Inside The Trade That Made Mike Novogratz An AI Kingpin—And Could Net Him $20 Billion |
Chaos creates opportunity. Few recognize it in the moment; even fewer are willing to write a large check before the dust settles. Former Goldman Sachs trader Michael Novogratz had no trouble writing the check. What he didn’t yet grasp in December 2022 was how consequential his contrarian, defensive bet would be.
That month, with crypto reeling from the collapse of Sam Bankman-Fried’s FTX empire and the bankruptcies rippling outward, Novogratz’s Galaxy committed $65 million to acquire a 160-acre bitcoin mining operation in Dickens County, a sparsely populated expanse of Texas about 330 miles northwest of Austin.
“It most likely will be my best investment by a long shot,” says Novogratz, 61.
On its face, the deal looked almost willfully mistimed: a major investment in mining infrastructure at precisely the moment the industry was reckoning with its excesses—a toxic stew of bad leverage, bad counterparties and unchallenged assumptions. More than $1.5 trillion worth of digital assets had evaporated that year; bitcoin and ether were both down more than 60%.
Earlier in 2022, as signs of stress began appearing across the industry, Novogratz’s firm grew uneasy about the amount of capital it had tied up in crypto-mining chips housed in third-party data centers. “We got concerned that we had some real sizable capital invested in assets that were sitting in control of people whose credit quality was declining,” recalls Christopher Ferraro, Galaxy’s president and chief investment officer.
The seller, Argo Blockchain, had what Galaxy needed: a site known as Helios on inexpensive land with cheap power and a labor pool in nearby Lubbock. The transaction that followed was neither clean nor simple. It was part bailout, part legal choreography, part financing structure designed to extract the underlying partially built facility while keeping its distressed operator alive long enough to complete the deal.
At the time, Helios looked like a hedge—an exercise in control and risk management during a brutal downturn. It would take more than a year for Novogratz and his team to fully understand they had bought something else entirely.
By late 2023, with bitcoin prices hovering around $38,000, down 40% from their November 2021 high, Novogratz began asking a different question: whether bitcoin mining was the best use of the asset Galaxy had just acquired. A few months later, Novogratz was stuck on a plane with his friend Christopher James, founder of the San Francisco-based activist investment firm Engine No. 1, who gave the billionaire a two-and-a-half-hour lecture on a looming power shortage—one that had little to do with bitcoin and everything to do with artificial intelligence.
Others were waking up........