So, that happened. Though it may have been good for purveyors of heart medication, whiskey and antacids, investors watched as billions of dollars in market cap vanished into thin air. The bear has emerged from hibernation and has been feasting on portfolios.
Macro economic factors have beaten the crap out of pretty much every asset class. We have been hit by the 3 headed monster that is Inflation, Supply Chain and Labour Availability. Given this is a crypto publication let’s just agree these suck and move on to crypto.
The crypto death spiral was initiated by factors such as the “stable-coin” UST. The coin lost its peg and became anything but stable. The FUD makers followed up with Coinbase announcing its less than stellar earnings (or lack thereof). Caught up in the Terra kerfuffle was Celsius, as their losses mounted and the house of cards began to crumble. Fears of solvency issues added to the market sell pressure.
I did a shallow dive on Twitter into Luna and UST at the end of March, when it began buying up BTC to shore up its reserves.
Interestingly, the same event causing a market pump in March, led to a crash in May. As UST began losing its peg to the dollar, the foundation began rapidly selling its reserves of BTC and AVAX. This sell pressure caused the markets to tank. Cascading fear was then able to snowball on itself and more investors jumped on the selling bandwagon. We teach our children at a young age the secret to investing. Buy low, sell high! Simple, right? Most humans do the opposite, driven by our emotions. Namely, FEAR.
Fear
“Fear is poison in combat. Something we all felt but you just didn’t show it. You can’t. It’s destructive, and it’s contagious.” C. Carwood Lipton- Band of Brothers
Check out these headlines from 1998, any of this sentiment seem familiar?
Historic losses wipe out market’s gains for 1998 as global turmoil mounts
“Frantic selling pounded Wall Street Monday, sending the Dow and the Nasdaq Composite into its worst one-day point loss in history …. and left market experts wondering if the unprecedented bull market of the 90’s has finally met its end.“
“The Dow Jones industrial average plunged 512.61 points……the second largest one-day point loss in the index’s history…..The Dow is now down 19.3 percent down from its all-time high of 9,337.97, set a little more than a month ago, on July 17. Stocks traded on the NYSE lost $589 billion in market capitalization Monday, or $2.3 trillion since the Dow peaked on July 17. Losses for the Nasdaq Composite were even steeper. The index tumbled 140.43 points, or 8.6 percent, to 1,499.25, its largest one-day point decline ever. “ CNN Money- August 31, 1998
What if you didn’t panic sell?
At the time this was written, Amazon was trading for about $18. Apple stock could be had for about 30 cents a share and Microsoft was about $24. Spoiler alert! The internet didn’t die in 1998, nor will web3 in 2022. Sure Pets.com, TheGlobe.com and Boo.com are examples of projects that disappeared along with millions of investor dollars, but quality projects continue to thrive today. These stocks are currently worth $2261, $147 and $261 respectfully. There were also a few stock splits along the way to make the math harder. Key point, THEY ARE WORTH WAY MORE NOW!
Lost in much of the FUD was the news of Australia finally approving their spot ETFs. This was another topic I covered, in the lead up to their approval.
One of the big reasons this flew under the radar was volume. The sell pressure from Luna, Harmony and Celsius outweighed the immediate purchases. I guess you could say, Aussies were buying the dip. Probably fortuitous timing for them in the long run. Initial buy volumes are currently low, but they will be accumulating at low entry points. When the fear subsides the volume will pick up. I get many of you either don’t believe me, or are asking BUT WEN? WEN VOLUME? WEN MOON? WEN CANUCK WEN?
Spoiler Alert- Nobody really knows. History however does leave some clues which we can examine. Let’s look at BTC’s peaks and valleys.
BTC hit $1150 in Dec 2013 then hit bottom at $178 in January 2015 (a loss of about 85% and a 13 month bear). BTC then peaked in Dec 2017 at about $19K then bottomed just under 12 months later at around $3500 (82% loss and 12 months). Our most recent peak was at $67.5K in early November of 2021 and we have dropped about 72% since that time.
Interesting to me, is historically most of the losses come pretty quick and then there is a bit of a long tail of small losses and sideways trading before the bottom. Much less risky to attempt to catch the falling knife now than in Q1 of this year. So, does this mean a recovery can be expected to start around the end of Q3 this year? Does this mean the bottom is somewhere between $10K-$12K BTC? Historical patterns would suggest this could be the case.
WIIFM
Everybody’s favourite radio station. What’s in it for me? How does someone suffering market PTSD act boldly to take advantage of the current market? Here are a few of my random thoughts in no particular order:
- Stables aren’t stable. Regulation is coming. They have too much debt masquerading as assets on their balance sheet so stay clear. I don’t think UST is going to be the only casualty here.
- Focus on quality. To me, quality right now means coins (Layer 1), not tokens. Look for how well projects are attracting developers as a measure of quality. I used Avalanche as an example here
- Avoid leverage. Much of the quandary we find ourselves in was due to leveraged traders getting wrecked. Sooner or later you will lose the bet.
- DCA. Do it now, next week and next month. Continuous accumulation should be the goal right now. Sure you may not get 3,000% returns next week, but future you will be happy you did.
- FUD everything and say woe is me. No, I don’t think this is a good idea, but many of you are going to do it anyway regardless of what I say. At least this way one of my predictions is guaranteed to come true :).
Closing Thoughts
I haven’t written much of late because my work life has taken over. Work from home ended very abruptly in early May and work travel commenced. One positive consequence of this, I have talked to a lot of people in a very short period of time. The list includes pension funds, government leaders and investors from a variety of asset classes. Two themes remain constant across everyone I have talked to.
Flight to quality: Investors are more risk averse right now and would rather invest in quality than speculation. In commercial real estate this means AAA and A class buildings. In tech, blue chip stocks. Crypto investors should be focusing on BTC, ETH and other strong layer 1 blockchains as well as the top level NFT projects (BAYC & Doodles).
Buying opportunities are abound: “Be greedy when others are fearful”. Pretty much every wealthy person I know is licking their chops at all the good deals the market is putting out there. Right now, if you are selling you may just be a whale’s startup capital. A good friend of mine put it best recently when he said “anyone selling right now should never have purchased in the first place”. Accumulate accumulate accumulate.
Fear and greed drive every asset market. It is important to remember, the Fundamentals are still there. Similar to past events we come out on the other side of this chaos. Some will come out with money, and others will come out with experience. Which one you become is up to you. As always, keep your stick on the ice.
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