. âEvery five years, he does us well,â a classmate told me. Even in the middle of a streak of sobriety, it was hard for Novogratz to say no to a good party. âWeâre a family of near-alcoholics,â he joked earlier that day, referring to the hungover crowd at a Princeton brunch that included his wife, Sukey CĂĄceres, also an alum, and their four children, three of whom have attended the university. The night ended with a touch of eighties style and contemporary dissonance. As gracefully aging Princetonians drained the booze from their red plastic cups, Simon Le Bon, dressed in what looked like a swath of green vinyl, belted out âA View to a Kill,â and, in one corner, Ted Cruz (class of â92) darkly made his presence known.
In the past decade, a large number of the friends I had come of age with in Manhattan left the city, displaced by rising costs to Berlin or Los Angeles or the mid-Hudson Valley. These friends, many of whom were fellow-alumni of my alma maters, Stuyvesant High School and Oberlin College, were writers, graphic designers, architects, academics, and journalistsâthe heart of what used to be the creative middle class. As I walked down the now unfamiliar streets of my city, eying a new breed of closely cropped, athletic individuals, I kept wondering, Who are these people? Eventually, I discovered that they worked mostly for banks or hedge funds or private-equity firms. Around 2012, I decided that my next novel would be about finance. When I first broached the idea of making a fund manager the hero to a friend whose husband works in the industry, she asked me, âWhy would you do that? Bankers have no imagination.â (In my research, wives saying unflattering things about their spouses became a consistent theme.)
Do bankers have imagination? That statement felt both like a challenge and like a lodestar for my work. I would find hedge funders worth writing about or invent my own. More than a few reminded me of Novogratzâs wrestling friendsâscrappy lower-middle-class kids from the peripheries of New York or Naples or Moscow. As a hungry, insecure kid growing up in eastern Queens, I remember watching the movie âWall Streetâ and fantasizing about how I would look in suspenders and a contrasting collar. The men on the big screen did not have to understand themselves; the money made them understood. Although my greed had been expunged at Oberlin, and the financial crisis of 2007-08 had left me with a more or less permanent view of finance as an industry built on fraud, I found it hard to dislike some of my new acquaintances. The more intellectually vibrant ones came with backgrounds in advanced math and physics; they approached their trades like a puzzle, albeit one they were increasingly unable to solve. Others seemed to be flirting with the edges of sociopathy, or, at least, an inability to pass âBlade Runnerâ âs Voight-Kampff empathy test.
In the popular imagination, âhedge funderâ has become shorthand for a special breed of super-rich, super-intelligent scoundrel. Hedge funds raise money from so-called accredited individuals (a minimum of a million dollars in investable assets is required) and institutions such as university endowments or pension and sovereign wealth funds, and then deploy it in any way they see fit. It may help to think of hedge-fund managers as an army of menâand they are mostly menâwalking down the street with dustbusters, trying to suck up cash and assets from every nook and cranny in the universe. In theory, at least, hedge funds are supposed to generate returns in bear as well as bull markets, because the contents of their dustbusters are hedged, by the managers taking long positions on assets that are expected to increase in value and shorting those they expect will decrease.
The rise of this less regulated âbuyâ side of finance has put to shame the income of the âsellâ side. Around Manhattan, âinvestment bankerâ now carries the same sad also-ran cachet as âdoctorâ or âlawyer.â An older managing director at a large bank complained of the struggles of the middle class. When I asked him to define âmiddle class,â he spoke of people like him, earning between two and four million dollars a year. Young analysts told me they were being priced out of Brooklyn, much less Manhattan, by rising hedge-fund plutocrats and their ilk.
Part of this may be ascribed to a strategy involving two numbersââthe two and twenty.â Traditionally, many hedge-fund managers have collected twenty per cent of a fundâs profits, and they have also kept two per cent of the assets committed to a fund, regardless of the outcome of their bets. Huge losses for clients could still mean a payday for managers. Wall Street has long been a place of outsized compensation for the few who can master its rules, or at least pretend to. (There is a book that handily explains the investor-manager relationship in its title alone: âWhere Are the Customersâ Yachts?â) Hedge funds seemed to offer the best and the brightest the quickest road to riches yet. As one hedge-fund manager told me, âThereâs money sloshing around and chunks falling off, and people get compensated for standing there.â
These people could be divided into many categories, but the two most useful Iâve found are the rainmakersâthe polished, fraternal, athletically built avatars of the Princeton-Colgate-Duke axisâand the Dockers-wearing, kielbasa-munching math whizzes. Some funds seemed to make an art form out of how many brilliant physicists from the former Soviet Union can be squeezed into a small, overlit room. There was no question which of these two groups the socially brilliant but algorithmically challenged Novogratz belonged to.
What struck me about both sets was their desire to live their lives as a competitive sport. âMoney has nothing to do with it,â Turney Duff, a former partner at a health-care hedge fund, told me. âItâs literally about winning.â I began to think of the financial world as a tax on the rest of us, a way to transfer wealth into the hands of a select few through their own considerable cleverness and also through the way their income was taxed versus our own.
