- Billionaire hedge fund manager Mike Novogratz cautions investors for calling a bottom to cryptocurrencies and to scale down carefully.
- Cryptocurrency markets are more intertwined than ever with financial markets, making it impossible to ignore macro considerations. Asset class has also never lived through a recession or policy tightening.
Months before TerraUSD and its associated LUNA token imploded, billionaire hedge fund manager and CEO of Galaxy Digital Holdings, Mike Novogratz had a LUNA-inspired tattoo emblazoned on his upper arm, which he proudly broadcast over Twitter.
Today, Novogratz, who was a self-declared “Lunatic” (someone who supports the LUNA token) will have a painful and somewhat public reminder of the rough and tumble world of cryptocurrencies, that remains exceedingly unpredictable.
But even with the cryptocurrency markets reeling from the fallout of the collapse of TerraUSD and LUNA, Novogratz is warning that it’s too soon to call a bottom.
Noticeably silent after the collapse of TerraUSD, Novogratz this week came out to publicly concede that LUNA was an ambitious project that had failed.
Perhaps burned from that experience, Novogratz is now warning that even though altcoins are down 80% from their all-time-highs, should their losses accelerate to the same degree that they did in 2018, these tokens could stand to lose a further 70%.
Going on Twitter, Novogratz warned that “picking bottoms is dangerous,” advising traders to “scale in slowly.”
With financial markets facing a mass of macro headwinds, cryptocurrencies have slid alongside tech stocks, an asset class that it continues to share a strong correlation with, but the collapse of TerraUSD and LUNA plummeting to zero, have made matters worse.
Stalwart cryptocurrencies like Bitcoin and Ether are now down by over half from their peak last November, while mainstay cryptocurrencies like XRP and Solana have lost around 70%.
Meme cryptocurrencies like Dogecoin and Shiba Inu have pushed losses closing in on 80%.
NFTs or non-fungible token sales, once the hot new sector in cryptocurrencies, have seen trading volumes plunge, along with prices.
To be sure, the cryptocurrency world has seen conditions just like this before, only to rise up from those ashes in a spectacular way.
Nevertheless, Fed tightening and the selloff in stocks and bonds has seen cryptocurrencies slide alongside the broader market.
Somewhat surprisingly though, some investors at least are using this opportunity to “buy the dip.”
Last week, some US$255 million flowed into Bitcoin-centric products, and spot volumes remain elevated, a sign that seller fatigue may soon be setting in.
But assessing the cryptocurrency market in isolation is dangerous.
Unlike in 2018, the cryptocurrency crash was mainly isolated and affecting those involved in the industry, but since then, the sector has grown substantially and there are worries of contagion risk from the failure of a systemically important stablecoin such as Tether.
Investors looking at charts and the past are also hamstrung because back then, cryptocurrencies just weren’t as big an asset class as they are today and the sector has never had to live through a recession or tighter monetary policy.
In 2009, Bitcoin was created in response to the profligate money-printing by central banks in response to the financial crisis, but what happens when policymakers turn off the tap and reverse course?
