On May 18, the billionaire investor and crypto proponent Mike Novogratz published a post about the recent Terra blockchain fallout. Novogratz and his firm Galaxy Digital were big believers in the Terra project, and the investor even got a LUNA-centric tattoo on his arm. Despite the recent events and losses, the crypto economy felt this past week, Novogratz stressed that he still firmly believes the “crypto revolution is here to stay.”
Novogratz reflects on Terra’s disappearance: “It’s time to talk about the last week”
Just recently, Bitcoin.com News reported on the implosion of LUNA and UST and the big backers who invested in Terraform Labs. One of the investors mentioned in our report was billionaire investor and crypto promoter Mike Novogratz. For a while, Novogratz and his company Galaxy Digital were big believers in the Terra ecosystem. On January 26, 2021, Bloomberg quoted Novogratz and the investor called the Terra blockchain project “the canaries in the coal mines of what else is going to happen.”
Novogratz also got a LUNA-themed tattoo and said he was “officially a Lunatic.” After the UST de-pegging incident and the entire Terra ecosystem getting obliterated, Novogratz was not as talkative as he usually is on Twitter. On Wednesday, May 18, Novogratz tweeted for the first time since May 8, 2022. “After much thought, it’s time to talk about last week and, more importantly, the weeks ahead,” Novogratz said. In addition to the tweet, Novogratz left a link to a blog post that discusses the Terra fiasco in detail.
“There is no good news in what happened in the markets or in the Terra ecosystem,” the investor detailed in his blog post. “In Luna and UST alone, $40 billion in market value was destroyed in a very short time. Both large and small investors have seen profits and wealth disappear. The collapse has shaken confidence in crypto and [decentralized finance]. Whenever money is lost in such a brutal fashion, people want answers. I will try to add some ideas to the current discussion.
Novogratz then got into Galaxy’s principal investments in LUNA starting in Q4 2020, and how the team noticed that the project had “more than 1.8m users and was a top 5 finance app in South Korea that we considered had significant growth potential.” Galaxy was “intrigued” by the Terra ecosystem, and thought of it as “an example of crypto finding a real-world use case.” Then the investor noted that the global macro backdrop did a number on many risk assets this year, and he believes the “macro backdrop put pressure on Luna and the reserves held to back UST.” Novogratz added:
UST’s growth had exploded from the 18% yield offered in the Anchor protocol, which eventually overtook other uses of the Terra blockchain. The downward pressure on reserve assets, coupled with UST withdrawals, triggered a stress scenario similar to a “run on the bank”. The reserves were not sufficient to prevent the collapse of the UST.
Novogratz Highlights the ‘Core Tenets of Investing’ — Galaxy Founder Says ‘It’s Important That Less Experienced Market Participants Only Risk What They Are Comfortable Losing’
Novogratz said that the LUNA and UST incident shined a light on some core tenets of investing which include diversification, taking profits along the way, risk management, and an understanding of investing under a macro framework. The billionaire investor said that Galaxy Digital kept to these core tenets when it came to its investments in LUNA.
“Reading the stories of individual investors who lost their life savings in a single investment is heartbreaking,” says the Novogratz blog. “A fundamental tenet of the crypto belief system is equal access to markets. But it is important that less experienced market participants only risk what they are comfortable losing. I’ve often said that people should allocate 1-5% of their assets to space.
The Galaxy Digital founder concluded by noting that he’s still a firm believer in the crypto space but that does not mean the bottom is in and the market will be going straight up after this. “It will take restructuring, a redemption cycle, consolidation, and renewed confidence in crypto. Crypto moves in cycles, and we just witnessed a big one,” Novogratz added.