And yet the majority of the hedge funders I befriended were not living happier or more interesting lives than my friends who had been exiled from the city. They had devoted their intellects and energies to winning a game that seemed only to diminish the players. One book I was often told to read was âReminiscences of a Stock Operator,â first published in 1923. Written by Edwin LefĂšvre, the novel follows a stockbroker named Lawrence Livingston, widely believed to be based on Jesse Livermore, a colorful speculator who rose from the era of street-corner bucket shops. I was astounded by how little had changed between the days of ticker tape and our own world of derivatives and flash trading, but a facet that none of the bookâs Wall Street fans had mentioned was the miserableness of its protagonist. Livingston dreams of fishing off the Florida coast, preferably in his new yacht, but he keeps tacking back up to New York for one more trade. âTrading is addictive,â Novogratz told me at the Princeton reunion. âAll these guys get addicted.â Livermore fatally shot himself in New Yorkâs Sherry-Netherland Hotel in 1940.
âWeâve been getting a lot of calls saying that youâre a terrible magician.âBy 2016, I started drinking more heavily than is usual for me (I was born in Russia). For the second year in a row, there were more shuttered hedge funds than new ones, investors having been turned off by a mixture of high fees and subpar returns, owing in part to a crowded field of funds executing similar strategies and also to an unusual absence of volatility in the markets. Even the legendary traders, like Paul Tudor Jones II, of Tudor Investment, were being walloped. The âtwo and twentyâ model was turning into more of a â1.5 and fifteenâ one. The secret-sauce bottles containing trading algorithms and the like had run empty, and to fill the void my new friends and I turned to Scotchâthirty-year-old Balvenie and twenty-one-year-old Hibiki. After a particularly rough night, my wife found me at 4 a.m., sitting in the corner of our bedroom, trying, and failing, to unbutton my shirt. The stress and the consequent loss of control felt familiar. The fund managersâ ambition was like a drug whose potency I had forgotten. At Stuyvesant High School, a competitive math-and-science school in Manhattan with a high proportion of first-generation immigrants, my classmates and I would get up every morning to wage battle over a hundredth of a percentile on our grade-point average; my new friends were fighting over so many basis points on their Bloomberg monitors. When we failed, we failed in front of our families, our ancestors, our future and our past.
Novogratz ran his first quasi hedge fund when he was barely four years old. The Novogratzes were a military family; in the late nineteen-sixties, they found themselves in Torrance, California. Novogratz and his older brother, Robert, went door-to-door in their neighborhood selling leaves, a useless commodity, to neighbors, five cents for yellow ones, ten for red ones. Robert was shy and hung back, but Michael would run up and ring the doorbell. The neighbors would ask him why the red ones were ten cents, and, according to his mother, Barbara, he would answer, âLook aroundâthere are hardly any red leaves.â He had mastered the concept of supply and demand, not to mention the difference between two asset classes. When I mentioned this incident to Novogratz, he laughed, quickly seeing the parallel between his childhood enterprise and his current bet on cryptocurrency, which, like red leaves, relies on a trickyâsome would say, imaginaryâvaluation. âIt could be bitcoins,â he said.
Novogratz is the third of seven children, and his charm and his skills as a storyteller are tied to his membership in this brood of hyper-successful siblings. (Robert is a designer; his older sister Jacqueline is the founder of Acumen, a global venture firm; the younger siblings include a Wall Street salesman, a sports manager, the co-founder of a sustainable-agriculture investment fund, and a writer.) When I talked to Novogratzâs brothers and sisters, they all brought up the image of seven children growing up in a house with one bathroom, and living chiefly off their fatherâs modest government salary. There was also some version of âOur mother raised us like we were the Kennedys.â
Nowadays, Barbara Novogratz and Robert, Sr., who retired as a colonel after a long Army career, spend their winters in Virginia, where Novogratz attended high school, and their summers on Long Island, where he bought them a home near an estate he owns in Amagansett. Robertâs father was an immigrant from Austria. Lacking English skills, he settled in Pennsylvania, where he worked at a cement mill. âDirty work,â Robert told me. Barbara grew up in Queens, in an Irish-German family. Her father died when she was young and her mother worked long hours as an accountant and a singer to make ends meet.
When Novogratz was twenty-five, he was set up on a blind date with Dora CĂĄceres, who goes by the nickname Sukey. She was in many ways his oppositeâa budding intellectual, interested in semiotics, film theory, and the teachings of Ram Dass. Her parents were from Puerto Rico and had moved to the mainland before she was born.
I met Sukey in her office, which is downstairs from the Novogratzesâ palatial apartment, in Tribeca, and decorated with pachyderms in every form and material possibleââThe elephant is my power animal,â she said. During our conversation, she told me about a horrific gang rape she suffered before she entered Princeton. The perpetrators walked free. The experience, in part, led to a life of seeking and, later on, of meditation. (Her book on meditation, âJust Sit,â co-written with Novogratzâs younger sister Beth, came out in December.) Conscripting Novogratz into her spiritual journey was one unlikely outcome of a marriage in which she described her husband as having come from the âprivileged white maleâ baby-boomer generation and âbro culture.â
At the reunion, Novogratzâs friends referred to fearlessness as his best quality. When I asked them if there was anything he did fear, one woman said, âAsk Sukey.â Sukey brought up his parents, making sure to note how much theyâve grown (his father ârecently became a vegetarianâ). But, in describing Novogratzâs inability to fully connect with her during periods of their marriage, his occasional outbursts of rage over insignificant events (the loss of a jar of foreign currency, for example), and his difficulty in dealing with âthe smacks in life,â such as his ouster from Fortress, she said, âBarbara and Bob loved him, but yet they love a winner.â
When I mentioned this to Novogratz, he said, âMy mother told everyone I was going to be a senator.â Barbara, when asked, said that she thought he could have been President.
