Mike Novogratz: Crypto Will Trade Sideways Until This Happens

‘Listen, you know what’s different about crypto and normal markets is that they’re not a lender of last resort. In crisis, in the long-term capital management crisis, the FED came in. Crypto does not have the Fed. We have a fed that’s still hiking on cutting and so that $30k to $20k really was this deleveraging, $30k to $18k was just a deleveraging of a system that was far too leveraged and shame on lots of the players for running, you know, what is just irresponsible.’ – in an interview with CNBC, CEO of Galaxy Digital Mike Novogratz gave his take on the most common question being asked nowadays: Are we near the bottom?

Mike Novogratz: Crypto Will Trade Sideways Until This Happens photo

Many analysts and thought leaders have provided their opinion on the bottom, with some believing Bitcoin hit bottom when it hit the $17,700 range on June 18th. While others believe we have more damage to go, although Novogratz understands we can always go lower, his belief is that most of the damage has been done, but it’s not all upside from here. The more likely scenario, according to Novograts, is sideways action until the narrative changes. So, when the market is still bullish, let’s explore other available options. One of them is Jet-Bot. The platform is the official Binance trading bot. You may use API keys to link your Binance account. Register today to compete for the title of greatest cryptocurrency trader in the world by copy trading your crypto.

Besides most coins’ being 50 to 80% off of their all-time highs, the crypto industry has been in the headlines for all of the wrong reasons, creating a fear of contagion in the market. Crypto companies have been forced to liquidate leveraged bets and have been unable to pay back loans. While others have received bailouts from FTX’s Sam Bankman, all of this plays into why Novogratz believes that crypto will be choppy for the foreseeable future.

‘What we saw was a lot of excessive leverage at centralized crypto companies, not online companies, not on-chain companies, like Celsius, Three Arrows, BlockFi, that had just unbelievable amounts of leverage. We’ve now seen a lot of these filed or put up by Gates, basically the clear bankruptcy, and you’re having this massive deleveraging.

I think most of that deleveraging is out of the system. We’re engaged in a lot of conversations around people that needed capital, and so the new capital that is coming to crypto will literally be kind of recapping some of these companies or asset sales. We’re going to go sideways here. Could we go lower? Of course we could. It feels like we’re 90% through that deleveraging.

The problem, of course, is that for you to go much higher, you need the narrative to re-pick up and you need new capital to come in. My gut feeling is that it will be choppily sideways for a while until the Fed blinks and we get that macro narrative, or until the damage is repaired, people find equilibrium, and the market resumes its upward trajectory. What you did and saw during this process were decentralized lending platforms such as Compound or Aave. They functioned the way they were supposed to. There was transparency.

You saw who was getting stopped and when and why. It was the defining look of Celsius. For example, no one knew how much leverage they had or had three hours of capital. I mean, quite frankly, I think when all is said and done, there will be acquisite accusations and prosecutions for fraud; there will be, you know, gross misconduct in some of these companies when you just look at the amount of both leverage and interlending that went on. That’s why crypto originally, but the original reason for crypto was more transparency, and ironically, we had centralized organizations, you know, on top of all the crypto. That’s where most of the problems showed up.

What we saw and I think what hopefully doesn’t repeat itself in the next cycle is a horrific breakdown in risk management at companies that you would assume would have understood what risk management was. Listen, there are hundreds of tokens. Some are going to win and some are going to lose, and to have huge concentrations of loans or it was just greed, right? People got into the UST because they were providing 18%. You don’t get 18% for no risk, and you know that stable coin ended up not working. You know, losing a small amount of money is reasonable, losing your shirt is unreasonable, and you know, it’s the same thing with loans for 3AC. The capital that had them as a counterparty believed they were a reasonable counterparty bet. The firm said it was not reasonable. I think I was clear.

I am frustrated as can be with the pace of new regulations and clarity from the SEC. We’ve been on record saying it’s unbelievably frustrating, it’s anti-innovation. It pushes things offshore. Quite frankly, we’re opening a Bahama office because it’s just very complicated to get stuff done here. It’s not the brand, it’s the regulation. We’ve actually been asking for clarity on the bill that Senator Gildebrand put through, at least as a stalking force, which was pretty comprehensive and good on the whole.

I think the whole industry would have gotten behind most of that. You know, the industry isn’t built for a $10,000 Bitcoin copy trading. It’s not quite built for twenty thousand people. You’re going to see layoffs, you’re going to see job cuts, you’re going to see people rationalize their business plans, and you’re going to just see more of that, but crypto’s going nowhere. People got into crypto because they saw a breakdown of trust amongst governments. Society in general and trust is going in one direction. It’s a bear market in trust, so the primary reason why Generation Z and Millennials loved the decentralized idea of crypto was because they looked up and saw octogenarian leaders making dumb decisions. We’re looking at an election where we’ve got Donald Trump versus Joe Biden. You can’t think of a worse combination, can you? I don’t think that the impetus that really started the crypto revolution, including Steve, is actually gaining.’

What do you think of Novogratz’s thoughts here? Do you see sideways action, a dip down to 12K-ish or a big rebound?

[This article is a transcription of a video made by Only The SAVVY]

Original video: https://youtu.be/wgL34zFelTk]