Crystal balls, tea leaves and palm lines. Are these practices any more or less reliable than monetary policy? It often seems like Jerome Powell and his cronies at the Fed are just making it up as he goes, doesn’t it? The sad reality is monetary policy is reflectionary and often influenced more by election cycles than data. It examines events that have already occurred and then makes adjustments based on yesterday.
Wise investors on the other hand look at what is happening in the moment. They then use this information to predict what will happen next and think several moves ahead, like chess. Problem is, most people hate chess. I mean they really hate it. Too much thinking involved.
Crypto doesn’t exist in a vacuum. We often forget it isn’t an isolated market. Sometimes Eth is down because some old white man in Washington was grumpy and made a bad decision. As a crypto investor I find it important to separate overall market and economic conditions from web3 conditions. It is possible to be bullish on crypto as economic conditions are making crypto profits seem like a pipe dream.
Inflation vs. Employment
Inflation is the primary driver of monetary policy, followed by unemployment. This is why central banks will raise interest rates to control inflation. However, they will reverse course as soon as this begins to create unemployment. After all, the one message every politician can agree upon is “jobs, jobs, jobs”.
Macro Markets (and their corresponding liquidity) crave certainty. It is only in times of uncertainty when the real chaos happens. These periods are generally not all that long in duration. I continue to believe the big moves (Eth going from $4800 to under $1,000) have already taken place. This does not mean smooth sailing, but it does indicate less downside risk. The markets may be spooked but Web3 is hugely viable long term. There is too much investment and too many use cases for it to go the way of a Big Mac in Donald Trump’s office.
Housing
Another hot topic on a lot of people’s mind is housing. After all, it was a housing market crash that led to the financial crisis in 2008. This is a market I follow closely as real estate is my primary investment strategy. Housing isn’t falling the way many people think.
Consumers do not purchase a house based on the price of the home. They buy based on a monthly payment. The cost of a home is only part of the monthly payment, the other main component is the interest rate. So, if someone can afford $2500 per month, as rates rise, the principal balance they can afford shrinks. Often times in these environments, the reduction in prices stays relatively close to the corresponding increase in interest cost. Given how much of an overall housing shortage exists across the G7 I do not think we are headed to a housing crash this time around. That said, I am inclined to treat FUD about the housing market as just noise. Like a pesky little brother, best to just ignore it as a crypto investor.
Wen moon?
So, given the background economic data I’ve laid out above, what does all of this mean for crypto? The good news is most of the big moves down are behind us. We probably have one more big rate hike coming up in September and then it feels like job growth will take over as the #1 goal of those in elected office.
In the chaos of this summer “bear market” Eth us is up over 50% from where it bottomed in June. I however don’t believe it is a good idea to measure assets from their peak highs or lows. Given how few of us bought at the top or sold at the bottom. Most purchases are somewhere in the middle. Especially if you are DCAing, which you should be (yes, that is financial advice).
In early July when fear was at an all time high following the market bottom. I offered the following 4 pieces of advice, which I continue to hold to:
- Avoid stables
- Focus on quality
- Avoid leverage
- DCA
Much of the market suppression we have been seeing lately is driven by the macro economy. This means, in crypto there is much to be excited about. Prices for quality projects are artificially low. To me, quality right now means Layer 1 projects that are experiencing a growth in developer activity. The most obvious ones IMHO are Eth and Avalanche, but there are plenty of other ones to take a look at. Defi Kingdom’s decision to move to Klaytn is another positive piece of news, which Crier and I will be diving into next week.
Influencer no more
One of the pieces of collateral damage of the collapse in liquidity and accompanying prices has been the demise of the “influencer”. I have seen plenty of them sobbing on Twitter about how broke they are. Many are wondering when the bull will return. Though I contend, in their world it never actually existed.
We have seen this type of personality all through history. The snake-oil salesmen of the past centuries. The pump and dump and Ponzi schemes of our modern stock markets. These people offered nothing of value and just preyed on human FOMO. I would like to say they are gone for good, but I am not that naive.
Influencers do not create. They also don’t care if you make money. They are more akin to a parasite than an ally. It is always important to figure out someone’s agenda before taking advice from them. With the upcoming transition of Eth from Proof of Work to Proof of Stake, this has never been more important. This transition will lead to a forked chain. Plenty of shysters with an agenda will try to tell you why assets on the POW chain will continue to have “collectors” value. Peel the onion, ask yourself why are they of that opinion? If a project or an investment needs a fancy name and a clever influencer it is probably not all that great. Math is hard, but it doesn’t lie!
You’re early- so what?
Early on in my business career I was taught a very valuable lesson in perspective. You will often hear someone say “I have 20 years experience doing….”. The reality of the situation is they have one year of experience twenty times over. Just because someone has been doing something for a while, doesn’t mean they are good at it. Getting into the space early but not capitalizing on what you’ve learned is meaningless or worse. If you bought BTC when it was $100 but didn’t keep it, so what? You minted BAYC and sold it for 0.4 Eth (5X profit) good for you, I guess. Even if you minted 5 apes and still have them. What else have you done? Let’s not confuse being early, or one lucky move, as career making.
The most important thing to remember in a space like web3 is how quickly things change and adapt. You need to be able and willing to change and adapt along with them. Your strategy, mindset and expectations will need to change along with the space. Memory is the enemy of wealth, always remember that.
Generational wealth
I have heard the term “generational wealth” a lot in this space of late. Generational wealth according to the IRS is $11.7M. (At least that is when they decide to slap the estate tax on you). Before Googling the exact number, I was thinking about $10M so it jives. I think it is important to zoom out for perspective. 5 Bored Apes is not generational wealth, sorry. Hate to break it to you, get rich quick just isn’t going to happen. Web3, crypto and NFTs has the ability to fast-track your wealth accumulation for sure, but you still need to adhere to principles of value. The house always wins at roulette, so don’t bet your whole future on something with such long odds.
When I wrote about mass adoption for crypto, I talked a lot about the need to reframe your expectations. You can consistently make 25-50% annual returns which is pretty amazing from a historical perspective. This equates to only 2-4% per month. Given most retirement accounts are somewhere around 8% per year this should get people pumped. This level of return however doesn’t provide the dopamine hit degens are looking for. So maybe you should take up skydiving. Align your jumps with the day the DCA leaves your bank account. Just a thought. It is probably better for your mental health in the long run.
What’s next
The fall will be choppy. The only thing “always up” will be your anxiety. Begin by separating the macro news from the crypto specific news. Look for trends. Look for who is creating, investing and innovating. Market conditions may not accurately reward these behaviours in the short term, but they will in the medium to long term. As soon as interest rates begin to fall, asset prices will begin to rise. Possibly quite quickly. Broadly speaking huge amounts of wealth have been converted into US dollars. Think of this as dry powder that will need a home when confidence returns. Perhaps you should be stockpiling powder as well.
Ignore the noise, ignore the fear. Ignore or distract that voice in your head craving more excitement. Finding excitement with your financial future shouldn’t be the goal. Worst case, separate your crypto accounts, set aside 25% of it for degen minting of the next jpeg animal. Seek patience and seek quality right now. Find your Zen. I for one prefer my excitement to be in the form of hockey. That said, keep DCAing and your stick on the ice.