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In a recent Bloomberg television interviewMichael Novogratz, founder and CEO of Galaxy Digital, predicted that the flagship cryptocurrency could see a temporary decline before reaching new highs.
Novogratz, a veteran cryptocurrency investor, believes that Bitcoin could pull back to the mid-$50,000 range as part of a broader consolidation phase after its impressive rally that saw an increase of more by 40% this year.
As U.Today reports, the rally was largely fueled by the successful launch of Bitcoin exchange-traded funds (ETFs).
The digital currency was trading at around $60,700 at the time of the interview, riding the wave of its recent gains.
The consolidation phase
Novogratz described the current market dynamics as a phase of “price discovery” driven by the introduction of Bitcoin ETFs, which have attracted a new wave of investors into the cryptocurrency sector. This influx of buyers has largely contributed to the Bitcoin price surge.
However, Novogratz warned that current market leverage levels, particularly among millennial and Gen Z investors who are “chasing highs,” indicate that a correction may be imminent.
“There are a lot of millennials and Gen Zs YOLOing there, and they will all get some of that money and a lot of them will be wiped out,” he explained.
He noted that some investors could benefit from the situation, but many could face significant losses if the market were to experience a downturn.
Leverage and marked momentum
Delving further into the market dynamics, Novogratz highlighted the difference in leverage between the 2021 uptrend and the current situation.
He observed that large institutional players are now less leveraged while retail traders are overleveraged, notably through offshore crypto trading platforms which offer substantial leverage. “Large institutional players have less leverage right now… but retail still likes leverage,” he said.
This scenario, according to Novogratz, sets the stage for possible “collapses,” in which the market could experience a significant retraction before stabilizing and resuming its upward trajectory.
The crypto mogul warned of the volatility that such leverage can introduce to the market, saying: “You're going to see a short-term boom-bust with a very positive overall trend as people continue to decide to allocate some of their portfolios. to Bitcoin.”