Novogratz started his career at Goldman Sachs as a lowly money-market salesman. It was right around April Foolâs Day, 1989, and he had just spent a year flying helicopters in Alabama. (He continued to serve in the New Jersey National Guard during his first years at Goldman.) The firm moved him to Tokyo, to sell Japanese government bonds to U.S. investors, and, after he expressed his unhappiness over the fact that traders usually made much more than salesmen, Jon Corzine, who was the co-head of the fixed-income division at the time, sent him to Hong Kong, in 1993, where, eventually, he ran the firmâs trading desk. Novogratzâs transition from salesman to trader may be the most salient fact of his career. There is a gulf of difference between the salesmanâs ability to schmooze and charm and the traderâs ability to synthesize information about markets and make bets worth hundreds of millions of dollars. âI sometimes think that I was such a good bullshitter as a sales guy that Corzine decided to put me in the job where you couldnât bullshit,â Novogratz once said, in an interview with Matthias Knab, of Opalesque TV. âThe one thing about being a macro trader is that the P. & L. doesnât lie at the end of the day and there was a real discipline needed.â
Macro funds look for broad social, political, and macroeconomic trends and, in effect, bet on the way they might affect financial markets. They execute trades using equities, bonds, currencies, commodities, and futures. Macro trading is essentially hubris. It is taking on the mantle of a short-term prophet, the Nostradamus of two months (or weeks or days or hours or minutes) from now, and predicting the shape of the world at that instant.
Some of Novogratzâs fellow hedge funders have questioned his grasp of the finer details of his trading strategies. âHe acts like a visionary, but at heart heâs still a salesman,â one manager told me. Others dispute that view. âMike always gave the most lucid, detailed, and compelling explanations of what was going on,â Peter Rose, who worked with Novogratz in Hong Kong, wrote to me. âHe had an uncanny ability to see patterns, causes and effects, the butterfly moving its wings in Tokyo and the tsunami in Singapore and what was the connection, where others only saw chaos.â When the Asian financial crisis hit with full force, in 1997, Novogratz survived what Rose called âa nuclear shitstorm.â Novogratz, who successfully shorted the Thai baht, told me, âWhen Asia blew up, my team made a fortune.â
He has credited his success to his faith in intuition and has said of unsuccessful traders, âTheyâre bullish but theyâre too scared to buy.â Goldman is notorious for its brutal âup or outâ culture, but Novogratz thrived in it. He was made partner in 1998. In May, 1999, Goldman went public, entitling Novogratz to shares in the firm, and in December he was named president of Goldman Sachs Latin America, based in SĂŁo Paulo. He never made it there.
What happened next is one of the most confusing parts of Novogratzâs career. When I brought it up, he reached for a fidget spinner. The year after Goldman Sachs went public, he left the firm. Widely regarded as one of Wall Streetâs hardest-charging party animals, Novogratz cited his separation agreement with Goldman to explain why he could not talk at length about what took place, but summarized the nature of his downfall as the consequence of âpartying like a rock star.â
âI felt, like, What the fuck did I do to my life?â he said. âWhat the fuck did I do to my family?â
Sukey Novogratz described the years the family spent in Asia as âvery challenging for marriage.â Back then, her husband, she said, was âsomeone who was constantly hedging his bets, literally, in work and in life, like, eh, I can never fully commit, even though we were married.â
âIt was a humiliating exit,â Novogratz said. âPeriod.â He went to rehab in Arizona to work on himself and his marriage. âI took it stone-cold serious. Iâd never had a therapist in my life and since then Iâve had five.â Around that time, he ran six marathons in the Sahara desert over the course of six days. âThat brought me back to life in a lot of ways.â
Scandals have a short half-life on Wall Street. In only a few years, Novogratz engineered his comeback, as a partner at Fortress Investments. With the arrival of Novogratz, along with Peter Briger, who had been a specialist in distressed debt, among other things, at Goldman, the new entity, which had been founded in 1998 as a private-equity company by a former partner at BlackRock and two former managing directors of U.B.S., expanded into the world of real estate, debt securities, and hedge funds. The vision for the firm, Novogratz said, was to be the Goldman Sachs of the âalternative management business.â Novogratzâs hedge fund was to focus on macro trading on a worldwide scale. In an interview during his time at Fortress, Novogratz said, âThe assets we trade are big stories, the macroeconomic stories of the world. Global imbalances, business cycles. Will the euro survive? Will the Chinese growth model change?â
For Novogratz, macro trading relies on oneâs ability to combine intuition with a mind-boggling number of data points prepared by researchers and analysts. âYou see the ballet in the chart,â as he puts it. âWe call it luck because we donât have a word for it,â he told me. âItâs a different type of intelligence. Itâs pattern recognition. Most great guys at macro, if you put a jar of jelly beans on the table they can outguess you.â
From 2002 to 2007, Novogratzâs hedge fund reached almost nine billion dollars in assets. In 2007, Fortress went public, creating wealth for its partners but also making them answerable to shareholders. âWe were the only company, I think to this day, where five guys became billionaires in a day,â Novogratz said. With a net worth of $2.3 billion, a new vista of power and connection opened up for a man still in his early forties. Forbes put him at No. 407 on its list of the worldâs billionaires.
