Galaxy Digital CEO Michael Novogratz highlights a hidden risk for underweight crypto investors

Source: Yellow Original Title: Galaxy Digital CEO Michael Novogratz points to a hidden risk for underweight crypto investors

Original Link: Michael Novogratz, founder and CEO of Galaxy Digital, said on Monday that crypto markets could be gearing up for a strong bullish move as global liquidity conditions change, warning that digital assets could become the “pain trade” for professional investors who remain underexposed.

Speaking in a year-end conversation with SkyBridge Capital founder Anthony Scaramucci, Novogratz highlighted a combination of falling inflation, a potentially more dovish Federal Reserve, and increasing stress in global currency markets as key macro forces that could reshape asset allocation in 2026.

Underweight crypto creates positioning risk

Novogratz said cryptocurrencies have significantly underperformed assets with similar macro narratives, such as gold and silver, despite persistent concerns about inflation and expectations of looser monetary policy.

He noted that professional investors have largely shifted toward risk-averse positioning in digital assets, while broader retail participation has faded.

He cited subdued sentiment indicators, including low search interest and decreased activity on social media around Bitcoin (BTC), as signals that cryptocurrencies are currently underweighted.

According to Novogratz, this lack of positioning increases the risk of a rapid bullish move if momentum returns.

“The pain trade is higher crypto, not lower,” Novogratz said, adding that if prices start gaining traction, institutional investors might be forced to chase exposure.

He said that crypto has “all the ingredients” for an upward move but has yet to break key psychological levels that would confirm renewed momentum.

Dollar weakness and Fed policy as key catalysts

Novogratz said he expects a new leadership team at the Fed to adopt a more dovish stance, which could accelerate interest rate cuts and push the US dollar lower.

He described a weaker dollar as a favorable backdrop for risk assets, including cryptocurrencies.

He also highlighted currency trades such as being long the euro or Australian dollar against the US dollar as part of his broader macro positioning, pointing to expectations of continued dollar weakness.

According to Novogratz, easing financial conditions would increase global liquidity, a factor he described as central to Bitcoin’s long-term price behavior.

“Bitcoin is a story of global liquidity,” he said, emphasizing that changes in monetary policy often precede major moves in crypto markets.

Japan’s bond market and yen volatility raise doubts about global liquidity

Beyond US policy, Novogratz pointed to Japan’s bond market as an underappreciated risk factor. He noted the sharp rise in Japanese long-term interest rates, from near zero to around 2%, as a potential early sign of broader instability.

He said volatility in the yen carry trade could have ripple effects in global markets, including crypto, if Japan is forced to intervene aggressively or change its monetary stance.

Novogratz stated that Japan’s challenges highlight the limits of monetary accommodation in an environment where inflationary pressures are beginning to surface, and added that central bank responses to these pressures will be critical for global asset prices.

Additionally, he said the interaction between inflation trends, central bank policies, and global liquidity will determine whether crypto remains in a range or enters a new phase of expansion.