Galaxy Digital CEO explains the three common mistakes crypto traders make: entering the market early, lack of observation, and short-sightedness

Michael Novogratz, founder and CEO of cryptocurrency-focused merchant bank Galaxy Digital, has detailed the most common and costly mistakes market traders make today and highlighted his current lack of confidence in Bitcoin.

Novogratz, a former partner at Goldman Sachs, spent his early career trading currencies and observing emerging markets.

Today, Off the Chain podcast host and Bitcoin fan Anthony Pompliano joins him to discuss the market disruption and the Federal Reserve’s unprecedented response to the economic impact.

But since Bitcoin and other cryptocurrencies are now following stocks and other assets, Pomp also wanted to know what the biggest mistakes traders make are and how to avoid them. Here is Novagratz’s response:

1. The biggest mistake people make is when the market crashes, everyone thinks it’s time to come back (but it’s not). Bad things are always worse than you think. I make this mistake sometimes, but I tell myself, “Hey, when you want to buy something, go take a walk and then come back a week later,” and it’s usually worse. Once it starts to get bad, it stays bad for a while;

2. Pick a story where the fundamentals are improving - are things getting better around the margins, or are they getting worse around the margins? So if you can see things improving around the margins, that usually starts a cycle where things get better.

3. This doesn't mean you can't buy things that seem bad or that you can't sell things that are not very good, but what you really should try to do is: when you have this idea, buy things that you can keep for a long time.

Novotgratz went on to give the example of a horse racing stock: Churchill Downs (CHDN), owner of the Kentucky Derby, an annual horse race held at Churchill Downs in Louisville, Kentucky, USA. He said: "The stock has fallen from $160 to $80 in the past six weeks."

Even with the cancellation of the Kentucky Derby (they made $100 million a year on the Derby), it was a $5 billion company that is now worth half that. You need a company like this to do a run; you find where the value is and you don’t have to sell, even if the value goes up immediately, he said.

But what about Bitcoin? “I don’t think Bitcoin will accelerate unless we see deflation,” Novogratz said, referring to Bitcoin’s revolutionary halving mechanism, which reduces the number of coins that can be created over time. Bitcoin’s next halving will occur in about 52 days.

Last week, when Bitcoin hit a new yearly low of $5,301, Novogratz tweeted that confidence in the cryptocurrency had evaporated.

In fact, he tried to warn crypto investors that black swan events such as the coronavirus crisis could be very negative for Bitcoin. On March 1, he tweeted that investors tend to liquidate all their assets in such events.

Novogratz, who also owns a private equity business in addition to Galaxy Digital, responded when Pompliano asked him which businesses he was backing.