Novogratz was a whiz at raising capital, but Fortress, like much of the financial world, was soon blindsided by the 2008 bankruptcy of Lehman Brothers and the ensuing crisis. âI saw it happening,â Novogratz said. âBut I couldnât move the ship fast enough.â He added, âWith hindsight, macro shouldnât be in a public company.â According to him, Lehmanâs collapse alone cost the fund between four and five hundred million dollars. An acquaintance of Novogratzâs described running into him outside the offices of Fortress during that time, eating a hot dog as he braced for a meeting with his co-workers. âHe says, âI donât want to go up there. Itâs all bad up there.â The world was melting. He was very emotional.â
Novogratzâs fund eventually recovered. The lessons of the financial debacle were not universally learned on Wall Street, however. âBeginning in March, 2009, generally, the faster and more enthusiastically you embraced risk assets, the better you did,â Mary Childs, who has covered hedge funds and credit markets for almost a decade and is currently a senior reporter at Barronâs, told me. âIf we were supposed to learn our lesson about risktaking, we didnât.â
In 2015, after losing a bet of more than a hundred and fifty million dollars on the Swiss franc, Novogratz and his colleagues made the second of two huge bets that Brazilian interest rates would fall. The first had rested on the assumption that Dilma Rousseff, the President, would lose her reĂ«lection bid, that she would be replaced by a leader who would be tougher on inflation, and that interest rates would fall as a result. In 2014, Novogratz predicted that this sequence of events would lead to âa major rally in Brazilian assets,â and, consequently, a windfall for Fortress. Instead, Rousseff won the election. The second bet relied on the belief that rates would fall as a result of the central bankâs actions. They didnât. Rousseff was eventually impeached, and interest rates did fall after the new President took over, but, according to Novogratz, âit was too late for me.â
Fortressâs macro fund shut down in 2015 and Novogratz left the company. Investors lost between seven and fifteen per cent of their assets, depending on their share class. After he and Goldman parted ways, in 2000, Novogratz had described himself to the acquaintance who later ran into him eating the hot dog as a âdiscredited rich guy.â Now he was twice discredited, but the ârichâ part certainly stuck, even after the Fortress fiasco. Novogratzâs shares were bought back by Fortress for approximately two hundred and fifty million dollars. (âIn what other business can you blow yourself up, and still raise five hundred million for the next fund?â the ex-hedge funder, and now writer, Turney Duff once asked me.)
The loss of his partnership hurt on a personal as well as a financial level. If there was a single larger-than-life personality who inspired Novogratz as a child, it was his uncle Ed, a tax collector and a lover of jazz. âMy dad was a quiet, tough guy,â he told me, âBut his brother had the personality. He loved Wall Street gambling. The last words my uncle ever said to me: âMichael, what the hell is going on? I just got the new Forbes and youâre falling like a stone.â He died thirty minutes later.â
According to Novogratz, cryptocurrencies were a direct result of the 2008 crisis, when people lost faith in banks and bankers. He talks about this with the ardor of a true believer. âI call it the decentralized revolution,â he said. âWe donât trust institutions, we donât trust authority.â Bitcoin was launched in 2009 as a peer-to-peer-based currency, which allowed users to carry out payment transactions without an intermediary, like a bank or a credit-card company, while maintaining anonymity. The identity of Bitcoinâs founder, Satoshi Nakamotoâand whether the name represents an individual or a group of peopleâremains unknown.
After the collapse of his Fortress fund, Novogratz found himself on the coast of the Bay of Bengal in India, talking to his guru, Krishnaji, at the One World Academy, trying to figure out what to do with his life. (Tony Robbins connected the two men in 2007, and the meditation academy has many adherents from the worlds of finance and entertainment.) âWhatâs your vision now?â Krishnaji asked him. âWhatâs your purpose now?â According to Krishnaji, Novogratzâs answers vacillated between trying out a political career and giving finance another go. Back in Manhattan, the vision, aided by bitcoin, turned out to be finance again.
During the first dot-com bubble, the technology behind the boom and its subsequent bust was at least understood: you went on Pets.com and bought your dog a leash, which would then be delivered to you. Cryptocurrencies cannot be held or understood in any physical way; they have no central location, and this gives them, and their acolytesâReddit libertarians, for exampleâan air of a religious experience. Novogratz told me, of a panel on crypto at which he spoke, âI got off the stage, some girl came up to me, she started, like, quaking, just wanted to tell me it was, like, life-changing for her. That the whole speech was. And then the Chinese wanted selfies, and then the Orthodox Jews wanted selfies. I must have done twenty selfies.â
Fiat currencies such as the dollar are backed by both central governments and their users, but cryptocurrencies are almost always backed by nothing more than their users. From bitcoinâs inception, production of the currency was limited by Satoshi Nakamoto to a maximum of twenty-one million coins, insuring eventual scarcity. A few holders of bitcoin and other cryptocurrencies have earned (or âmined,â as the terminology goes) their coins by providing the computing power that enables and verifies transactions in the network. Other holders have purchased them. Currency exchanges such as Coinbase, headquartered in San Francisco, allow anyone to buy a coin or a fraction of a coin for either fiat or cryptocurrencies, thus opening up the market to new users. The opaque universe in which the coins move, in conjunction with widespread uncertainty regarding future regulationâand the future of the crypto market itselfâhave created speculation and almost unheard of amounts of volatility. Some cryptocurrency pump-and-dump and pyramid schemes have resulted in Bernie Madoff-like levels of fraud. Wide-scale legitimate uses for the currency have proved elusive, and many now see bitcoin as a store of value rather than something with which you can buy a cheesesteak or pay for a manicure. There is also an environmental cost, a byproduct of the amount of computing power it can take to mine cryptocurrencies.
