Mike Novogratz, a crypto billionaire, said that Tuesday's bitcoin crash was caused by the market getting too excited.
He stated that retail investors who used large amounts of leverage were key to the sharp drawdown.
Bitcoin dropped as high as 17% Tuesday, as El Salvador legalized the cryptocurrency.
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Mike Novogratz, a crypto billionaire, said that the recent plunge in bitcoin was caused by investors getting too excited about recent developments within the crypto space. He also said that excessive leverage has fueled volatility.
After El Salvador's legalization of Bitcoin as a currency, glitches caused Bitcoin to drop as high as 17% Tuesday. On Wednesday, it was just 1% less at $46,420, down from $52,000 on Tuesday.
Novogratz stated that "I think we got too excited" and that there was just a small amount of air being popped from the balloon in Tuesday's Bloomberg TV interview. "The market got way too long."
Novogratz, who is the founder of crypto investment firm Galaxy Digital, and an influential figure within the space, stated that large amounts leverage in the system led to steep falls.
He said that there was a lot of retail money and that a lot of it is leveraged. "There were approximately $4 billion in liquidations in a short time. This is mostly offshore, in places like Binance and FTX.
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Users can borrow large amounts to trade on exchanges like Binance, Bybit, and Huobi. Analysts have said that traders were using leverage to "go long", which is to bet on the price of bitcoin or other cryptos, in recent weeks.
When cryptocurrency prices drop, traders who used leverage to trade often sell their positions or the exchange liquidates them automatically to limit losses. This can cause prices to fall further and trigger more liquidations.
Bloomberg was told by Novogratz that he believed the market was excited for a good reason. He stated that Visa's purchase of a non-fungible token worth $150,000 and Amazon's announcement of a job opening in crypto have made many believe the technology is here to stay.
He stated that he was certain El Salvador will succeed in its bitcoin rollout and said the token could be used to send remittances.
He said, "There are always glitches when you're rolling out new technology." "Come back in six or twelve weeks to let us know how it is working."