Interview with the CEO of Galaxy Digital: What mistakes have we made in this bear market?

Mike Novogratz used to be a veteran traditional hedge fund manager, but his real success came after entering the cryptocurrency industry. As CEO of blockchain investment firm Galaxy Digital, Mike Novogratz has built his reputation and reputation in this field .

When the billionaire was asked what he was most interested in, Mike Novogratz was blunt and said LUNA was his favorite coin. In January 2022, when the price of LUNA soared to $100, Mike Novogratz couldn’t hide his excitement and got a wolf howling at the moon tattoo on his arm to express his excitement.

However, who would have thought that in less than half a year, LUNA staged a scene of “epic zero”, and the market value of 50 billion US dollars evaporated instantly. As a former super fan of LUNA, Mike Novogratz couldn’t hide his frustration when talking about the crash, and he didn’t want to mention the past of the LUNA platform. However, it is also fair to say that Mike Novogratz did remind crypto upstarts to exercise caution when the cryptocurrency skyrocketed last year, and suggested that they can properly allocate some of their funds to buy real estate, rather than in the cryptocurrency market. Pour out.

Not just LUNA, in fact, Galaxy Digital suffered heavy losses from the downturn that swept the entire cryptocurrency market. Of course, Mike Novogratz himself was not spared. With the massacre in the cryptocurrency market, Mike Novogratz’s net worth also shrunk significantly .

In addition, DeFi is also one of the most affected verticals in this crash. For example, the cryptocurrency lending platform Celsius is one of them. After suffering a severe financial crisis, the company suspended all operations due to concerns about insufficient liquidity. withdrawals, transactions and transfers between accounts.

It is no exaggeration to say that the crash in 2022, which has caused a large number of cryptocurrency funds to suffer heavy casualties, and gradually spread to the entire industry, can not help but remind people of the impact of the 2008 financial crisis on Wall Street, and history seems to repeat itself.

As mentioned at the beginning, Mike Novogratz, a veteran hedge fund manager who has been on Wall Street for so long, is all too familiar with this situation, but he still admits that the crash was very unexpected, and that in It also took too many risks during this period. In a recent interview, Mike Novogratz deeply reflected on the events of this experience. Although he couldn’t hide his lost emotions, he did not lose confidence and admitted that he would learn lessons and prepare for the next bull market.

Q: A lot of people will say, “We told you that cryptocurrency was a scam.” But is that really the case?
A: It has to be said that one has to be objective when looking at things. If you bought shares of Zoom or Bitcoin when the COVID-19 pandemic first started, you would have doubled your money in Bitcoin by today, while Zoom will give you nothing. I think maybe that’s what people have trouble understanding. In fact, for many asset classes, we all hope to gain profits through speculation, but we must first learn to distinguish the good from the bad, and don’t give up food because of choking. When we want to lose something we don’t want, remember not to lose the valuables in it. that part.

So I don’t think Bitcoin will go away as a macro asset, nor will Web 3 go away. On the contrary, in the future, we will spend more time in the metaverse, and platforms will continue to sell digital assets, and for digital assets to have value, they must be unique, and this must be built on the blockchain. basically.

That being the case, is there still a debate about the crypto ecosystem? The answer is of course yes, because it’s an amazing mechanism, once you own a token in an ecosystem, you can earn money from the same people who buy the token, and these people in the same ecosystem It’s like forming a tribe.

Today, I am loved by some ecosystems and hated by some ecosystems because I comment on those ecosystems, and when I don’t like an ecosystem, they are hostile to us. . So, to this day, I still get attacked for expressing what I really think. But I still firmly believe that “standing in line” cannot influence long-term major investment decisions.

Q: How do you see this cryptocurrency crash, and is it different from the past – like 2018 or 2014? How do you understand this?
A: Like the “Beauty and the Beast” theme song “Tale as old as time” (an old legend), obviously these assets that we have are in a bubble, but when it crashes, you always find people Added all kinds of odd and numerous levers. And even if you know that many people are leveraged, you still don’t want to believe that those people are actually gambling when the crash occurs.

I hope the cryptocurrency market crash in June is already the worst, and if I know that the inflation problem is likely to be worse in the next two quarters, I will definitely have more confidence in the cryptocurrency. But if you have a sell order, that means a sell-off is likely, ether has dropped to $890 and bitcoin has dropped to $17,900, I don’t think there’s much risk in cryptocurrencies, we’re likely to have a depression, But for cryptocurrencies, this is not terrible, but the macro economy, such as the stock market, is not very favorable.

Q: Do you think cryptocurrencies are not bad? Why this conclusion?
A: I’m not saying that cryptocurrencies aren’t bad, but cryptocurrencies also need a pause. We know that the “carriage” that drives the cryptocurrency industry forward is Bitcoin. In the crypto winter, Bitcoin is still the only thing that is scarce. The Fed has to slow down money printing because if it doesn’t, economic growth will slow down, and we know there’s still inflationary pressures in the U.S., the crypto market will go down, bitcoin will go down, but crypto Many other verticals in the industry are developing.


Q: Are you still worried about cryptocurrencies now? We know that some recent black swan events in the cryptocurrency world have caused ripple effects, such as Three Arrows Capital, and it seems that they have collapsed and have wider effects.
A: I think people at least understand how things are going, and time will fix them, and they’re either going broke or they’re sold. Just like after 2008, in the financial industry, our Lehman claims, hedge funds and their assets were acquired, and a similar situation will happen in the cryptocurrency industry.