But that hasnât stopped the crypto boom. Initial coin offerings, a form of crowdfunding, carry on apace. Companies on the verge of irrelevance, such as Kodak, are planning to mint their own currency (KodakCoin), as is the government of Venezuela (the petro).
The underlying technology is the blockchain systemâa decentralized, algorithm-generated, regularly updated database distributed across a network of computers. What can you do with blockchain beyond buying drugs on the dark Web? Potentially, quite a lot. A ledger kept among a vast number of computers can transfer money more securely than traditional banks, and, possibly, faster, all the while denying Wells Fargo, say, a cut of the transaction. But that is only the start. Ethereumâs platform, for example, can work as a lawyer-free contract database dealing with everything from property sales to estate transfers.
Novogratz has certainly been making the most of the speculative bubble to rebuild his fortune, but he claims to be invested in the utopian aspects of blockchain as well. He doesnât think that cryptocurrencies will replace the dollar or the yen, but he believes that they will be a boon to countries in the developing world, where people donât have trust in their fiat currencies, and that blockchain can revolutionize the way information is logged and shared and, in our age of data breaches, protected. âIâm good at selling the dream,â he said. âI can get onstage and get people to start saying âHallelujah! Hallelujah!â â
Novogratzâs enthusiasm is genuine and contagious. Then again, Twitter and Facebook were supposed to usher in a new era of democracy and transparency.
When I next saw Novogratz, in July of 2017, about a month after the Princeton reunion, he had recently returned from his Vipassana retreat. âThis is not my normal vacation,â he told me, over a lunch at the Mercer Kitchen, in SoHo, a few blocks from his office, on Grand Street. âThey put you into noble silence. You canât lie, because you canât talk. No thumbs-upping, no sign language. No sexual activity, including masturbation. Itâs all self-monitoring.â
By the time he left the retreat, the lack of self-love and of communication with others seemed to have paid off on a grand karmic scale. Most of Novogratzâs profits had stemmed from his initial seven-million-dollar investment in 2013. âThe âgenius,â if there was any, was riding the bet and switching,â Novogratz told me on another occasion, explaining that in early 2016 he had also bought Ethereum currency at around a dollar a coin, called an ether. Now he was toggling back and forth among various currencies, trying to minimize his risk as his fortune increased dramatically.
The price of ether had spiked during his meditation. âI got out,â he said, âand things had gone from two-fifty to three-fifty. I was, like, O.K., I just made a zillion dollars meditating. I should probably make two hundred million on this whole thing.â He cashed out some of his cryptocurrency to buy a G550 jet, a seaplane, and a Georg Baselitz sculpture. âFor the first time, I kind of spoiled myself.â
The intense meditation and the hours of silence and physical restraint had led to a volley of daydreams. âBut all of it had the hero-warrior archetype,â Novogratz said. âThe archetype I grew up with. And it got to be cartoony at times. Jesus fucking Christ, dude, I saved the plane. Or saved the woman from being harmed. Or, you know, re-created the way Robin Hoodââa philanthropy co-founded by Paul Tudor Jonesââshould raise money. Or ran for office. Or made more money on Ethereum so I can donate more. I was, like, Man, how big is your fucking ego? I got probably four years of daydreams or thought process in eleven days.â
A few weeks after our lunch, in the height of the summer, we were standing on a makeshift dock in the Bronx watching black men in shackles and orange jumpsuits board the Vernon C. Bain Center, a barge brought up from New Orleans to serve as a jail and a New York City Department of Corrections intake-and-processing center for the borough. âThe boat is symbolic,â Novogratz said. âItâs a slave ship.â Cheap black shoes nicknamed Patakis, for the former New York governor, who was in office when they were first distributed, were strewn around. Released detainees get rid of them as a sign of their new freedom. An employee of the Bail Project, a young Yale graduate, was posting bail for two detainees on the boat. Novogratz is the chairman of the Bail Projectâs board and its principal contributor. His daughter Anna encouraged his interest in the fund after working for the Bronx Defenders, a nonprofit legal-services group. The projectâs mission is simple: to provide bail for detainees, who often cannot afford even small amounts and get trapped in the system.
On the boat, a clerk told a middle-aged Latina that she needed twenty-five thousand dollars instead of twenty-five hundred in order to bail out her son. Apparently, there had been a computer error. âThey keep sending me back and forth,â the woman said. Her son suffered from multiple sclerosis. âHe canât pick up his hand, his face twitches. His muscles donât work with this weather.â Her case was not being handled by the Bail Project, and it appeared that her disabled son would remain on the jail boat.
