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Interest in 'Dogecoin much like Gamestop,' you have to be careful when shorting: Novogratz

In this article:
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Mike Novogratz, Founder and CEO of Galaxy Digital and Kurt MacAlpine, Global CEO, joined Yahoo Finance to discuss the outook for crypto as their ETF, CI Galaxy Ethereum, begins trading on TSX.

Video Transcript

MIKE NOVOGRATZ: ETF's an important piece of the crypto arsenal mostly because it's addressing an audience that wasn't buying crypto before, right? It's mostly the wealth audience. They're the 50 to 80-year-olds who hold most of the money both in Canada and the US. And so a lot of people still call their financial services companies, their brokers, their asset managers, instead of getting a coin based wallet or a crypto wallet, and so this is a really efficient, low fee way for people to get crypto exposure. And there's been Bitcoin ETFs in Canada, and now what's exciting is this is the first ever Ethereum ETF. Ethereum is by far the second biggest ecosystem coin with tremendous amount of activity on it. And so couldn't be more excited to partner up with Kurt and the guys at CI. They've been innovators in this space, and they're the biggest player in Canada. And so exciting for the space because it gives people access.

ADAM SHAPIRO: Kurt, when we talk about access, I don't think anybody disapproves of the democratization-- I'll call it the democratization of wealth because being able to get in is important. And with Ether, the disparity between it trades-- at what? About $2,000 versus Bitcoin right now at about $56,000. Can you help us understand why the big disparity and why someone might want to have maybe a fractional exposure to Ether or even an ETF exposure to Ether over Bitcoin?

KURT MACALPINE: Sure. So when you're looking at the various cryptos, Mike's certainly your expert there. I think from CI's perspective, it's important for us as Canada's largest independent asset manager and Canada's largest independent wealth manager to make sure that we're offering clients exposure to a variety of different strategies and as many strategies as possible. So when we think about servicing our clients, what we're really looking to do is to deliver what they're looking for in whatever format and structure that they're most interested in.

So the relationship we started with Mike and the team at Galaxy started in the Bitcoin space in a closed end fund. The Canadian marketplace opened up and allowed us to do an ETF, which we launched together. We followed that up with a Bitcoin mutual fund, and now we're bringing to market the world's first Ethereum ETF. So for us, it's all about exposure, and I think I'm very excited by the fact that the Canadian regulator has approved these strategies. Because now clients don't have to go away from their advisor to access cryptocurrencies, which is essentially what they were forced to do beforehand by not having a managed product in the marketplace. They were forced to hold them in wallets sitting outside of that very important, very critical advice based relationship.

- Hey, Kurt, when you're taking a look at this investment, I think a lot of investors would ask themselves, why buy this ETF versus just investing in Ether directly or in other cases, just directly investing in those cryptocurrencies? What's the case for that?

KURT MACALPINE: I think there's two things to consider. One is fees. So we not only have the world's first Ethereum ETF, we also have the lowest fees globally. So our management fee is normally 40 basis points, which we've waived to 0 through June 15. But then, secondly, which is the point I just touched on, I think people need high quality financial advice. So we have Canada's largest independent wealth management platform. We also have the fastest growing RA platform or private wealth platform in the US as well, and we get a lot of inbound demand from clients asking us, how do they think about digital assets? How do they fit in their portfolio? How does it stack up from a deployment of capital relative to other asset classes?

So now having it in this friendly format and structure, it allows them to get advice based upon those particular assets, which they couldn't do in the case of Ethereum as of yesterday. So I'm very excited. When people look at our strategy relative to other options, it's the cheapest you can buy. I think Mike and his team at Galaxy are the world leaders in crypto, which is why we were very excited to partner with them, and also now people can get access to it through their financial advisor, which I think is absolutely critical to think about it as part of a holistic balanced, advice based portfolio and relationship.

ADAM SHAPIRO: Mike, what do you think the Canadian regulators understand or are doing that the regulators here in the United States do not? Because we have to go across the border if we want to take part in this trade.

