Mike Novogratz, the same person who left Fortress Investment Group due to continuous losses, is now investing in cryptocurrencies, Bitcoin to be specific. He intends to start a $500 million hedge fund dedicated to cryptocurrencies. Novogratz confirmed that he plans to make a contribution of $150 million using his hard-earned money, and will somehow raise $350 million more by January 2018. He claims that he will collect the remaining $350 million by using connections with similar hedge fund managers and other wealthy individuals.
Novogratz is just one of many people who have shown interest and acceptance in cryptocurrencies. This support signals the slow but gradual acceptance of cryptocurrencies as a legitimate investment trade. For Novogratz, this investment may as well be his attempt to win back the losses he experienced at Fortress Investment Group.
During an interview conducted Bloomberg Television, Novogratz neither confirmed nor denied the rumors about him raising the hedge fund, stating that there are certain regulatory constraints. While this raises the question of the validity of the fund, he ended up talking about his positive viewpoint and experiences with digital currency, explaining his reasons and motivations for trading cryptocurrencies.
He then proceeded to explain how profit can be made by trading in digital currency, showcasing his intentions to make the most out of the ever-growing industry of cryptocurrency.
Profit in Digital Currency Trading
At the beginning of the month, caused by China banning the use of digital currencies and JPMorgan’s statements against Bitcoin and cryptocurrencies in general, the value of Bitcoin significantly dropped from approximately $5000 to $3000. He recounted the impact of this event to his trading rates, proudly saying that he was able to sell Bitcoin for $5000 and rebuy it at $3000, earning a profit of around $2000 in the process.
Since cryptocurrencies rely on the libertarian and decentralized structure of digital currencies, most investors are being careful and cautious. Aside from Novogratz, there are only two other hedge funds that are willing to take the risk of investing in cryptocurrencies: MetaStable Capital and Polychain Capital.
These two hedge funds have succeeded in amassing tens of millions of dollars, but Novogratz’s fund is currently the largest one among them, aiming to raise funds that are twice the amount of the goals of the other two. This significant gap between the target funds is caused by the scope that is covered by Novogratz’s fund, such as arbitrage, market-making, stakes, and venture investments.
So far, Novogratz was able to recruit two experienced traders to be partnered with him: David Namdar, a worker at the UBS AG, Millenium Partners, and Marto Capital, and Richard Tavoso, a former head of RBC Capital Markets.
Is Bitcoin a fraud or an opportunity?
Out of caution or indifference, large institutions have avoided involvement in the industry of cryptocurrency. JPMorgan’s CEO Jamie Dimon expressed his negative views and impressions about digital currencies, even going so far as to call Bitcoin a “fraud” and remarked that he would fire any of his employees for trading it.
While most practice caution, Novogratz jumps into the action, seizing the opportunity at its earliest despite the risks. He continues to talk about the cryptocurrency market, noting that its process is similar to every other market. The presence of greed for profit and fear of losses are inevitable for every investor, because risks will exist no matter what.
Novogratz doesn’t mind the risks, if anything, he thrives in them. Perhaps his thirst for uncertainty could be stemmed from his days as a wrestler and a helicopter pilot. He was involved in the Bitcoin industry even before cryptocurrency exploded, and saw his return of investments grow significantly only after its sudden burst of popularity.
His interest in cryptocurrency, he recounts, began in 2015, when he went to visit a friend’s startup campaign. Novogratz wasn’t expecting much of the meeting, so he was pleasantly surprised when he saw numerous passionate young people with actual goals and plans of running the industry. Witnessing the sight sparked a fire in him, he says. His instinct had told him that the business would reach certain heights, and amidst the risks and uncertainties, he set aside a good amount of his funds for cryptocurrencies.
How Novogratz earned a profit of $250 million by trading digital currencies
He decided to invest in ether, the currency of the Ethereum network. He purchased $500,000 worth of ether tokens, each costing less than a dollar each at the time. After the transaction, Novogratz took a break and left for a vacation in India. A few weeks later, he returns and the value of ether tokens had increased more than five times compared to the price when he first bought it. Seeing the opportunity and potential of cryptocurrency, he decided to invest some more.
In the span of a year, from 2016 to 2017, Ethereum reached the value of $400 per ether token and Bitcoin topped $2500. Novogratz was able to trade his readily-purchased cryptocurrencies for a good amount of cash, estimated to be at least around $250 million all in all. He declared that this was the largest amount of profit he earned from single trade for the entire lifetime of his investing career. From the profits he earned trading cryptocurrencies, he was able to pay his taxes, buy a private jet, and donate to a project regarding the reformation of criminal justice.
Cryptocurrencies will change the way we live, Novogratz adds
Using the example of how the “railroad bubble” paved the way for advancements in the field of transportation, Novogratz claims that cryptocurrencies will reform the way money is spent and exchanged. Needless to say, he believes cryptocurrency to be a revolutionary form of cash; a movement and product worth investing in.
He estimates that 20% of his net worth is invested in cryptocurrencies. Bitcoin mining, initial coin offerings, trading platforms, and blockchain technology are only few among the cryptocurrency-related services that his investments cover.
Novogratz could utilize his $500 million hedge fund to be able to get more involved in large scale trading opportunities and claim a highly influential position over fellow entrepreneurs and investors. It is said that he will charge 20% from profits and 2% as a management fee.
Learning from his humbling mistakes which led him to leave Fortress, Novogratz is back in the investing game; wiser, stronger, and still with his undying love for risks.