âThe Bail Project is a radical move in its own right,â Novogratz said. âItâs a huge fuck-you to the system. We know the first three to five days in jail are the most damaging.â He listed sexual assault, job loss, suicide, and lost places in homeless shelters as potential outcomes.
Anthony Romero, the head of the American Civil Liberties Union, which has received substantial funding from Novogratz, told me, âA lot of hedge-fund-investor types are mostly thinking about throughputs and R.O.I.ââreturn on investment. âHe has a better appreciation of the nuance of trying to tackle social issues.â
Novogratz thinks about philanthropy more than any other financier I met during the course of my research. As a result, spending time with him means witnessing the near sum total of New Yorkâs fund-raisers. Some of them take place in the Novogratzesâ vast Tribeca apartment (joining Robert De Niroâs former duplex and Harvey Keitelâs former one-story pad). Here one could see the singer Cassandra Wilson at a fund-raiser for the Jazz Foundation of America, as the Puerto Rican musician Joe Quijano shyly watched the festivities from his wheelchair. On another night, a dinner in a hotel ballroom was accompanied by a video procession of parents explaining how they were bankrupted by their childrenâs cancer diagnoses. On another day, Novogratz hovered over Times Square on a digital billboard as he introduced a wrestling tournament between Japan and the United States to benefit his charity Beat the Streets, which uses wrestling to help at-risk kids.
It is hard not to think that in a fundamentally humane society none of this glittering largesse would even be necessaryâthat inner-city kids would get proper schooling, elderly jazz musicians would have hot meals and shelter, young people in the Bronx who have committed minor nuisance crimes would not be locked up on repurposed jail barges, the parents of children stricken with near death sentences would not be forced to declare bankruptcy. Novogratz, who considers himself âhalfway between center-left and progressive,â would probably agree. During my lunch with him at the Mercer Kitchen, he told me, âIâve always said Iâd run for office if I had a five-year period in my life where really I felt, like, Hey, my behavior is laudable.â He laughed. âThat I havenât done stuff that would embarrass myself, or my kids, or my family, or my parents. Maybe Iâve got two monthsâ traction on that in the past.â
By the fall, Novogratz was a billionaire once more. The price of a single bitcoin had been close to three thousand dollars during the summer; now it was clawing at five thousand. I visited him one Wednesday in October, at his office, walking in past a large statue of Evel Knievel in the lobbyâthe base reads âBones heal, pain is temporary and chicks dig scars.â Plush sofas were occupied by representatives of the Brown University endowment, a member of the board of Tesla, and the heads of a major publicity firm, among others.
Two weeks earlier, Novogratz had announced his decision to rejoin the hedge-fund world and launch a cryptocurrency fund with a hundred and fifty million dollars of the money he had personally made on crypto and three hundred and fifty million from outside investors. (Boaz Weinstein, who is the founder of the hedge fund Saba Capital Management and also a former classmate of mine at Stuyvesant, told me, âI like his tactic: âItâs a bubble! Ride the rocket, baby!â â) Novogratz gathered some members of his staff to discuss the emerging fund. Most were dressed casually, in sweatshirts and jeans. Novogratz typically wears T-shirts that read âCoachâ or âClam Barâ and his favorite speed-racer pants, and today he was dressed in similar regalia. âI want to raise money as fast as we can,â he said. âI have a foreboding feeling markets are going to be a lot higher in six months.â
He continued, âWhen you meet with people, youâre doing the same dog-and-pony showâitâs boring. I want to bring someone who has a different skill set than me, someone whoâs younger and smarter. At Panteraââan established fundââthey rolled out a teen-ager. He was giving out odds on bitcoin code being cracked.â Novogratz smiled. âIâm feeling like a California V.C.!â he said.
âHow much have we spent on alcohol?â a woman asked. âThree thousand seven hundred?â Novogratz threw a raucous crypto party every Wednesday night, describing it as the cantina scene in the original âStar Wars.â In George Lucasâs universe, Novogratz would presumably play the role of resident Yoda by dint of age and stature. In an effort to maintain standards, a motion to ban bankers in suits was passed (often, it is hard to figure out whether Novogratzâs bro culture is co-opting the crypto-geeks or itâs the other way around) before the staffers dispersed.
After that discussion concluded, the meetings started. Novogratz has a desk in his office, but Iâve rarely seen him behind it. He prefers his couch, sometimes adjudicating disputes from it like a don, sometimes sprawled across it with his reading glasses on, a sliver of belly visible beneath a T-shirt. Among Novogratzâs favorite phrases are âItâs above my pay gradeâ and âIâm going to grab one of my geeks.â
âIâm a decent leader, but Iâm not a manager,â he later told me. âA leader has to be inspirational. A manager has to stay in the lane.â
Two well-tanned publicists, a woman and a man, came in with an idea for a gender-specific coin. âA lot of women donât understand finance,â the woman said, pitching a concept she was calling Y-Coin.
After they left, I asked Novogratz what he thought. He shook his head.
A thick-bearded producer in a black hat and a tuxedo jacket came in to discuss a film that Novogratz was producing. He has been in the film business since leaving Fortress, and recently funded the under-the-radar, oddly mesmerizing âMy Friend Dahmer,â a film about the early years of the serial killer. He was now staking some of his crypto wealth on a more commercial project, called âAssassination Nation,â a thriller written and directed by Sam Levinson.
âIf we donât get into Sundanceââ the producer started to say.
