Crypto Billionaire Novogratz Breaks Silence, Calls Luna ‘Big Idea That Failed’
Mike Novogratz broke his silence on the TerraUSD meltdown, calling it a “big idea that failed” and warning that the tough environment for cryptocurrencies will continue.
The founder of Galaxy Digital Holdings Ltd. and big backer of Terraform Labs, the company behind Terra and Luna, had gone silent for a week. Novogratz spent the time reflecting on the economy and his firm’s role in the crypto industry, he said in a statement on Wednesday.
Novogratz, a former hedge fund trader, blamed the challenging global macro backdrop, and said the coin’s collapse dented confidence in the cryptocurrency and decentralized finance space.
Novogratz said Galaxy Digital first invested in Terraform Labs in the fourth quarter of 2020. He’s since touted his relationship to Terra founder Do Kwon and promoted the stablecoin across social media and the press.
He took to Twitter in January to show off a new tattoo: A wolf howling at the moon, along with the word “Luna.”
Novogratz described how the downward pressure on reserve assets and UST withdrawls triggered “a stress scenario akin to a ‘run on the bank.’”
That run started this month when Terraform Labs’ TerraUSD, or UST — a stablecoin that primarily uses algorithms, rather than collateral, to adjust its supply and maintain a 1-to-1 peg with the US dollar — and its digital coin counterpart Luna lost almost all their value.
“The reserves weren’t enough to prevent UST’s collapse,” Novogratz wrote. “With hindsight things always look clearer.”
Novogratz said Galaxy’s business lines remain diversified and the company is in a strong capital and liquidity position. The company said last week it was bracing for a $300 million hit this quarter.
The billionaire encouraged individual investors who put money into crypto to follow a similar strategy and make sure to keep risk management in mind. Their crypto allocation should be between 1% to 5% of their assets, he said.
“Reading the stories of retail investors who lost their savings in one investment is heartwrenching,” Novogratz said in the letter. “But it’s important that less experienced market participants only risk what they are comfortable losing.”
