‘There’s been a tremendous amount of capitulation and fear’: Mike Novogratz says the crypto market is nearing a bottom, despite macroeconomic challenges

It’s a crypto winter that has spawned hiring freezes across the industry, and even the blowup of a few so-called stablecoins meant to hold their value at a one-to-one peg to the U.S. dollar.

But some industry experts are arguing the bottom may be near.

Mike Novogratz, the CEO of the institutional crypto investment firm Galaxy Digital, said that crypto buyers may start to reenter the fray after the recent market turmoil.

“We’ve gone to a level that should be close to a bottom: $21,000 Bitcoin; $1,000 Ethereum,” he said in a CNBC interview on Tuesday. “There’s been a tremendous amount of capitulation and fear. Usually not a good area to sell.”

Novogratz added that cryptocurrencies could still sink lower amid a challenging macroeconomic environment of persistent inflation and rising interest rates, but he remains bullish over the long run. 

The CEO went on to compare the recent collapse of the TerraUSD stablecoin and the controversial halt of withdrawals by the crypto lending platform Celsius to the implosion of Long Term Capital Management (LTCM) in the 1990s.

LTCM was a highly leveraged hedge fund that outperformed much of its competition in the ’90s, until exposure to the 1997 Asian financial crisis and the 1998 Russian financial crisis led the fund to lose $4.6 billion in a matter of months in 1998. LTCM was eventually bailed out by a group of 14 banks in a deal brokered by the Federal Reserve, but its blowup led to reverberations across the stock market as its highly levered bets on risky stocks collapsed.

“We are going through what feels to me a little bit like a Long Term Capital Management moment in crypto,” Novogratz said Tuesday. “It was the big hedge fund with all the leverage, and when it started unwinding, there were repercussions everywhere. We are seeing that in the crypto space right now.”

Still, despite the dark days for the industry, Novogratz remains confident in the future of cryptocurrencies.

“I firmly believe, now more than ever, that the crypto revolution is here to stay,” he wrote in a May 19 letter to shareholders, partners, and the crypto community.

Novogratz isn’t the only cryptocurrency bull who is calling a market bottom. Fundstrat’s Tom Lee said in a Tuesday note that if the 2022 drawdown follows a pattern similar to that of a brief 2021 crypto decline, Ether could bottom at $873 over the next week.

“Overall, ETH-USD looks quite attractive to buy and hold…possibly providing an ideal entry point within a week,” he wrote.

That may not be what crypto bulls were looking to hear, however, because if Lee is right, it would mean Ether still has another roughly 27% drop from current levels ahead.

And while crypto bulls stand by their views, some industry skeptics argue that what we are seeing is just the end of another bubble.

Jay Hatfield, the chief investment officer at Infrastructure Capital Management, told Fortune that the crypto industry only managed to grow to its recent heights due to unsustainable Federal Reserve policies of near-zero interest rates and quantitative easing that blew up asset bubbles in stocks and crypto.

In his mind, as these policies are ended and the Federal Reserve begins quantitative tightening, or the process of shrinking its nearly $9 trillion balance sheet, the crypto market will only continue to drop.

“The Fed’s overexpansion of its balance sheet led to a number of bubbles including tech stocks, crypto tokens, meme stocks, and SPACs,” Hatfield said. “As the Fed continues to pursue quantitative tightening, the bubble is likely to continue to burst.”