“We had a sudden crash and that did a lot of damage to the fabric of the market,” Novogratz told Anthony Scaramucci on the very first episode of “All Things Markets,” recorded on November 26. “Even at Hyperliquid, the market makers, you know, 30 percent of them went bankrupt. They were zeroed out.”
Scaramucci framed the past twenty trading days as another brutal reminder of crypto’s structural volatility. “I know I have a trapdoor in my wallet,” he said. “Every now and then I walk through the living room and feel nice about myself. And then, boom, a hatch opens and I’ve fallen into the basement of the house.”
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According to Novogratz, this specific section opened at Binance. “It actually started because they had an oracle at Binance that didn’t do the pricing right,” he said. That error affected a synthetic stablecoin and “created a cascade where people were stopped because there was the wrong price.” The disruption then spilled over into perpetual leveraged markets “like Hyperliquid, like Uniswap,” where “when prices fell, people got liquidated.”
He argued that the way crypto participants are using leverage has turned a technical glitch into a systemic event. “What people don’t understand about crypto is that the crypto investor is not playing for 10, 11, 12 percent returns,” he said. “Crypto investors proudly call themselves swords. They want to make it 15. And so they trade highly volatile, highly leveraged assets.”
Perpetual futures make this leverage particularly dangerous for liquidity providers. “Perpetual futures are not normal futures,” Novogratz said, crediting “the genius of Arthur Hayes and his group of people” for a design where “when longs are liquidated, they are combined with shorts.” In a rapid collapse, “you could be short and lose your short position. If you’re long on another exchange against that short position, you’re out of luck. And that’s happened to a lot of market makers.”
Will the crypto market recover?
The result, he said, was a sharp loss of liquidity and retail capital. “We’ve lost a lot of liquidity in the market. We’ve lost a lot of retail gamblers who lost their stacks,” he noted, adding that after such a bust “it will take a while for Humpty Dumpty to get back together.”
Novogratz said he initially expected higher levels to remain. “To be honest, I actually thought we were going to keep it at a higher level of $90,000,” he admitted. “And we went all the way to $80,000. $80,000 was a maximum pain point… We hit $1.80 on XRP. We hit $125 on Solana. Real pain points.”
He links the subsequent recovery to the macroeconomic tailwind and not to the healed sentiment. “Now we’re bouncing up. We’re bouncing thanks to the Fed. But we’re not out of the woods yet,” he said. “I think Bitcoin will rise back towards $100,000 by the end of the year, but there will be sellers waiting there. We have done some damage to the psychology of the market in the medium term.”
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On the cash side, he highlighted the massive profit-taking by early holders against ETF-driven inflows. “We had one $9 billion seller,” he said. “That is a third of all IBIT flows for the year.” As US asset channels moved “from a zero weighting to a 3 to 4 percent weighting” in Bitcoin, “OG sellers were called out.” “In the long run, that’s healthy,” he said. “In the short term that is painful.”
Novogratz also argued that crypto is being repriced as a true business ecosystem rather than a pure story. “It’s a transition from just being a story – ‘we’re the most important industry… we’re going to decentralize the world’ – to ‘showing me what crypto actually does,’” he said. “Some companies make money. Some companies don’t. There are some token ecosystems that make sense to an investor, and then there are some that all feel like they’re just an association.”
Overlaying everything is a macro background that he sees as always supportive. He called the Fed’s recent signals and plans to ease banks’ cash needs in repos “a monstrous liquidity boom coming,” adding that “they will cut rates to 2 percent in the next sixteen months” and that inflation will “creep higher,” implying negative real interest rates.
For crypto, the message is double-edged: structurally phased out, with fewer market makers and hurt sentiments, but still tied to a global liquidity cycle that Novogratz believes is turning in his favor – once Humpty Dumpty is put back on track.
At the time of writing, Bitcoin was trading at $91,115.
Featured image from YouTube, chart from TradingView.com
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