(Kitco News) The crypto space won't see a break in the bear market until the Federal Reserve is forced to pause its aggressive rate hike cycle that is meant to bring inflation under control, said Mike Novogratz, founder and CEO of Galaxy Digital.
"Bitcoin and crypto won't trade well until the Fed flinches," Novogratz said during a panel discussion titled 'Lessons Learned While Riding Crypto's Rollercoaster' at the Consensus 2022 conference taking place in Austin this week.
To get results on inflation, the Fed will have to push the economy into a deep recession, Novogratz said Friday. "That's what Fed Chair Powell needs to do. Will he have the courage?"
Novogratz sees the U.S. economy slowing enough by the fourth quarter, forcing the Fed to take its foot off the rate-hike accelerator. This is the time the crypto bear market will start to turn around.
.@novogratz: #Crypto won’t trade well until the #Fed flinches #Consensus2022 @consensus2022 pic.twitter.com/cpJNiDC8Oa
— Kitco NEWS (@KitcoNewsNOW) June 10, 2022
And Bitcoin will lead markets, breaking off from equities.
"You'll see Bitcoin bottoming before equities. Bitcoin is bought as an inflation hedge. While equities are both an inflation hedge and a growth story. So when growth is plunging, Bitcoin can start rallying," he explained. "My hope is that by the fourth quarter — September, October, or November — the economy is slowing enough for the Fed to say it is going to pause. And then you'll see the next crypto cycle starts."
Looking back, Novogratz said that Powell should have been raising rates a full year before he started.
Novogratz was also asked about the lessons learned from the collapse of the Terra ecosystem. Galaxy Digital has invested in LUNA, which is the sister coin of stablecoin TerraUSD, at the end of 2020. And it did so by using the company's balance sheet.
"A lesson that I have taken and implemented my whole career here is this is a really early revolution in technology," he said. "You've got to have a diversified portfolio, you've got to bet on smart teams, you've got to watch usage, you've got to take profit along the way, and you've got to have some risk management tools, and you have to know what macro framework you are in."
Novogratz added that he is keeping his LUNA wolf tattoo as a reminder of humility.
Bitcoin continued to suffer losses Friday, following the release of the hotter-than-expected inflation data out of the U.S., which hit a fresh 40-year high with its 8.6% annual print for May. Bitcoin was last trading down 3.1% at $29,238.
