Mike Novogratz, founder and CEO of crypto trading bank Galaxy Digital (GLXY.TO), released a public letter Wednesday outlining his perspective on the Terra (LUNA) and UST price plunge.
"Upon reflection, it's time to talk about last week and, more importantly, the weeks ahead," said Mike Novogratz, who is back on Twitter for the first time in 10 days.
The tweet links to a longer letter in which Novogratz reminds readers that it's been a "brutal macroeconomic environment" for all risk assets in 2022, with any number of growth stocks down 50-70%, core cryptocurrencies like Bitcoin (BTC) and Ether (ETH) down nearly 60%, and altcoins averaging 80% below their all-time highs. Central banks, Novogratz said, are turning off the money spigots, which have contributed to a massive liquidity bubble.
Novogratz says, "This macroeconomic backdrop put pressure on Luna and the reserves held to support UST. UST growth had exploded due to the 18% yield offered by the Anchor protocol, which eventually crowded out other uses of the Terra blockchain. The downward pressure on reserves associated with UST withdrawals triggered a stress scenario that resembled a 'run on the bank.'"
The "flash crash" in Terra and UST, Novogratz said, underscored, among other things, the need to take profits along the way. Galaxy has done just that, he added - something that was hinted at in a filing earlier this month.
While Novogratz remains very optimistic about the outlook for cryptocurrencies, he believes those hoping for a "V" low in the market are likely to be disappointed. "It will take a restructuring, a redemption cycle, a consolidation and a new confidence in cryptocurrencies," he said. Crypto moves in cycles, and we just experienced a big one."