The decentralized finance (DeFi) space has hit the cryptocurrency market like a bull in a china shop. And Galaxy Digital CEO Mike Novogratz is having flashbacks of the 2017 ICO bubble, but that’s not all.
That’s because TSLA shares have shot up several hundred percent this year so far and are trading at more than 1,000 times earnings. The gains are coming hand over fist, especially since Elon Musk announced a stock split.
I’m a little worried that we’re going to have a big correction in a lot of risk assets soon. I don’t think it’s a correction that lasts for that long because the liquidity machine’s not being turned off. But I think we’re going to go through a series of these bubbles. And it feels close to being at peak bubble right now.
It’s not that Novogratz isn’t a fan of Tesla or that Elon Musk isn’t a genius. Indeed, the Galaxy Digital chief owns a couple of Teslas in his garage.
But that doesn’t mean the company is worth a $500 billion market cap trading at 1,300 times earnings. It’s also selling as much as $5 billion in shares on the heels of the gains.
#Tesla CEO Elon Musk eclipsed Facebook’s Mark Zuckerberg to become the world’s 3rd-richest person as shares of electric-car maker advanced. Musk is now worth >$115bn, according to Bloomberg Billionaires Index, and has seen his wealth rise by a staggering $87.8bn this year alone. pic.twitter.com/1ysYkGo9Vs
— Holger Zschaepitz (@Schuldensuehner) August 31, 2020
Meanwhile, Novogratz also calls the surge in liquidity into DeFi a “speculative frenzy” and “irrational exuberance.”
DeFi vs. ICOs
DeFi’s market cap has climbed to more than $17 billion, while ETH has seen its market cap balloon to over $48 billion as projects flock to build their infrastructure on top of the Ethereum network. Like Tesla, it appears to be moving too far, too fast.
Novogratz mentioned that he “lived through” and “profited from” the “2017 crypto bubble,” reminiscing about how the “herd would swim to that ICO and jam the price up” only for it to collapse afterward. But DeFi, unlike ICOs, is probably here for the long game. Novogratz said,
I think DeFi is going to be around longer…We’re a sandbox right now. And it’s a sandbox that’s getting liquidity like it’s an adult industry. And so, be very careful.
Novogratz on Bitcoin
The bitcoin rally is taking a breather today, with the BTC price tumbling nearly 6%, reminding BTC bulls that they’ll need to be patient. The ETH price is down an even more severe 11% as of midday on Sept. 2.
$btc reminding us that there is no free lunch. Who is selling?
— Mike Novogratz (@novogratz) September 2, 2020
For the long-term, however, Novogratz appears more confident than ever that there’s nothing that can knock the leading cryptocurrencies off their respective thrones. He points to institutional investor buyers, who are making their way into the industry methodically without looking back, a likely factor propping up the price.
Even with long-term crypto investors fleeing BTC for what he describes as “sexier objects,” aka DeFi on Ethereum, the bitcoin price has still been advancing in general on the persistently low interest rates and central bank stimulus.