Mike Novogratz says a CNBC segment on buying a bitcoin rival shows why regulators are clamping down on crypto

Reuters/Rick Wilking

Mike Novogratz speaks at the SALT conference in 2015

• Mike Novogratz poked a little fun at CNBC while speaking to rival Bloomberg about the crypto hype that marked the very beginning of 2018.
• "CNBC, not to pick on CNBC, but I think I can since I am here," Novogratz said.
• He said a segment about buying Ripple's XRP epitomized the "peak nonsense" of the bitcoin mania that swept financial media and markets.

Mike Novogratz, the famed hedge funder turned crypto-enthusiast, poked a little fun at a segment on financial news network CNBC when describing to rival Bloomberg News the crypto hype that marked the very start of 2018.

"CNBC, not to pick on CNBC, but I think I can since I am here, they literally had a show where they were one by one walking people through how to buy the Ripple, the XRP coin, literally when it was trading at $3.20 having moved from $0.20 8 weeks earlier," Novogratz said speaking to Bloomberg's Erik Schatzker.

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Novogratz said that was "peak nonsense."

Ripple's XRP, a bitcoin rival, was technically trading above $2.57 when CNBC broke down how to buy it on exchange operator Poloniex on January 5. Still, the crypto market was red-hot then, with the entire market racing towards an all-time high market capitalization above $830 billion, according to CoinMarketCap. XRP ultimately fell to $0.49 on April 5.

To be sure, many publications created walk-throughs for readers and viewers on how to purchase crypto-assets during the run-up. Business Insider published "Ripple's XRP is the hot new cryptocurrency - here's how you buy it" in January when Ripple was trading at approximately $2 a token.

The second-half of 2017 also saw the rise of initial coin offerings, a quick way to raise funds using cryptocurrency. Many of these fundraisers were promoted by celebrities such as Paris Hilton and Floyd Mayweather.

Novogratz said this phenomenon might be the reason regulators started to clamp down in 2018. But it is something Novogratz, who is building out a crypto merchant bank, thinks is a positive sign for the market.

"So we are going to knock out some of the crap from the system," he said. "It is healthy."

Notably, the Securities and Exchange Commission hit a number of cryptocurrency company with subpoenas. It also recently promoted Valerie Szczepanik to lead its new cryptocurrency enforcement unit. The New York Attorney General's office earlier this year launched an inquiry into cryptocurrency exchanges.

The question now hanging over the space is whether regulators will deem crypto assets as securities, which would require entities that facilitate crypto trading to subscribe to a whole range of regulations.

"I bet dimes to donuts [regulators] are will say 'ethereum probably was a security but it is not anymore,'" Novogratz said.

Novogratz said there are about 200 tokens in regulatory "no-man's land."

Jay Clayton, the head of the Securities and Exchange Commission, didn't provide additional clarity during an interview Wednesday with CNBC.

"I'm not going to comment on specific crypto assets and whether they are a security or are not a security," Clayton told CNBC's Bob Pisani.

CNBC declined to comment.