Interview with Mike Novogratz: What mistakes did Galaxy Digital make in this bear market?

Original title: "Mike Novogratz on His Big Crypto Mistake and What's Ahead for Bitcoin"

Original author: Jen Wieczner

Original compilation: Moni, Odaily Planet Daily

Mike Novogratz used to be a senior traditional hedge fund manager, but his real success came after he entered the encryption industry. As the CEO of Galaxy Digital, a blockchain investment company, Mike Novogratz established his own in this field reputation and word of mouth.

When the billionaire was asked what he was most interested in, Mike Novogratz said bluntly that LUNA was his favorite Token. In January 2022, when the price of LUNA soared to $100, Mike Novogratz couldn't hide his excitement. He tattooed a wolf howling at the moon tattoo on his arm to express his excitement.

However, who would have thought that in less than half a year, LUNA staged an "epic level return to zero", and the market value of 50 billion US dollars evaporated instantly. As a former super fan of LUNA, Mike Novogratz couldn't hide his frustration when talking about the crash, and he didn't want to mention the past of being a LUNA platform. However, it is also fair to say that when the cryptocurrency skyrocketed last year, Mike Novogratz did remind the crypto upstarts to be cautious, and suggested that they can appropriately set aside part of their funds to buy real estate instead of dumping money in the crypto market. out of the bag.

It's not just LUNA, in fact, Galaxy Digital suffered a lot from the downturn that engulfed the entire cryptocurrency market, and of course, Mike Novogratz himself was not spared (BTC in recent days, the price has gone from nearly $70,000 to The peak fell below $20,000, while ETH  , as the second largest cryptocurrency, fell directly below $1,000 after reaching a high of nearly $5,000, and Mike Novogratz's net worth has also shrunk significantly).

In addition, in this wave of crashes, DeFi is also one of the most severely affected vertical fields. For example, the encrypted lending platform Celsius is one of them. After the company encountered a severe financial crisis, it was suspended due to concerns about insufficient liquidity All withdrawals, transactions and transfers between accounts.

It is no exaggeration to say that this crash in 2022 has caused heavy casualties for a large number of cryptocurrency funds and gradually spread to the entire industry. repeat.

As mentioned at the beginning, Mike Novogratz was a senior hedge fund manager who has been working on Wall Street for so long and is very familiar with this situation, but he still admits that this plunge is very unexpected. Unexpected, and taking too many risks in the meantime. In a recent interview, Mike Novogratz deeply reflected on the events of this experience. Although he couldn’t hide his disappointment, he did not lose confidence. He frankly said that he should learn lessons and prepare for the next bull market.

Q: A lot of people will say in hindsight, "We told you that cryptocurrencies are a scam." But is that true?

Answer: I have to say that you have to look at things objectively. If you bought Zoom stock or BTC when the new crown epidemic first started, then the money you made through BTC has doubled by today, but Zoom will make you nothing. I think maybe that's what people don't understand. In fact, for many asset classes, we hope to gain benefits through speculation, but we must first learn to distinguish the good from the bad, and don't waste food because of choking. When we want to throw away something we don't want, remember not to lose its valuable that part.

So I think that BTC as a macro asset will not disappear, and neither will Web 3. On the contrary, in the future, we will spend more time in the metaverse, and the platform will continue to sell digital assets, and for digital assets to have value, they must be unique, and this must be built on the blockchain basically.

Since this is the case, is there still controversy about the encryption ecosystem? The answer is of course yes, because this is a very amazing mechanism. Once you own a Token in a certain ecosystem, you can get benefits from people who also buy the Token, and these people in the same ecosystem are quite formed a tribe.

Nowadays, I'm loved by some ecosystems and hated by others because of how I judge them and how hostile they are to us when I don't like an ecosystem It was born. So, to this day, I get attacked for expressing what I really think. But I still firmly believe that "standing in line" cannot affect long-term major investment decisions.

Q: How do you see this cryptocurrency crash, is it different from the past - like 2018 or 2014? How do you understand this?

A: Like Beauty and the Beast theme song "Tale as old as time", obviously, these assets that we have are on the bubble, but when it crashes, you always You will find that people add all kinds of weird and a lot of leverage. And even if you know that many people have increased leverage, you still don't want to believe the fact that those people are actually gambling when it crashes.

I hope that the crypto market crash in June is the worst, and if I know that the inflation problem is likely to be more serious in the next two quarters, then I will definitely have more confidence in cryptocurrencies. But if you have a sell order, that means a sell off is likely, ethereum has gone down to $890, bitcoin down to $17,900, I don't think the risk is relatively great for crypto, we could very well have a depression, But for cryptocurrencies, this is not terrible, but the macroeconomy, such as the stock market, is not very favorable.

Q: Do you think cryptocurrencies are not bad? Why is there such a conclusion?

A: I'm not saying cryptocurrencies aren't bad, but cryptocurrencies need a pause too. We know that the "carriage" that pulls the cryptocurrency industry forward is Bitcoin. In the crypto winter, Bitcoin is still the only thing that is scarce. The Federal Reserve must slow down the speed of printing money, because if it does not do so, economic growth will slow down. We know that there is still inflationary pressure in the United States, the cryptocurrency market will fall, and Bitcoin will also fall, but in the encryption industry Many other verticals are developing.

Q: Are you still worried about cryptocurrencies? We know that some recent black swan events in the crypto industry have caused ripple effects, such as Triple Arrows Capital, and it seems that they have collapsed and have wider effects.

Answer: I think people at least understand what happened, time will sort it out, they're either going bankrupt or they're being sold. Just like after 2008, in the financial industry, we Lehman claims, hedge funds and their assets were acquired, and a similar situation will happen in the encryption industry.