MIKE NOVOGRATZ: Yeah, listen. The Canadian regulators are one step ahead. There's no doubt about it. It is surprising to me that the SEC has been so slow. I assume with Mr. Gensler now taking the seat officially, that's going to speed up. He understands crypto well, and he likes Bitcoin and Ethereum. He taught a class on it at MIT. It makes no sense that we've been so slow, right? They allowed the Grayscale Trust-- which was a pretty tough way for retail to participate, right? They paid high fees and traded at a premium to the price of the underlying for many, many months, and now it's trading at a big discount. Yet the SEC allowed that, but didn't allow an ETF. I think shame on them, and hopefully Canada is showing the way.

- Mike, we've got to ask you about Dogecoin, because this has been something that's been trending here on Yahoo Finance. And just taking a look at the chart, it's been pretty astonishing. Yes, today, it's giving back some of those gains, although it's only off just over 10%, and the gains over the past week have been just extraordinary. I'm curious to get your thoughts on this, because it started out as a joke, yes, but some investors are finding a reason to buy it.

MIKE NOVOGRATZ: Yeah, you got to be very careful with Doge. It's a dog. No pun intended. This is very much like GameStop, where these meme coins tap into something in the young, new investor base, and it becomes fun. And it builds on some momentum, and they want to go after the shorts. It's very wrong to compare Doge to Bitcoin or the other coins, right? The amount of CaPex and OPEX that goes into keeping the Bitcoin network decentralized, up and running each year is immense. The amount of developers working in and around the system.

But you've got to be careful to be short Doge. As you see, it's rallied 2,000% or something in the last few weeks, and it's down 20% from the highs today. I don't think it's going to have legs. I quite frankly don't, because it's all retail. And all of a sudden, there's nobody behind it. There's no institutions coming in. There's no strategic buyers. There's no one working on how do you make Doge part of your portfolio. This is a retail phenomenon being driven by the fact that Chairman Powell is giving money to everybody, right? There's too much money in the system, and it's driving asset prices up. And so you see these little crazy episodes from time to time. I still look at GameStop and have no idea how it has a $10 billion market cap.

ADAM SHAPIRO: Kurt, I meant no offense when I said having to go across the border, since I do have relatives in Toronto and Montreal, and I'd be happy to trade there on the Toronto exchange. I am curious, though. This discussion of Dogecoin, which I like to call Dog E Coin. Do you worry that it might undermine confidence in ETFs, and crypto ETFs, and even crypto in general when perhaps Dogecoin-- when the bill comes due?

KURT MACALPINE: I don't think so. I think about when you're investing in products, you really have two separate decisions. What is the asset class or the exposure that you're looking for? And then, ultimately, what is that structure that you're looking to access it in? So in the case of CI and our partnership with Galaxy, we've chosen to focus on Bitcoin and Ethereum for the time being, as Mike mentioned, the largest and second largest digital assets out there. And that's what's important to us. And then, the rationale for the ETF structure is the vast majority of investors are most comfortable transacting in ETFs, but we've also made them available in mutual funds as well. So I would venture to guess that people are going to look at each in isolation, similar to Mike's point on the GameStop phenomenon, and not really carrying that forward to other individual stocks or securities that have very different characteristics and dynamics.

- Mike, you mentioned the fact that there's no institutions behind this so lots of questions about, yes, clearly the real value of it, but where Dogecoin goes from here? We had a guest actually on our air yesterday saying that he expects Dogecoin to cease to exist here in the future. Would you agree with that?

MIKE NOVOGRATZ: It could. These coins are owned by communities, right? There's a decentralization to them, and what I've learned is they're almost like European soccer teams, right? They have their own songs, their mythos, their own vocabulary. If you're part of XRP, you're the XRP army, or if you own LUNA, you're a lunatic. And so they die more slowly than people predict, right?

I think of it sometimes like, when President Trump started getting all this support, you kept scratching your head after he made gaffe after gaffe or did one horrible thing after another. It was like, well, who can keep following him? Who can keep following him? And he never lost his support base. There was this group that they're going to die being President Trump supporters, and in some ways, some of these cryptos will go down slowly. Now, listen. Prices are set on the margin. If there's not new money that moves into the system, the price goes down. And so I do think the price of Doge will head back much lower than it is as the energy gets lost in Doge 4/20 or the excitement of the young kids trying to push it up, but I'm not positive it goes to 0. There will be some die hard Doge community that supports it somewhere.