Several BAYC and CryptoPunks collectors who put up their tokens as collateral backing for Ethereum loans have been unable to settle their dues. Crypto analysts believe this could mark the onset of the first major liquidation crisis in the NFT industry. BendDAO Loans and Possible Risks Rumors of a liquidation spiral began earlier this week following a post about NFT lending platform BendDAO. BendDAO is a web3 protocol that allows users to take out loans in Ethereum using their non-fungible…
American billionaire investor Mike Novogratz has acknowledged that he was wrong about the size of leverage in the crypto space. During the Bloomberg Crypto Summit on July 19, Novogratz said the recent crypto crash is a full-fledged credit crisis. He added that this crisis has hurt confidence in crypto.
Novogratz, who currently serves as the founder and CEO of Galaxy Digital, said:
What I don’t think people expected was the magnitude of losses that would show up in professional institutions’ balance sheets and that caused the daisy chain of events.
Novogratz said the collapse of the TerraUSD (UST) stablecoin, which triggered the crypto winter, imparted some powerful lessons. According to him, the UST’s debatable proved that both the industry and retail investors had little concept of risk management.
It is worth noting that Novogratz was a massive Terra supporter. Apart from investing in the Terra ecosystem, Novogratz got a LUNA tattoo. He previously said this tattoo would serve as a “constant reminder that venture investing requires humility.”
Regulation Remains a Big Issue
Speaking about Three Arrows Capital (3AC) and Celsius Network filing for bankruptcy, Novogratz said their insolvency is due to a lack of regulation. While he claims to have advocated for self-regulation in the crypto space, Novogratz said industry players did not heed his advice.
According to him, the bankruptcy of the above firms came after taking massive leverage due to greed and ignorance. He added that they had an asset-liability mismatch because they had short-term deposits but lent them out long.
Although he advocates for self-regulation, Novogratz faulted regulators for not going the extra mile to protect investors. Specifically, Novogratz blamed the SEC for allowing companies like Celsius and BlockFi to gamble with retail deposits.
I don’t know what the SEC should have done, or could have done, or might have done, but they didn’t do a lot to protect the retail investors.