âWeâre fucked,â Novogratz finished. (The film did get into Sundance.)
A fresh-faced young man with Fordham and Citibank on his résumé came in.
âDid you play sports?â Novogratz asked right away.
âIce hockey.â
âWhatâs the worst morally shitty investment you ever did?â
âPayday-lending stuff.â
âWeâre rich enough not to have to do shitty things.â
âI knew I was going to get shit for wearing a suit,â the young man said, to Novogratzâs laughter.
âIâm fifty-two,â Novogratz told him. âI can probably still beat you in a wrestling match. My knees are the only problem.â
At 6 p.m., the cantina was in full swing in a large back office, with idealistic young people presenting me with an endless array of uses for the new technology, including some kind of medical or pharmaceutical blockchain scheme and a âsmart fabricâ company that is launching its own token. âMy white paper is in your possession!â a man with a Slavic accent yelled at Novogratz. âIf my guy says yes, Iâll do it,â Novogratz yelled back.
After we left the party, Novogratz told me, âMy role is spokesperson and adult. Theyâre all young and they could use some guidance.â His message to the youth making millions in the (currently) underregulated crypto space: âPay your taxes!â
Cryptocurrency has been compared to the seventeenth-century Dutch tulip mania, when tulip bulbs sold at outrageous prices, completely divorced from their intrinsic value, until the market inevitably collapsed. Cryptoâs âtulip campâ includes a variety of investors and thinkers, among them Warren Buffett and JPMorgan Chaseâs C.E.O., Jamie Dimon. One of Wall Streetâs so-called âpermabears,â the economist Nouriel Roubini, has predicted that bitcoin eventually will crash to zero. âThere is no there there,â Aswath Damodaran, a noted expert on valuation at N.Y.U.âs Stern School of Business, told me. âI donât think that there has been so much ink spilled, so much talk generated, and so much analysis done of so little in the history of markets as I have seen in the last two years on cryptocurrencies.â
After bitcoin and other currencies soared over the summer and fall, Novogratz presented this stage of crypto as a âspeculative mania phaseâ that would crash like the dot-com bust but then reĂ«merge with more mature players. Out with AltaVista, in with Google. In Novogratzâs estimation, individual cryptocurrencies would failâalthough he is bullish on bitcoin and ether retaining their value in the long term. âI donât know if the speculative phase ends in March, ends in a year from now, eighteen months from now,â Novogratz told me, âbut it will end.â He suggested that it will end when âtoo many people have bought in.â (At a dinner during the fall of 2017, one of my favorite Oberlin professors, a Marxist, told me that he had just bought some ether.)
I asked Jed McCaleb, a founder of the popular cryptocurrencies ripple and stellar, whether the financial industry has been too late to the party. âNot too lateâtoo early,â he said. âItâs still pretty early, technically. Thereâs a hype preceding the reality similar to what you saw in the dot-com bubble. There are lots of good ideas but lots of nonsense that doesnât warrant the kind of money thatâs been dumped in it. A lot of investors donât know which is which.â I asked him if he thought Novogratz knew. âItâs easy to look smart in a bull market,â McCaleb told me, âwhich is not to say heâs not a smart guy.â
âThanks, Docâyouâve put me back in business.âA friend who works in finance once told me, âNobody survives a billion.â From my own research, Iâve found that immense wealth often leads to regrettable personal and business decisions. Novogratzâs billionaire survival tactic seems to be a blend of excessive personal spending, over-the-top philanthropy, and meditation.
In November of 2017, I went to Tamil Nadu, India, to meet Novogratzâs spiritual guru, Krishnaji, at his meditation academy. Krishnaji, a handsome man smelling of good soap, has imparted to Novogratz his philosophy of acknowledging and dissolving the âsuffering stateâ and living his life from what he called âthe beautiful state.â (I kept thinking of his philosophy as âthe two-state solution.â) Krishnaji and Novogratz travelled across India in January of 2015, looking for distressed properties owned by Indiaâs Central Bank in which to invest. During the trip, Novogratz told me, all he wanted was to meditate with Krishnaji, while all his business-minded guru wanted to do was work on their private-equity deals. âIn the next seven years weâll package the property, developing it, making it plots and lots, depending on where the land is situated,â Krishnaji explained when I met him in November.
The Web site for Krishnajiâs real-estate ventures, White Lotus Structures, declares that âa palpable touch of the sacred is experienced in all its creations.â (âHeâs a piece of work,â Sukey Novogratz told me, when I brought up his business dealings. Krishnaji, for his part, told me that he pumps a lot of money back into the academy.)
As I walked down the frangipani-strewn âSilent Pathâ that connected my villa with the beach on the Bay of Bengal, one of the academyâs gurus told me that Krishnaji âdoes various businesses from a beautiful state of being. That is the reason for his success.â
Yet Krishnaji was straightforward when it came to Novogratzâs departure from Fortress: âHe saw that throughout his life heâs had this image of himself as a great financial genius, and that, in that particular incident, he had made such a huge blunder that his image was shaken. He was not a financial genius at that momentâit was a stupid decision he had made. He saw that his suffering was not so much the loss of money, because he could again make it back. His suffering was actually the death of an identity.â
Novogratzâs cryptocurrency hedge fund never launched. In December, after the price of a single bitcoin rocketed to more than nineteen thousand dollars, Novogratz told me that âit would be a different proposition raising a crypto hedge fund today than it was three months ago.â He said he was not comfortable running other peopleâs money when the currency was at its peak, and predicted that bitcoin would consolidate at between eight and sixteen thousand dollars. âIâd rather look stupid than be stupid,â he added. Right after he told me of his plans to shelve his hedge fund, bitcoin experienced one of its habitual micro-crashes, falling to under fourteen thousand dollars a coin.
