Crypto Speculation Era Ending As Institutions Enter Market

The days of outsized gains in crypto may be coming to an end as more risk-averse institutional players are entering the space, replacing retail investors who chase rapid gains, according to Galaxy CEO Mike Novogratz.

Novogratz reportedly said at the CNBC Digital Finance Forum on Tuesday in New York that it reflects the maturing industry. 

“Retail people don’t get into crypto because they want to make 11% annualized,” he said. “They get in because they want to make 30 to one, eight to one, 10 to one,” he said. 

Novogratz referenced FTX’s collapse in 2022, which resulted in a bear market that saw Bitcoin (BTC) prices fall 78% from $69,000 to $15,700 in November that year, stating that there was a “breakdown in trust” then. 

Novogratz also acknowledged that the Oct. 10 leverage flush, which he called a significant event that “wiped out a lot of retail and market makers,” and increased selling pressure — though there wasn’t any major catalyst.

“This time, there’s no smoking gun,” he said. “You look around like, what happened?”

“Crypto is all about narratives, it’s about stories,” he said. “Those stories take a while to build, and you’re pulling people in … so when you wipe out a lot of those people, Humpty Dumpty doesn’t get put back together right away.”

Tokenized real-world assets will drive markets

Novogratz said he expects the industry to shift from high-return speculation to more practical applications, such as tokenized real-world assets that offer steadier returns.

However, some traders will always speculate, said Novogratz, but it’s going to be “transposed or replaced by us using these same rails, these crypto rails, to bring banking [and] financial services to the whole world. And so, it’s going to be real-world assets with much lower returns.”

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Chainlink co-founder Sergey Nazarov made a similar argument on Tuesday, stating that tokenized RWAs will “surpass cryptocurrency in the total value in our industry, and what our industry is about will fundamentally change.”

Long-term Bitcoin believers will be fine

David Marcus, the co-founder and CEO of Lightspark and a former PayPal executive, told Bloomberg on Tuesday that there has also been a shift in who is holding Bitcoin. 

“It’s just a change of who’s holding Bitcoin, and you’re moving from people that had long-term belief and were holding Bitcoin directly to just access to Bitcoin being wired off to our financial system and markets.”

He added that the change in holders and the Oct. 10 leverage flush have changed the dynamic, but those who have long believed that Bitcoin is a “hedge to everything else that’s happening in the markets” will be fine.

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