Currencies

Mike Novogratz Offers 4 Investing Tenets, Sees More Crypto Volatility

  • Mike Novogratz said crypto volatility will continue and that the macroeconomic environment will remain tough. 
  • The founder of Galaxy Digital also shared four tenets of investing after last week’s crypto crash.
  • “It was a big idea that failed,” he said in a letter to investors about Terra, which collapsed last week.

Galaxy Digital founder and CEO Mike Novogratz broke his silence Wednesday and offered his first comments since last week’s crypto crash.

While his company provided an update a week ago with details about its


liquidity

and a warning of a quarter-to-date loss of $300 million, he had personally made no public comments or tweets about the recent crypto collapse.

“At a high level, it’s important to understand that


volatility

is likely to continue, and the macro situation is going to remain challenging,” Novogratz wrote in a letter to shareholders Wednesday. “There is no cavalry coming to drive a V-shaped recovery. The Fed can’t ‘save’ the market until inflation falls. So, liquidity is important. Being realistic is important.”

He also said that the downfall of the stablecoin TerraUSD was a “big idea that failed,” but remained optimistic that his firm and the broader cryptocurrency community would eventually bounce back.

Last week, the Terra lost its peg to the dollar as sister currency Luna plunged and is now nearly worthless. Earlier this year, Novogratz got a Luna tattoo on his arm, which he said Wednesday now serves as a “reminder that venture investing requires humility.”

But the crash of Terra and Luna reinforced four investing tenets, which he said especially apply to crypto:

  1. keep a diversified portfolio
  2. take profits along the way
  3. have a risk management framework
  4. understand that all investments happen in a macro framework

Novogratz’s letter comes after the cryptocurrency market saw hundreds of billions of dollars in value disappear with the stablecoin debacle. Terra, an algorithmic stablecoin that uses complex code to mint and then burn cryptos to maintain a one-to-one peg to fiat currencies, plummeted to near zero last week in a flash that sent shockwaves across the cryptocurrency community.

Meanwhile, regulators are using the Terra downfall as a reason to sound the alarm and call for greater regulation and oversight in the cryptocurrency space. Treasury Secretary Janet Yellen said on May 12 that stablecoins represent “a real threat to financial stability.”

While Novogratz remained upbeat on crypto’s long-term future, he cautioned in his letter that “This does not mean the crypto market will bottom and head straight back up. It will take restructuring, a redemption cycle, consolidation, and renewed confidence in crypto. Crypto moves in cycles, and we just witnessed a big one.”

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