Some people thought that Novogratz had simply not raised enough capital to launch the fund. Others focussed on the fact that, despite his penchant for showmanship, he was not making a good case for his fund. âTo build a fund, you need a lot of focus and attention to detail and have ambition to be institutional,â the manager whoâd proclaimed Novogratz a mere salesman told me. âA great trade is not a fund.â
Before he bailed, Novogratz had described another idea to me, one several magnitudes more audaciousâcertainly more institutional, and potentially more durableâthan a mere half-a-billion-dollar hedge fund. He wanted to launch a publicly traded merchant bank solely for cryptocurrencies, which, with characteristic immodesty, he described as âthe Goldman Sachs of crypto,â and was calling Galaxy Digital. âIâm either going to look like a genius or an idiot,â he said.
Novogratz announced the bankâs launch in early January, the same week that Dimon, of JPMorgan Chase, who is one of the most vocal critics of cryptocurrency, publicly regretted calling bitcoin a fraud (âThe blockchain is real,â he told Fox Business). Shortly afterward, I sat down with Novogratz in his Tribeca apartmentâs far-flung kitchen to discuss Galaxy Digital.
âGoldman Sachs can make money if the stock market goes up and if the stock market goes down,â Novogratz said. âThatâs what weâre trying to build. Right now, weâre still going to be way correlated to the way the market goes for at least the first year or two,â he conceded. âBut weâre trying to build enough diversity into the business that we can withstand hurricanes.â He told me that Galaxy Digital would combine his considerable crypto holdings with an asset-management operation, a trading business, a venture that would invest in new initial coin offerings, and an advisory arm that would counsel companies.
The new entityâs launch was not so much an I.P.O. as a complex R.T.O., or reverse takeover, involving a Canadian shell company called Bradmer Pharmaceuticals. Galaxy Digital would still be based in New York, but because Canada offered easier and faster access to the public market Novogratz had decided to launch on the Canadian TSX venture exchange, with plans to eventually transfer to Canadaâs main exchange. He would contribute around three hundred and fifty million dollars, while raising another two hundred and fifty million dollars.
âItâs a brilliant move,â Josh Brown, the C.E.O. of Ritholtz Wealth Management, in New York, said. âItâs always better to own the casino than to play.â The hedge-fund manager Jeff Gramm told me, âIf you really believe in crypto, this is an opportunity to dominate a growing niche that Goldman Sachs and the other big banks might be too risk-averse to bother with. Even if ninety per cent of these cryptos are total bullshit, you could build a really nice business. Think about Michael Milken and Drexel Burnham in the late seventies and early eighties. None of the big investment banks wanted to touch high-yield trading, and Drexel ultimately became the most profitable bank on Wall Street.â (Milken, known at the time as the âjunk-bond king,â was also sentenced to ten years in prison for securities fraud. He was released after two years. Novogratz has publicly appealed to cryptocurrency tycoons to play by the rules and avoid Milken-like fates.)
Jed McCaleb, of ripple and stellar, predicted that in the next couple of years a lot of crypto companies with big balance sheets will acquire one another. âA merchant bank can facilitate that,â he told me. âItâs a timely thing to do.â
Of course, not everyone is on board with the idea of a finance billionaire Goldmanizing the new space. A self-described âcrypto lawyerâ wrote on Twitter, âHey I knowâletâs use crypto to recreate precisely the fucked up institutional structures that crypto was created to surpass.â
Recently, Novogratz showed up at a staid dinner for retired Goldman Sachs partners wearing his speed-racer pants. He had attended these dinners before, but not from his current position of success in crypto. The prodigal son had returned. The investment bankâencapsulating the highs and lows of his careerâfinds its way into many of his conversations. âWe hired Goldmanâs best guy in blockchain,â Novogratz told me on several occasions.
Government regulation remains the greatest challenge to the future of cryptocurrency. âItâs stressful, because the regulatory environmentâs not clear,â Novogratz said. âYou donât even know what the rules are. In every country. Even in the U.S.â
On the day we met at his apartment, a regulatory crackdown in China, preceded by one announced in South Korea, was pushing the price of bitcoin down. (It hasnât returned to its December high, and is currently priced at around seven thousand dollars.) Meanwhile, it appeared that hedge funds, many of which had ended 2016 either ailing or dead, were reporting their best returns in years. After six years of exploring finance, I concluded that, despite the expertise and the intelligence on display, nobody really knows anything. âIn two years, this will be a big business,â Novogratz said, of Galaxy Digital. âOr it wonât be.â
His attitude seems to come from a battle-hardened place. âYou know, when youâve screwed up as much as me in life, youâre not so worried about it,â he said, over a glass of fine Burgundy, his voice echoing across his palatial kitchen. âIâve tried my best. I think Iâm right on this thing.â âŠ
This article appears in the print edition of the April 16, 2018, issue, with the headline âOne Good Bet.â
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