Mike Novogratz Wants to Build the Goldman of Crypto and List It in Canada

  • After shelving hedge fund plan, he maps out new opportunity
  • Steps include private placement and going public in Canada
Michael Novogratz is starting a merchant bank dedicated to cryptocurrencies. Bloomberg’s Erik Schatzker reports.

Mike Novogratz, the Wall Street trader who became one of bitcoin’s most outspoken champions, is starting a merchant bank dedicated to cryptocurrencies and blockchain-based ventures. And he intends to take it public.

The former macro manager laid out a series of transactions in a statement Tuesday that would, if successful, raise $200 million and, through a holding company, list shares of his Galaxy Digital LP on Canada’s TSX Venture Exchange. He said Galaxy is building a “best-in-class, full service, institutional-quality merchant banking business in the cryptocurrency and blockchain space” and will be active in four areas: trading, principal investing, asset management and advisory work.

The move comes less than a month after Novogratz shelved plans to start a crypto hedge fund. According to a person familiar with his efforts, Novogratz also had been laying the groundwork for Galaxy for months. The fund, had he continued with it, would have sat inside Galaxy’s asset-management unit.

A merchant bank is among the most ambitious concepts to emerge from the speculative frenzy that has characterized the cryptocurrency market. While Novogratz last year described the runup in bitcoin, ether, ripple and other so-called tokens as the “biggest bubble of our lifetimes,” he also has said he believes blockchain -- the computer code that underpins all cryptocurrencies -- will reshape finance just as the internet did communication.

Under the plan announced Tuesday, Galaxy will as a first step buy Canadian crypto startup First Coin Capital Corp. It then will merge with a Canadian shell company, Bradmer Pharmaceuticals Inc., through a reverse takeover and use that entity to raise C$250 million ($201 million) in a private placement of stock next month. Bradmer, to be renamed Galaxy Digital Holdings, will own an interest in the merchant bank and be listed on the TSX exchange.

Goldman, Fortress

Galaxy said it wants to complete the transactions by the end of the first quarter, at which point the shares of Galaxy Digital Holdings will start trading. Unlike an initial public offering, there is no formal filing of financial statements with securities regulators.

Novogratz, 53, is a former Goldman Sachs Group Inc. partner who spent more than a decade at the New York-based bank. He later became a principal at Fortress Investment Group LLC and managed the Fortress Macro Fund before it was liquidated in 2015.

The person familiar with his plans said Novogratz envisions Galaxy as the Goldman Sachs of crypto. According to this person, who asked to not be identified because the information isn’t public, Novogratz is putting substantially all of his crypto investments into Galaxy -- about $400 million of bitcoin, ether, initial coin offerings and stakes in startups such as Xapo, Bitstamp and Ripple Labs.

Initially, Novogratz planned to capitalize on the enthusiasm for cryptocurrencies by raising a $500 million hedge fund. Soon, he expanded the idea to a hedge fund inside a merchant bank. Novogratz was ready to take money from his investors and start trading when, in mid-December, he changed his mind.

“We didn’t like market conditions and we wanted to re-evaluate what we’re doing,” he said on Dec. 22.

Avoiding Conflict

Novogratz said at the time he was concerned about the prospect of buying bitcoin or ether for clients, while simultaneously selling crypto investments in his personal account. Now, by exchanging those same investments for equity in the merchant bank, he can avoid that conflict.

Galaxy said its purchase of First Coin and the reverse takeover of Bradmer are subject to shareholder approval, due diligence as well as customary legal, regulatory, tax and commercial considerations.

In addition to Novogratz, who’ll be chairman and chief executive officer, the management team at Galaxy will include Richard Tavoso, the former head of global arbitrage at RBC Capital Markets; Christopher Ferraro, formerly with HPS Investment Partners and BlackRock Kelso Capital Advisors; and David Namdar, who previously worked for Millennium Partners and UBS AG.

The private placement is being led by a unit of GMP Capital Inc.

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— With assistance by David Scheer

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