Mike Novogratz, the billionaire investor behind Galaxy Digital Holdings, has expressed his opinion on the Terra ecosystem meltdown. The businessman whose company is one of the backers of Terraform, the operator of the Terra blockchain, said that it is not yet over for cryptocurrencies despite the Terra crisis.
Novogratz made the comment on May 18, in a letter sent to Galaxy investors and shareholders. He said that despite the crash of UST and LUNA, that the crypto space still has a lot of potentials. What happened to the Terra ecosystem is another illustration of the volatility and risks associated with digital assets.
A Dent On The De-Fi Space
In the update seen on his company’s website, Mike Novogratz said that what happened to LUNA and UST investors is a dent to the industry. He explained that the meltdown shows how quickly profits can be made in the industry and also how quickly they could be lost by retail and big investors.
In the letter to the shareholders of the company, the founder said that $40 bullion lost by investors is a demerit to the De-Fi space. He also said that since the funds were lost so quickly, there is a need to give answers to investors.
A Good Idea That Didn’t Work
According to him, what happened to UST, an algorithmic stablecoin is a great idea that couldn’t work. The idea may seem good but there have been debates around it in crypto circles.
Novogratz said that what makes cryptocurrencies unique is that everything about them is transparent. He maintained that the Galaxy team first put investment funds into LUNA in Q2 of 2020 after due assessment. The attraction was mainly due to the increasing interest in blockchain payments. For example, a Korean payment app, Chai, had 1.5 million users by 2020. The investment team were confident that it is a space that had great potential for growth.
The letter says:
“We were intrigued by this project as an example of crypto finding a real-world use case. Since we made that initial investment in 2020, the ecosystem evolved significantly. When we make investments in ecosystems, we look for a driven founding team with a unique idea and follow the usage of that project.”
Why LUNA Price Crashed
Novogratz said that the key factors considered during assessments were present in Terra LUNA. These are investor support for the project, the commitment of developers and the activity on the network.
With respect to what happened to the Terra ecosystem, Novogratz said that the macro backdrop of negative cash flow of 50-70%, falling prices of crypto assets and central banks early stage “of unwinding a massive liquidity bubble” put massive pressure on LUNA and the Terra reserves backing the Terra stablecoin, UST.
The Galaxy boss stated that the company’s policy towards investments has not changed. He added that they had taken appropriate risk management and profit-taking practices, even with the LUNA.
Crypto Recovery Will Be Slow
Since the macro economic factors that led to the crash of LUNA and the fall in prices of digital assets are still very much around, recovery will not be fast. This is the opinion of Novgratz, who said,
“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 said that even though crypto isn’t going away, people shouldn’t invest more than 1-5% of their portfolio to the space.
Photo Credit: Bloomberg