Novogratz, Terra, and an Investment Diversification Idea
A week after the Terra LUNA collapse, Galaxy Digital CEO Mike Novogratz, who famously has a LUNA tattoo, has finally weighed in with some thoughts.
Michael Novogratz is the head of Galaxy Digital holdings (BRPHF). I'm a shareholder. His balance sheet had exposure to the Terra (LUNA) debacle. If none of what I just said makes sense, long story short; Galaxy Digital shares have taken an absolute beating since the Terra collapse last week. I’ve been expecting Novogratz to awaken from his Twitter (TWTR) slumber for a while now. Today he finally did and he shared a letter with those of us filthy masses.
The Letter
There are some very interesting takeaways. Novogratz pretty accurately lays out what is happening in the broad equity and crypto markets. On the recent sell pressure that is being experienced by seemingly every risk asset:
Central bankers are in the early stages of unwinding a massive liquidity bubble – fueled by unprecedented fiscal and monetary policy injections into economies across the globe, including in the US – that had propped up all risk assets, including crypto. The “free money forever” ethos of the last decade has left us staring in the face of the biggest bout of inflation since the 70s. Many assets that had meteoric rises in the period since Covid have suffered meaningful and correlated corrections.
He’s right. Even as I write this, the equity market is selling off roughly 4% INTRADAY. The reason? Retail store Target (TGT) is getting shellacked. I think it’s fair to say Target is spooking the market, despite what the little treasury troll says, the US consumer is actually not okay right now.
Back to Terra, the same kind of pressure on equities and other risk assets can be observed in the cryptocurrency market. That pressure is what created the scenario where the Terra ecosystem was more vulnerable to a liquidity crisis. Again Novogratz:
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. My tattoo will be a constant reminder that venture investing requires humility.
Most of you are probably not as deep into the crypto culture as I am. Novogratz got a freaking tattoo to commemorate LUNA. I’m not kidding. If you remember what I said last week while the collapse was still very much happening, my advice always has been diversification and risk management. This is what I wrote a week ago:
I can not stress enough how important it is to not use leverage in crypto. It’s one of my core principles pertaining to any investment. Not just crypto. Another core principle is diversification.
Novogratz made the same point in his letter. It’s literally his first point. Diversification. Novogratz:
The flash-crash of LUNA/UST also reinforces a few core tenets of investing (especially crypto investing): 1. keep a diversified portfolio, 2. take profits along the way, 3. have a risk management framework, and 4. understand that all investments happen in a macro framework.
The final point that I’ll share from Novo’s letter is this one:
Crypto is not going away. The amount of human capital moving into the space isn’t slowing down. The focus on building decentralized infrastructure that allows value and ownership to flow as freely as information on the internet, isn’t slowing down.
I won’t argue with any of it. I see it very much the same way. Crypto, like all risk assets, is getting beaten up from the same macro market liquidity crunch as equities and everything else. But the beating will have an end.
Diversified Ideas
I like Galaxy Digital as investment. It is not working out right now. I had a $12 cost basis before the meltdown. Now that cost basis is a bit lower. Which is another way of saying, I’ve averaged down. I like Galaxy because it has a diversified approach to the crypto industry. It does mining. It does client asset management. It does venture capital. Obviously, it does yield farming. It’s a very diversified business in a very risky industry. I think it’s a good long term pick as a blockchain equity, and I still believe that.
If you want to take advantage of these massive selloffs in crypto equities, I have an idea that I think is worth sharing. It will provide you with a diversified crypto industry investment, and you can probably do it in less than 3 minutes.
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