Galaxy Digital Holdings Ltd (OTC:BRPHF) CEO Mike Novogratz has written a letter to shareholders of the company and the cryptocurrency community at large touching on Terra (CRYPTO: LUNA) and TerraUSD (CRYPTO: UST) fiasco that rocked the market recently.
What Happened: Novogratz, a Bitcoin (CRYPTO: BTC) bull who has a $500,000 price target on the coin for a 5-year timeline, said Galaxy Digital invested in LUNA in the fourth quarter of 2020 using “balance sheet capital.”
The investment was made on the premise of expansion centered around blockchain-native payments systems and the growth of the Chai app, built on Terra, in South Korea.
“Among other things, we analyze developer engagement, investor support, and network activity. Terra, the underlying blockchain, had hundreds of projects being built on it and a world class list of investors. The initial idea was gaining serious traction,” wrote Novogratz.
Novogratz said Galaxy did a number of things to limit the downside, which included keeping a diversified portfolio, taking profits along the way, having a risk management framework and understanding investments happen in a macro framework.
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Why It Matters: The investor delved into the unraveling of LUNA, a purported Ethereum (CRYPTO: ETH) killer, and UST in his letter.
The slump in the two coins took place amid central banks unwinding what Novogratz called a “massive liquidity bubble” fueled by “unprecedented fiscal and monetary policy injections” across the world.
Novogratz said that the easy-money macro backdrop put pressure on LUNA reserves that are held to back UST. He wrote that UST’s growth “exploded” from the 18% yield offered in the Anchor Protocol and that ultimately 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.”
Novogratz, who sports a LUNA tattoo — which he got in January 2022, said, “My tattoo will be a constant reminder that venture investing requires humility.”
Novogratz said he remained a believer in cryptocurrency and said “Crypto is not going away.” He said Galaxy “remains in a strong capital and liquidity position.”
Price Action: On Wednesday, Galaxy Digital OTC shares declined 4.7% to $6.30, according to data from Benzinga Pro.
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Photo: Courtesy of RISE on Wikimedia
