Mike Novogratz detailed his crypto evaluation in his latest interview,“The State of Crypto With Mike Novogratz.”
The crypto winter continues as the current crypto market capitalization has fallen to $876.91B, a sizable fall from its all-time high of $3 trillion in November. So, in just eight months, $2.1 trillion of wealth has been destroyed, which is almost the GDP of the UK, measured in the current exchange rate.
So $9.1 trillion has been wiped off people’s portfolios and pension funds if we combine $7 trillion of wealth slashed off stocks and $2.1 trillion on cryptocurrencies since their peak in 2022.
The greatest silent crash of everything in 2022 is worse than the Dotcom crash of 1999, where the stocks lost $5 trillion in market capitalization since the peak.
Fed Chair Powell said a month ago, “a lot more pain to come.”
How much more pain, pitchforks at the gates?
So what follows unprecedented wealth destruction could be a historic depression.
“We had an asset bubble fuelled by the Fed. If you were Shopify or Zoom or Peloton, people jumped on the story, and there was a speculative mania. The same thing happened with luxury watches, baseball cards, basketball cards, and crypto,” said Mike Novogratz.
“Bitcoin as the lead horse traced as high as $69K,” he added.
Mike Novogratz detailed his crypto evaluation citing Bitcoin as a liferaft from unprecedented printing
“Bitcoin hard money ethos, based on Satoshi’s fear of populism, and we had populism pay for everything,” he said.
No, we had pandemic lockdowns and central bank money printing to buy legitimacy while masses were under house arrest and curfews.
“We also had the digitalization of everything. The story was powerful, people believe it, and it became a self-fulfilling prophecy,” he added.
“As the Fed started removing liquidity from markets to dampen inflation, all assets fell,” he said.
The C5 players in crypto, Celsius, BlockFi, Three Arrows, Genesis with big balance sheets had taken on far too much leverage than people had understood,” said Mike Novogratz.
“Then you had a credit crisis which impacted every player, the good, bad and the ugly and that dented confidence,” he added. Mike Novogratz thinks we are 70 to 80% through the deleveraging process. A few more counterparties still need to get re-capitalized.
“It feels like the big guys who need to get capital will because they have other businesses that are sustainable,” said Mike Novogratz.
Mike Novogratz thinks that should take the panic out of the system.
He thinks it will take a while, anywhere from 18 to 6 months, to rebuild the narrative, the confidence, he argued.
“Crypto protocols did what they were supposed to do. The irony is that it was the non-transparent traditional companies on top of crypto that got way out over their skis” – Mike Novogratz
Sound technology is how Mike Novogratz detailed his crypto evaluation in his latest interview
“Crypto protocols did what they were supposed to do. The irony is that it was the non-transparent traditional companies on top of crypto that got way out over their skis,” he said.
There is no Fed bailout for cryptocurrencies, but Goldman is raising a distressed fund, which he thinks will be a good business.
“We need that money coming into the space to put a floor on prices,” he said.
“Then we need a new narrative, the Fed flinching because we are seeing the economy collapse.
We are going to be in a recession faster than you can shake a stick,” he said.
He thinks Bitcoin will lead the way. “I don’t care if you are a Bitcoin maximalist or Ethereum junkie, we have all got to cheer for Bitcoin,” he added.
“Bitcoin has a simpler story. It is a macro bet against the debasement of the currency. It is digital gold that the story is sold, and people believe it,” said Mike Novogratz.
Mike Novogratz sees a significant role in cryptos for payments, digital assets on the blockchain, and digital experiences in the Metaverse.
He thinks that as the economy continues to digitalize, people will spend more time on screens and phones, so demand for digital assets will grow.
Moreover, he sees the next generation of gaming and media platforms with larger communities and faster adoption.
“We survived last crypto winter because we were small. Market was down 90%, we were down 30%. We didn’t use all our resources” – Mike Novogratz
Mike Novogratz detailed his crypto evaluation on why his fund survived the last downturn
“We survived last crypto winter because we were small. Market was down 90%, we were down 30%. We didn’t use all our resources,” he said. He believes that Hedge funds down 80% will not survive, unlike hedge funds down 30% which are more likely to survive.
He sees more blood letting in this crypto winter, such as hedge funds, not succeeding projects and people losing their jobs.
“So there are going to be lots of musical chairs. I do not think it will stop the industry from growing,” he said.
“Good news is $10 billion-plus in venture capital. The best companies are built in times of turmoil,” he said.
“Positive news we are getting is that institutions are not backing away.
So, we are going to see a big commitment from people both as investors and builders,” he added.
Mike Novogratz added that everyone believes the world will have more digital assets five years from now.
“The lesson for everyone, you are either a value investor Warren Buffett but once stock starts trading 70, over PE you are a momentum investor, nothing else. You’re a macro guy,” he said.
Everything was playing in the future, and we had no way of determining what valuation meant.
“You are going to have to tell a story on shit that works,” he said.
He believes the narrative will shift.
In September, all we are going to be talking about is a recession. The Fed narrative will shift.
The most likely scenario for me is that the Fed hikes in July and August, maybe pauses or gives a small hike in September, then says we are going to wait.
That would give the macro story back to bitcoin.
But Mike Novogratz detailed his crypto evaluation, omitting the best piece of news for bitcoin bulls. BIS, the central bankers’ bank, said banks can keep 1% of their reserves in bitcoin.
In other words, Bitcoin has made it as a reserve asset in the highest echelons of finance.
