Mike Novogratz breaks silence on Terra meltdown

Novogratz, once a strong supporter of Terra, returned to Twitter to offer his take on the crisis and the path forward.

Mike Novogratz at RISE 2018 in Hong Kong. Photo by Seb Daly / RISE via Sportsfile

When UST depegged and the price of LUNA began to freefall, many prominent crypto advocates and educators went into overdrive, struggling to keep up with the dynamic market landscape. 

But some simply fell silent.

That’s what happened with Mike Novogratz, founder and CEO of the crypto-oriented investment management company Galaxy Digital. Novogratz, an avid Twitter user and a vocal LUNA enthusiast, who has tattooed a wolf howling to the moon on his arm, tweeted a comment on the cost of eight new escalators for the New York subway on May 8, and then went mute.

Yesterday, Novogratz broke his silence, publishing a letter addressed to the Galaxy Digital “shareholders, friends, partners, and the crypto community.” In it, he offered his take on last week’s developments and the future of the crypto market, even as he held back on some of the most controversial points.

Not a word about any attack

Mike Novogratz suggested that the collapse of Terra was caused by the “global macro backdrop,” which put crypto, including LUNA and the LFG reserves, “under pressure.” This, in Novogratz’s view, triggered a “stress scenario akin to a ‘run on the bank.’”

Novogratz hasn’t uttered a word about the hotly debated attack theory, which saw multiple blockchain analysts and sleuths speculate that one or more entities might have initiated the sell-off by dumping large amounts of UST in a short period of time, thus forcing Do Kwon to unleash the LFG reserves and drive a downward pressure on the price of Bitcoin.

Mike Novogratz appeared to reject these conjectures. He called Terra a “big idea that failed,” even as he suggested that Anchor’s 18% yield “eventually overwhelmed other uses of the Terra blockchain” by supercharging the growth of UST.

“Crypto is not going away”

Galaxy CEO’s prolonged Twitter silence led some to believe that he might have suffered considerable losses and thus decided to retreat. Novogratz dismissed this speculation, saying that “the crypto revolution is here to stay,” even as admitted "the collapse dented confidence in crypto and DeFi" and warned that market volatility was “likely to continue.” No “cavalry” was coming to “drive a V-shaped recovery,” Novogratz added.

He stopped short of acknowledging any failures or regrets aside from his LUNA tattoo, which he said would be a “constant reminder that venture investing requires humility.” Novogratz did not disclose the losses he or Galaxy Digital suffered as a result of the crisis, and did not reference a circulating theory that the LFG had used its Bitcoin reserves to bail out a few UST whales.

Galaxy rushes to comfort investors

Novogratz said little about his or Galaxy’s Terra investment strategy. He merely confirmed that his company first invested in LUNA in the fourth quarter of 2020 using its balance sheet capital. 

A “preliminary quarter-to-date company update” Galaxy released “in light of recent market conditions” on May 13 sheds more light on the matter, bluntly stating that Galaxy’s treasury “does not utilize algorithmic stablecoins.” It adds that the current market conditions offer Galaxy “significant opportunities.”

During the first three months of 2022, Galaxy’s digital assets turned a $355 million net realized gain, according to Galaxy’s Management's Discussion and Analysis (MD&A) report. The largest contributor to that sum, the MD&A notes, were sales of LUNA.

It’s likely Galaxy started to sell its LUNA as it climbed to highs of $90 in February and went on to break the $100 threshold on March 10, but the report did not specify when or why Galaxy had started exiting its positions.

LUNA prices have spiked in the first quarter of 2022
LUNA price in February and March. Source: CoinMarketCap

Mike Novogratz himself offered no details on the state of his personal portfolio, forcing the crypto community to read between the lines.