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Mike Novogratz, founder and CEO of crypto merchant bank Galaxy Digital (GLXY.TO), published a public statement on Wednesday outlining his thoughts on the LUNA and UST price drops.
"After much thinking," Novogratz remarked on Twitter, "it's time to talk about the recent week and, more significantly, the weeks ahead."
The tweet links to a longer letter in which Novogratz reminds readers that 2022 has been a "brutal macro backdrop" for all risk assets, with a variety of growth stocks down 50 percent to 70 percent, core crypto assets like bitcoin (BTC) and ether (ETH) down nearly 60 percent, and altcoins down by an average of 80 percent from all-time price highs. He claims that central banks are shutting off the monetary spigots that contributed to the enormous liquidity bubble.
Mr. Novogratz: "This economic background weighed on the luna and the reserves used to underpin UST. The 18 percent income promised by the Anchor protocol had increased UST's development, which finally swamped other applications of the Terra blockchain. The strain on reserve assets, along with UST withdrawals, generated a stress scenario resembling a "run on the bank.""
According to Novogratz, the "flash-crash" in Terra and UST underlined, among other things, the necessity to grab profits along the road. Galaxy did just that, he noted, referring to a filing from earlier this month.
While Novogratz remains positive on the cryptocurrency market, he believes investors expecting a "V" bottom would be disappointed. "It will require restructuring, a redemption cycle, consolidation, and fresh faith in cryptocurrency. Cryptocurrency goes in cycles, and we've just seen a large one."
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