However, everyone's biggest worry is probably whether USDT will collapse, and all I can say right now is that you don't need to worry too much, USDT is still very stable for many different reasons (although they are not as stable as we would like. more transparency – after all, everyone wants more transparency). However, I would expect USDT to at least provide a 90-100% liquidity guarantee, and while that doesn't mean you'll experience forced liquidations, it could spark fear in the market, which is what we saw in June.

Q: Coinbase seems to be in trouble recently. People have been worried that the company may go bankrupt. Do you think this is also a threat to the encryption industry?

A: Coinbase has a lot of cash on their balance sheet, but they also have a lot of expenses. So, my guess is that Coinbase CEO Brian Armstrong is going to lower payouts a lot over the next quarter or two, they have a great brand. However, I think Coinbase is now facing one of the worst problems: some traditional big conglomerates want to acquire them. In my opinion, Coinbase is like the "basic asset" of the encryption industry, so I don't think they have the will to be acquired, but will continue to try to operate independently. However, if the encryption winter lasts too long and is too cruel, then Someone will step in and buy them up.

Q: The scary thing about this crypto market crash is that some companies or protocols that have failed are held in high regard in the industry. Luna, of course, and Celsius, a multibillion-dollar company that offers relatively generous interest payments to consumers, do you think you see that?

A: Relatively speaking, I am more worried about the macro environment. I hope Bitcoin stays in the $30K-50K range, Galaxy Digital has not invested in any credit protocols like Celsius, although previously invested in their competitor BlockFi, we exited over a year ago, Because I am not optimistic about this business model. Of course, Galaxy Digital sometimes plays the role of a large investor, such as on Terra  , but actually scales down the holding ahead of time - which is what we do in most cases.

In hindsight, something like Luna simply doesn't give people the 18% interest that Anchor does, their ecosystem grows too fast before they branch out to other use cases, and that's the problem. In my opinion, this is a lesson for the crypto industry. In previous bull markets, the printing presses started to run and everything was going up. The speculative mania in baseball cards, fine wine, watches, and tech stocks has also happened in the crypto space, and I think the speculative mania is basically over now.

Q: Is DeFi also over? Will this market crash raise more questions?

A: To some extent, regulators will come in, Celsius and BlockFi are like black boxes for investors to put money into, but they are not actually a blockchain decentralized financial system, and investors don't know leverage is anything, unless you're behind the scenes. You also don't know about their balance sheet mismatch, short-term borrowing versus long-term borrowing, which is why you die suddenly in the market. A similar situation also happened to financial service companies such as European banks, Lehman Brothers, and Merrill Lynch in 2008. They adopted excessive leverage in the bull market and thought they were geniuses. In the end, everyone knows what happened.

However, Luna and Terra are a bit different in that they are completely transparent. It's just that when the market plummets, Stablecoin's anchoring mechanism cannot withstand the pressure. Unlike traditional finance, the decentralized financial system DeFi is transparent. In general, the DeFi lending system has begun to function, such as projects such as Compound, Aave, MakerDAO, and Uniswap, but during the crypto bear market, their assets will be much less.

Q: So, will the Luna event that Galaxy Digital has experienced this time, and the market crash, change the way you invest in the future?

Answer: The market will judge me, Galaxy Digital is actually doing well, if you look back to 2022, we sold some private equity and venture capital, took a lot of chips off the table, but also left Lots of chips. If I was smart, I'd sell more and take more chips, but it's hard not to be hard on yourself as a trader. If you've been in this business for 30 years, you don't want to lose.

But I think Galaxy Digital has already cashed out a lot. We analyzed before that the Fed will become aggressive, so we decided to take the chips off the table, but looking back, we should have cashed out more aggressively.

Q: Seems like a good time to make money if you're short. Are you already short, or are you considering shorting?

A: Galaxy Digital has never been purely short, otherwise I would have a bigger smile on my face now. Investors trust us and invest in us to be long crypto and make us good risk managers, and as I said before, I hope the bear market doesn't last too long, although we did sell a lot.

I'm sure there are some people who are making lots and lots of money shorting, I can short Coinbase, I can short futures - there are many ways to do it, but Galaxy Digital will only use these tools to hedge us Business.

Q: Is there anything you would avoid altogether? For example, pledge ETH or algorithm Stablecoin, such as Terra Token whose value is basically zero now?

Answer: To be honest, Galaxy Digital has never really participated in the algorithmic stablecoin, we watched but did not participate. We're not betting on ETH, but I do think that staking ETH is going to be big business. So my feeling is that Galaxy Digital will be in this business in the future.

You can think of the total market capitalization of cryptocurrencies as the GDP of the industry, which is currently around $1 trillion, and I think the GDP of the industry is at least $2 trillion, so we should bounce back to 20,000 $100 million level, but it will take some time, and then, over time, the new highs will far exceed the old ones.

Q: So, you think it's kind of like a crypto recession right now?

A: Yes, the crypto market is in recession, and other economies will be in recession too.

Q: So how serious do you think it will be and how long will it last?

A: I wish I had a crystal ball for the future, but I don't, my gut feeling is that the recession will last 18 months, maybe a little shorter, because I don't think the Fed will Pause rate hikes.

Q: Who do you think is responsible for the current crypto crisis?

A: You can blame the Fed, you can blame the new crown virus, of course, these are all jokes, these factors just make the bubble pop faster. In fact, the root of the problem is that many people are using too much leverage, and they are suffering tremendously. Last year, BlockFi raised money at a $5 billion valuation and Celsius was valued at more than $3 billion, but now, those who leveraged too much have paid the price.

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