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Michael Novogratz, CEO of Galaxy Digital, is a known supporter of the Terra ecosystem, including its Luna cryptocurrency and so-called stablecoin TerraUSD (UST).
In January, for example, Novogratz tweeted a picture of the tattoo he got in honor of Luna. “I’m officially a Lunatic!” he wrote in a nod to the Luna community. Do Kwon, creator of Luna and UST, replied, calling Novogratz the “King Lunatic.”
“Lets do one more after another digit,” Kwon wrote to Novogratz.
But since last week, when UST crashed far below its $1 peg and brought down Luna with it, the billionaire has remained silent online—until today.
“After much thought, it’s time to talk about last week and, more importantly, the weeks ahead,” Novogratz tweeted on Wednesday, adding a link to a letter.
Addressing Galaxy “shareholders, friends, partners, and the crypto community,” Novogratz discussed the collapse of the Terra ecosystem.
“In Luna and UST alone, $40bn of market value was destroyed in a very short amount of time,” Novogratz wrote.“It was a big idea that failed,” he said.
As an “algorithmic” stablecoin, UST holds value based on an algorithm that is coded to strike a balance between it and a partner coin. Every time a UST token is minted, the equivalent of $1 in its sister token Luna is burned, or removed from circulation, and vice versa, to maintain the peg.
Galaxy Digital first invested in Terraform Labs, the company behind Terra and Luna, in the fourth quarter of 2020 using its balance sheet capital, he said. Novogratz cited Luna’s “significant growth potential” at the time.
Galaxy’s investment in Luna greatly contributed to its 2021 earnings, with the firm disclosing that the cryptocurrency was one of three that drove “$1 billion in realized gains.” In the first quarter of 2022, Galaxy said its sales of Luna were “the biggest contributor” to $355 million of realized gains.
In his letter, Novogratz blamed Luna’s demise on the “global macro backdrop,” which has impacted risk assets in recent months. “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,” Novogratz wrote.
This led to “downward pressure” on Luna, and once users withdrew UST, it “triggered a stress scenario akin to a ‘run on the bank,’” he said. “With hindsight things always look clearer. My tattoo will be a constant reminder that venture investing requires humility.”
Novogratz said that Galaxy hedged in regard to its Luna investment. “With our diversified business lines, Galaxy remains in a strong capital and liquidity position,” he said.
“This does not mean the crypto market will bottom and head straight back up. It will take restructuring, a redemption cycle, consolidation, and renewed confidence in crypto. Crypto moves in cycles, and we just witnessed a big one.”
This story was originally featured on Fortune.com