Novogratz acknowledges he was ‘wrong’ about crypto leverage risks


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Billionaire investor Mike Novogratz has acknowledged that he totally missed the mark when it comes to his outlook on the crypto market, the extent of the leverage risks that lay therein and what that meant for Bitcoin (BTC/USD).

The Galaxy Digital founder lamented the regulatory environment that allowed some of the crypto companies to flip headlong into turmoil, much more like what happened during the 2008 financial crisis.

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He also decried the lack of serious self-regulatory measures and the fact that the agencies tasked with oversighting the investment space could have done more to protect investors.

‘Full-fledged crisis’

In his remarks on Tuesday, made at the Bloomberg Crypto Summit, the investor said he didn’t think the crypto market was prepared for “the magnitude of losses that would show up in professional institutions’ balance sheets.”

But what happened cascaded into a “daisy chain of effects,” he added, with the full scale turbulence damaging investor confidence.

It turned into a full-fledged credit crisis with complete liquidation and huge damage to confidence in the space.”

Novogratz was commenting on the overall turbulence that continues to engulf the crypto market, with the dramatic collapse of Terra – both the stablecoin UST and cryptocurrency LUNA- exacerbating the crisis via Three Arrows Capital.

Contagion from exposure to the crypto hedge fund has more companies declaring bankruptcy or facing massive black holes in their balance sheets.

There was inane risk management where companies took massive leverage – took asset liability mismatch – which means they had short term deposits and then they lent them out long. I mean, those are the two ways people always go bankrupt.”

But according to him, the crypto winter and the fallout that has ensued can be seen as “an advertisement for more transparency and more DeFi.

“Darn wrong’ on Bitcoin

Novogratz also commented on the price of Bitcoin, noting that all margin losses in the ecosystem helped push the price to the lows of $17,000. He acknowledges being wrong in his earlier outlook of BTC lows for 2022, including the one on a bottom around the $28,000-$30,000 zone.

I was darn wrong because I didn’t realise the magnitude of the leverage in the system,” he said of his prediction and what happened as the market crashed.

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