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Mike Novogratz Now Admits That Terra’s Model Was Unsustainable

Mike Novogratz. Source: a YouTube video screenshot

Galaxy Digital CEO Mike Novogratz has said that although he was “worried about the macro environment,” he was hoping bitcoin (BTC) “would stay in the USD 30,000 to USD 50,000 range.” At the same time, he argued that the model his once-favorite crypto Terra (LUNA) was built on was unsustainable.

The comments came in an interview with New York Magazine published on Sunday.

Despite the above-stated comment, Novogratz argued that things need to be placed in perspective: between buying Zoom stock and buying bitcoin at the beginning of the COVID-19 pandemic, he said, ” today you would have doubled your money on bitcoin and you’d have made nothing on Zoom.” 

The CEO added that,

“So that’s what I think is hard for people to get their heads around. This has been a complete and total old-school ass-beating. But it’s important not to throw the baby out with the bathwater because we had a speculative mania in lots of asset classes. Bitcoin is not going away as a macro asset.”

However, looking at the data, at the very start of 2020, BTC was trading at around USD 29,500, rising rapidly. Today, in the midst of crypto winter, it’s at USD 21,423. In November 2021, it hit its all-time high of USD 69,044. At the same time, Zoom traded around USD 70 at the beginning of 2020, currently standing at USD 122.

Novogratz, who was a major investor in the collapsed Terra ecosystem, also admitted in the interview that, “with hindsight,” it was running an unsustainable business model.

“With hindsight, looking at Luna, you can’t offer people 18 percent interest, as they did with Anchor, and not have the world all run into yours,” Novogratz said, referring to the Terra-based lending and borrowing protocol that famously offered users yields of up to 20% on terraUSD (UST) deposits.

As for crypto’s near-term future, the Galaxy Digital CEO added that,

“I think the speculative frenzy part is over for the time being. So it becomes a much more sober business of having to build shit that people use.” 

Asked whether it is now “over for [decentralized finance] DeFi,” Novogratz argued that protocols in the space “for the most part, [have] worked,” although everything is now “worth a lot less.”

“Where the big losses are, it’s really in this weird combination of CeFi (centralized finance) and DeFi,” he said, while pointing to the two centralized lending and borrowing companies Celsius (CEL) and BlockFi as examples of companies that have faced difficulties.

“Celsius and BlockFi were black boxes that investors put their money in and then they did whatever they wanted with it. It wasn’t on-chain. You didn’t know what the leverage was unless you got under the hood,” he said, comparing the companies to how some banks operated prior to the 2008 Financial Crisis.

He went on to say that Luna and Terra were “a little different” because the model they operated on was transparent. Still, the model mostly relied on a combination of greed by investors and “a very charismatic founder,” he said, admitting that UST’s peg was “based on bullishness.”

“[W]hen the market turned, the mechanisms to create that peg just didn’t withstand the pressure,” Novogratz said.

Meanwhile, commenting on his own firm’s performance through the crypto market downturn, Novogratz stated that he should ideally have sold more.

The CEO stated that the company “did some things very, very well,” over the last year selling crypto, some private equity, and “some of our venture stuff.” 

“We took a lot of chips off the table, but we left a lot of chips on the table. And if I was that smart, I would have sold more,” he said, adding, “If you’re in the job I’m in for 30 years, you don’t like to lose.”

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