However, everyone’s biggest concern is probably whether the stablecoin USDT will crash, what I can say right now is that you don’t have to worry, for many different reasons, USDT is still very stable (although they are not as many as we would like) transparency – after all everyone wants more transparency). However, I would expect USDT to provide at least a 90-100% liquidity guarantee, and while that doesn’t mean you’re going to get forced liquidation, it could spark fear in the market, which is what we saw in June.

Q: Coinbase seems to be in trouble recently. People have been worried that the company may go bankrupt. Do you think this is also a threat to the cryptocurrency industry?
A: Coinbase has a lot of cash on their balance sheet, but they also have a lot of expenses. So my guess is that Coinbase CEO Brian Armstrong is going to lower their payout significantly in the next quarter or two, they have a great brand. However, I think Coinbase is facing one of the worst problems right now: some big traditional conglomerate wants to buy them. In my opinion, Coinbase is like the “basic asset” of the cryptocurrency industry, so I don’t think they have the will to be acquired, but will continue to try to operate independently, but if the crypto winter is too long and too cruel, Then someone will step in and buy them.

Q: The scary thing about this cryptocurrency market crash is that some companies or protocols that have gone out of business are highly valued in the industry. There’s Luna, of course, and Celsius, a multi-billion dollar company that offers relatively generous interest payments to consumers, but did you expect this crash?
A: Relatively speaking, I am more worried about the macro environment. I hope Bitcoin stays in the $30k-$50k range, Galaxy Digital didn’t invest in any credit protocol like Celsius, while investing in their competitor BlockFi before, we got out more than a year ago, Because I am not optimistic about this business model. Of course, Galaxy Digital sometimes plays the role of a large investor, like on Terra, but actually reduces its holdings ahead of time – which is what we do in most cases.

In hindsight, Luna, for example, simply can’t offer people 18% interest like Anchor, their ecosystem is growing too fast before they expand other use cases, and that’s the problem. In my opinion, this is a lesson for the cryptocurrency industry. During the previous bull market, when the money printing presses were running, everything was going up. The speculative frenzy in baseball cards, fine wine, watches, and tech stocks also happened in crypto, and I think the speculative frenzy is basically over now.

Q: Is DeFi also over? Will this market crash raise more questions?
A: To a certain extent, the regulatory authorities will step in. Celsius and BlockFi are like black boxes for investors to put their money in, but they are not actually blockchain decentralized financial systems. Investors don’t know what leverage is, unless You are behind the scenes. You also don’t know about their balance sheet mismatch, short-term borrowing versus long-term borrowing, that’s why you die suddenly in the market. A similar situation happened in 2008 with European banks, Lehman Brothers, Merrill Lynch and other financial services companies. They adopted excessive leverage in the bull market, considered themselves geniuses, and finally everyone knew what the outcome was.

However, Luna and Terra are a bit different in that they are completely transparent. It’s just that when the market plummets, the anchoring mechanism of stablecoins cannot withstand the pressure. Unlike traditional finance, DeFi, a decentralized financial system, is transparent. By and large, DeFi lending systems have come into play, with projects like Compound, Aave, MakerDAO, and Uniswap, it’s just that during the cryptocurrency bear market, their assets will be much smaller.

Q: So, will the Luna incident at Galaxy Digital and the market crash change the way you invest in the future?
A: What the market will say to me, Galaxy Digital is actually doing well, if you look back to 2022, we sold some private equity and venture capital, took a lot of chips off the table, but also left a lot of chips behind. If I was smart enough, I would sell more and take more chips, but as a trader, it’s hard not to be hard on yourself. If you’ve been in this business for 30 years, you don’t want to lose.

But I think Galaxy Digital has cashed out a lot, and as we analyzed earlier, the Fed was going to be aggressive and decided to take the chips off the table, but looking back, we should have been more aggressive in cashing out.

Q: Seems like a good time to make money if you go short. Are you already short, or are you thinking about going short?
A: Galaxy Digital has never been purely short, otherwise I would have a bigger smile on my face now. Investors believe in us and invest in us to be long cryptocurrencies and make us good risk managers, and as I said before, I hope the bear market doesn’t last too long, although we did sell a lot.

I’m sure there are people who are making a lot of money shorting, I can short Coinbase, I can short futures – there are many ways to do this, but Galaxy Digital will only use these tools to hedge our business.

Q: Is there anything that keeps you away? For example, staking ETH or algorithmic stablecoins, such as Terra tokens whose value is now basically zero?
A: To be honest, Galaxy Digital has never really been involved in algorithmic stablecoins, we were watching but not involved. We’re not betting on ETH, but I do think staking ETH is going to be big business. So my feeling is that Galaxy Digital is going to be in this business in the future.

You can think of the total cryptocurrency market capitalization as the GDP of the industry, which is about $1 trillion at the moment, I think the GDP of this industry is at least $2 trillion, so we should rebound to the $2 trillion level, but need Some time, and then, over time, the new highs will far exceed the old highs.

Q: So, you think it’s kind of like a cryptocurrency recession right now?
A: Yes, the cryptocurrency market is in recession and other economies will be in recession as well.

Q: So how severe do you think it will be and how long will it last?
A: I wish I had a crystal ball in my hands to predict the future, but I don’t, my gut feeling is that the recession will last 18 months, maybe a little bit shorter, because I don’t think the Fed will be suspended until the fall rate hike.

Q: Who do you think is responsible for the current cryptocurrency crisis?
A: You can blame the Fed, you can blame the COVID-19 pandemic, of course, these are all jokes, these factors just make the bubble pop faster. In fact, the root of the problem is that a lot of people are using too much leverage and they are suffering enormously. Last year, BlockFi raised capital at a $5 billion valuation and Celsius was valued at more than $3 billion, but now, those using too much leverage have paid the price.