Big Terra Investor Mike Novogratz Finally Speaks Out On UST/LUNA Disastrous Fallout ⋆ ZyCrypto

In his memo, Novogratz notes that the global macro backdrop this year has been generally brutal for all risk assets, with growth stocks down 50%-70% and leading crypto assets bitcoin and ethereum retracting 58% from all-time highs. Altcoins have also lost around 80% of their value since their peaks.

He reminded readers that central banks are “unwinding a massive liquidity bubble” created by pumping trillions of dollars into the financial system in an effort to fight the economic fallout of the pandemic. The Galaxy Digital CEO believes this macro backdrop put a lot of pressure on Terra’s native token LUNA as well as the reserves allocated for backing the UST stablecoin.

“UST’s growth had exploded from the 18% yield offered in the Anchor protocol, which eventually overwhelmed other uses of the Terra blockchain. The downward pressure on reserve assets coupled with UST withdrawals triggered a stress scenario akin to a “run on the bank”,” the Wall Street veteran wrote.

Novogratz’s Galaxy Digital invested in LUNA in September 2020 using balance sheet funds. He cited the “expansion of blockchain-native payments systems” as the firm’s investment thesis. In a show of his conviction in the Layer 1 network, Novogratz got himself a tattoo of a wolf howling at the moon and the word “LUNA”.

Like many investors, Galaxy Digital was certainly dealt a blow in recent weeks. The firm expects to post $300 million losses in net income for the quarter as its capital plunged by 12% to $2.2 billion.

However, Novogratz said, Galaxy will be able to weather the LUNA and UST storm because of its diversified portfolio and constantly taking profits. “With our diversified business lines, Galaxy remains in a strong capital and liquidity position. We are well-positioned for long-term growth,” he added.

That said, the billionaire investor will take his LUNA-inspired tattoo as “a constant reminder that venture investing requires humility”.

One Bad Apple Won’t Affect Crypto’s Long-Term Outlook

The scale of the wreckage and pain inflicted on LUNA investors following the collapse of the Terra network last week will forever be etched on the memories of crypto enthusiasts.

In Novogratz’s opinion, the Terra implosion has significantly dented investors’ confidence in crypto and decentralized finance as people digest how abruptly the crash happened.

Nonetheless, crypto is not going away. He’s optimistic the broader crypto ecosystem will recuperate and grow continuously, but he tells investors not to expect a V-shaped rebound in the short term. “It will take restructuring, a redemption cycle, consolidation, and renewed confidence in crypto.”

Meanwhile, Novogratz advises less experienced market participants to use proper risk management strategies and only invest capital they are comfortable losing.