Crypto Billionaire Mike Novogratz Speaks of His Recent Loss in Terra LUNA Crash

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by Bhushan Akolkar · 3 min read
Crypto Billionaire Mike Novogratz Speaks of His Recent Loss in Terra LUNA Crash
Photo: Acumen Fund / Flickr

Novogratz spoke about the lessons to learn from this event and asked investors to maintain caution amid the recent macroeconomic backdrop.

Mike Novogratz, the cryptocurrency billionaire running crypto investment firm Galaxy Digital, broke his silence for the first time after the recent collapse of the Terra ecosystem. Novogratz published his thoughts on the entire episode in a shareholder letter on Wednesday, May 18.

The Terra blockchain collapse is a big shock to the crypto community. More than $40 billion of investors’ wealth was eroded in just a matter of a week. Novogratz’s Galaxy Digital started investing in the Terra ecosystem back in Q4 2020. Since then, he has been promoting Terra’s UST stablecoin all across social media.

In fact, Novogratz was bullish to the extent that he got himself a LUNA tattoo earlier this year in January. “My tattoo will be a constant reminder that venture investing requires humility,” he wrote.

Novogratz Asks Retail Investors to Maintain Caution

Novogratz said that the Terra collapse is a big lesson for the investor community. He added it’s important to maintain discipline in investing, maintain a diversified portfolio, and take profits along the way. The Galaxy Digital CEO added that one must not forget the thumb rule of not allocating more than 1-5% of their portfolio to crypto.

“Reading the stories of retail investors who lost their savings in one investment is heart wrenching. But it’s important that less experienced market participants only risk what they are comfortable losing.” he said.

They said that the global macro backdrop has been unforgiving to all risk assets this year. Growth stocks have tanked to the tune of 50-70% and a similar correction has been seen in Bitcoin and Ether.

Amid the soaring inflation, central banks have resolved to tighter monetary policies. Thus, it has started unwinding excess liquidy from the market.

“This macro backdrop put pressure on Luna and the reserves held to back UST. UST’s growth had exploded from the 18% yield offered in the Anchor protocol, which eventually overwhelmed other uses of the Terra blockchain. The downward pressure on reserve assets coupled with UST withdrawals, triggered a stress scenario akin to a “run on the bank.” The reserves weren’t enough to prevent UST’s collapse. With hindsight things always look clearer,” wrote Novogratz.

Other Big Payers Losing Massive in Terra

Galaxy Digital is not the only big giant to have lost money in Terra. Several other big players had invested huge sums in the Terra ecosystem. Earlier this year, Delphi Digital participated in the last fundraiser of the Luna Foundation Guard (LFG). Delphi Digital has invested a total of $10 million in Terra, all of which has turned to ashes.

“The fact is we miscalculated the risk of a “death spiral” event coming to fruition. We’ve taken some heat for this over the last week, and we deserve it. The criticism is fair and we accept it,” it said.

Pantera Capital, another high-profile backer of Terraform Labs was lucky enough to cash out earlier. Before the collapse, Pantera has chased out nearly 80% of its Terra positions.

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