Billionaire Investor Mike Novogratz on Rise and Fall of the Terra ($LUNA) Ecosystem

On Wednesday (May 18), former LUNAtic Mike Novogratz shared his latest thoughts on the $LUNA / $UST debacle.

Former hedge fund manager Novogratz is the Founder and CEO of Galaxy Digital, “a technology-driven financial services and investment management firm that provides institutions and direct clients with a full suite of financial solutions spanning the digital assets ecosystem.”

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Yesterday, in an open letter to his firm’s shareholders, friends, partners — as well as the crypto community — Novogratz, who had been mostly silent about Terra during the previous week, said that there was “no good news in what happened in markets or to the Terra ecosystem.”

Below are a few highlights from his letter:

  • In Luna and UST alone, $40bn of market value was destroyed in a very short amount of time. Both large and small investors saw profits and wealth vanish. The collapse dented confidence in crypto and DeFi.
  • Our principal investments team invested in Luna in Q4 of 2020 using balance sheet capital. Our team’s initial thesis for investing in Luna was centered around the expansion of blockchain-native payments systems.
  • … the global macro backdrop has been brutal for all risk assets this year… Central bankers are in the early stages of unwinding a massive liquidity bubble…
  • This macro backdrop put pressure on Luna and the reserves held to back UST. 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 reserves weren’t enough to prevent UST’s collapse.
  • With hindsight things always look clearer. My tattoo will be a constant reminder that venture investing requires humility.
  • At a high level, it’s important to understand that volatility is likely to continue, and the macro situation is going to remain challenging. 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.
  • Crypto is not going away. The amount of human capital moving into the space isn’t slowing down… 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.

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The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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