30% of Crypto Market Makers Affected, Claims Mike Novogratz

Galaxy Digital CEO Mike Novogratz revealed that the recent crypto market crash on October 10th had a significant impact, wiping out approximately 30% of market makers in various sectors. This event highlighted the volatility of the crypto market, primarily triggered by a pricing glitch at Binance and exacerbated by the use of leverage by traders. Although some recovery is expected, Novogratz warns that the market still faces challenges ahead.

Key Takeaways

Mike Novogratz states a third of market makers were eliminated in the recent crash.
Market volatility was intensified by a pricing error at Binance and leverage trading.
Short-term recovery is anticipated, but long-term sentiment remains fragile.
Novogratz notes a shift in crypto to recognize its business viability rather than solely its narrative.

Crypto news Mike Novogratz

30% of Crypto Market Makers Affected

Recently, Mike Novogratz, CEO of Galaxy Digital, commented on the October 10th crash in the cryptocurrency market, describing it as more than just a minor shakeup. He explained that about one-third of market makers in various areas were essentially wiped out. “We had a flash crash that caused significant damage to the market structure,” Novogratz stated during a conversation with Anthony Scaramucci on the inaugural episode of “All Things Markets,” recorded on November 26. “At Hyperliquid, for instance, 30% of market makers went out of business and essentially lost everything.”

Scaramucci contextualized the past 20 trading days, noting them as a stark reminder of the crypto market's inherent volatility. “I know I have a trap door in my portfolio,” he remarked. “Occasionally, while I’m feeling good about my investments, a trap door suddenly opens, and I find myself in a tough situation.”

According to Novogratz, this metaphorical trap door was triggered at Binance. “It began with an oracle at Binance that experienced a pricing issue,” he explained. This glitch impacted a synthetic stablecoin and initiated a chain reaction where investors were liquidated due to the incorrect pricing. This led to dislocations in highly leveraged markets, such as Hyperliquid and Uniswap. “As prices fell, many individuals were liquidated,” he noted.

Novogratz emphasized how the leverage used by crypto participants transformed a technical malfunction into a widespread crisis. “People often misunderstand crypto,” he stated. “Crypto investors aren’t aiming for modest returns; they proudly call themselves ‘degens’ wanting to amplify their investments significantly.” As a result, they trade highly volatile assets using considerable leverage.

The risks associated with perpetual futures further compounded this situation for liquidity providers. “Perpetual futures operate differently from standard futures,” Novogratz pointed out, crediting "the genius of Arthur Hayes and his team" for a design wherein liquidated longs are matched against shorts. “In a rapid downturn, you could be on the losing side of this scenario, and many market makers faced this reality,” he explained.

Will the Crypto Market Recover?

The aftermath of this crash resulted in significant losses in liquidity and retail investment. “We have lost substantial liquidity and a number of retail traders have seen their funds vanish,” he remarked, expressing concern that recovery from such significant losses is not immediate.

Initially, Novogratz had anticipated that higher price levels would stabilize. “To be honest, I expected us to maintain a higher threshold around $90,000,” he shared. “However, we fell to $80,000, which was a critical pain point… with XRP dropping to $1.80 and Solana to $125, which caused real distress.”

He attributes the subsequent price bounce to favorable macroeconomic conditions rather than renewed confidence in the market. “The uptick we see now is primarily influenced by the Fed, but we are not completely out of danger," he stated. "I believe Bitcoin could recover to about $100,000 by year-end, but there are sellers poised to take advantage.” He also pointed out that the recent activity has inflicted medium-term damage on the market's psychology.

On the spot trading side, he noted significant profit-taking by early investors coinciding with ETF-related inflows. “One $9 billion seller emerged, representing a third of all IBIT flows for the year,” he pointed out. As US wealth avenues shift from a negligible to a 3-4% investment in Bitcoin, they encountered selling pressure from longtime investors. “Over time, this will be beneficial, but in the short term, it’s a painful process,” he added.

Novogratz underscored the evolution of crypto into a legitimate business ecosystem rather than just a speculative narrative. “It’s shifting from being merely a story—‘we’re the most impactful industry; we’ll decentralize everything’—to demonstrating the real-world utility of crypto,” he explained. “Some projects are generating profit while others are not. Certain token ecosystems make sense to investors, while others seem like mere affiliations.”

Additionally, he pointed out a macroeconomic environment he views as increasingly advantageous. He described recent Fed announcements and plans to reduce bank cash requirements as an impending massive liquidity boost. Moreover, he expects that interest rates will decline to about 2% within the next 16 months, while inflation could rise, suggesting negative real interest rates.

For the crypto sector, this scenario presents a dual challenge: while there’s a structural de-leveraging and diminished market makers, the sector still aligns with a global liquidity cycle that Novogratz believes is evolving positively—once the current issues are resolved.

At the time of writing, Bitcoin was trading at $91,115.

Bitcoin price Bitcoin maintains position above the 0.786 Fib and 100-week EMA, 1-week chart | Source: BTCUSDT on TradingView.com