Stephen Alpher
Stephen Alpher is CoinDesk's co-regional news chief, Americas. He holds BTC and ETH above CoinDesk’s disclosure threshold of $1,000.
Mike Novogratz, founder and CEO of crypto merchant bank Galaxy Digital (GLXY.TO), on Wednesday posted a public letter describing his perspective on the plunge in LUNA and UST.
"After much thought, it's time to talk about the last week and, more importantly, the weeks ahead," said Novogratz, returning to Twitter for the first time in 10 days.
The tweet links to a longer letter in which Novogratz reminded readers that it has been a "brutal macro backdrop" for all risk assets in 2022, with any number of growth stocks down 50%-70%, core crypto assets like bitcoin (BTC) and ether (ETH) off nearly 60%, and altcoins lower by an average of 80% from all-time price highs. The central banks, he said, are turning off the monetary spigots that contributed to a massive liquidity bubble.
Novogratz: "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 "flash-crash" in Terra and UST, said Novogratz, reinforced – among other things – the need to take profits along the way. Galaxy did just that, he added – something that had been alluded to in a filing earlier this month.
While remaining highly bullish on the outlook for crypto, Novogratz said those hoping for a "V" bottom in the market are likely to be disappointed. "It will take restructuring, a redemption cycle, consolidation and renewed confidence in crypto. Crypto moves in cycles, and we just witnessed a big one."
