“‘We are going through what feels to me a little bit like a Long Term Capital Management moment in crypto. It was the big hedge fund with all the leverage, and when it started unwinding there was repercussions everywhere. We are seeing that in the crypto space right now.’”
— Michael Novogratz, CEO, Galaxy Digital
That’s veteran investor Michael Novogratz not exactly invoking the most comforting historical parallel as he offered his take on the recent crypto market plunge and attendant chaos in an interview with CNBC on Tuesday. The 1998 collapse of highly leveraged LTCM fund sent shock waves through global financial markets and ultimately required a multibillion-dollar bailout by Wall Street banks.
The ripple effects in crypto certainly have been substantial. Novogratz cited woes at Celsius, the cryptocurrency lending platform that paused withdrawals, and the collapse last month of stablecoin Terra. Those events created “deleveraging that’s accelerated” resulting in substantial damage, he said.
continued its plunge Tuesday, falling below the $23,000 level as it dropped more than 52% year to date and traded at less than a third of its November 2021 peak near $70,000.
But Novogratz argued that the worst may be over — or nearly so.
“We’ve gone to the level that should be close to a bottom, $21,000 bitcoin and $1,000 ethereum
” he told CNBC. “There’s been a tremendous amount of capitulation and fear,” he said, but acknowledged that it was possible to go still lower and that the macro environment “is still pretty challenging out there.”