Crypto billionaire Mike Novogratz said Tuesday's bitcoin crash came after the market got too excited.
He said retail investors using large amounts of leverage were a key factor in the sharp drawdown.
Bitcoin fell as much as 17% on Tuesday as the cryptocurrency became legal tender in El Salvador.
Crypto billionaire Mike Novogratz has said the latest plunge in bitcoin is the result of investors getting too excited about recent developments in the crypto space, and said excess leverage had fueled the volatility.
Bitcoin dropped as much as 17% on Tuesday after El Salvador's rollout of the cryptocurrency as legal tender was afflicted by glitches. It was around 1% lower at $46,420 on Wednesday, down from above $52,000 early Tuesday.
"I think we just got too excited and this was a little air being popped out of the balloon," Novogratz said in a Bloomberg TV interview on Tuesday. "The market got too long."
Novogratz, who runs crypto investment firm Galaxy Digital and is an influential figure in the space, said large amounts of leverage in the system contributed to the steep falls.
"There's lots of retail money, a lot of it's leveraged," he said. "There was about $4 billion of liquidations that happened in a short period of time… That's mostly leveraged offshore in places like FTX and Binance."
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Exchanges such as Binance, Bybit and Huobi allow users to borrow large sums to trade with. Analysts said in recent weeks, traders had been using this leverage to "go long" - that is, bet that the price will rise - on bitcoin and other cryptos.
When cryptocurrency prices fall, traders who have gone long using leverage often sell out of their positions, or the exchange automatically liquidates them to limit losses. This often sends prices down further, triggering more liquidations in a cascade effect.
Novogratz told Bloomberg he thought the market had become excited with good reason. He said Visa buying a non-fungible token for $150,000 and Amazon posting a crypto job opening had made many people think the technology is here to stay.
He said he was confident El Salvador would succeed in its bitcoin rollout, saying the token could become used to send remittances.
"Whenever you're doing a new technology rollout there are glitches," he said. "Come back in six weeks or 12 weeks and let's talk about how it's working."
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