My 2022 Thesis
Prepare to Have Less Fun
I’ve been hesitant to offer my predictions for how markets will perform in 2022 mainly because the more I learn about markets, the more I learn how difficult they can be to predict, at least in the short term. However, I will offer some thoughts on what I think 2022 may look like below.
But first, let me offer a quick reflection on 2021.
Reflection: $BTC is up about 7% from Jan. 9, 2021; $ETH is up about 175% from Jan. 9, 2021; Layer-1s and Layer-2s like $SOL, $LUNA, $AVAX, and $MATIC are up like a quadrillion percent from Jan. 9, 2021; if you got in early on some crypto gaming or metaverse plays like $AXS, $SAND or $GALA and sold at their peaks, you can probably retire; if you bought some dog coins like $DOGE or $SHIB early and sold at their highs, you probably have enough money to buy a small island; and if you bought a certified .jpeg of a Bored Ape, a Crypto Punk, or a Fidenza on Jan. 9 of 2021 and sold at their peaks, you can likely retire for the rest of your lifetimes (if reincarnation exists).
In short, most people (including myself) thought $BTC and $ETH were going to take off, and they didn’t. (LOL - $ETH is up 175% percent in a year and I’m categorizing it as “didn’t take off” compared to some of the other assets I mentioned above.) Far fewer people saw the alt-L1/L2, gaming, metaverse, and NFT crazes coming. So, yeah, as I said, markets are very tough to predict in the short term.
Predictions: Before I share any of these, please know that whatever happens in markets in 2022 is likely going to be highly contingent on what the Fed does. If it stops QE, as it says it will, the market will slow down. If it starts QT, the market will likely continue to see hard and fast drops. Great thread on this below. (Read it; it isn’t 469 Tweets long.)
TL;DR - $BTC is an inflation hedge (according to one of the most popular narratives that surround it), and in a deflationary environment, its price could take more big hits. And given how correlated the rest of crypto markets are with the price of $BTC, the prices of many digital assets could also continue to take big hits.
I also shared my thoughts on where I think we are at in the thread below.
For more context on what David Sacks said about the current state of markets and where they are potentially headed, I recommend listening to this episode of the All-In Pod from minutes 26:00 to 46:00.
Another important takeaway from this episode above: Chamath mentioned how Jeff Bezos and Elon Musk sold big chunks of their respective Amazon and Tesla holdings in November of last year, which prompted him to sell big chunks of his own holdings. In other words, the richest people in the world have already begun to dump some their bags on the rest of us. Please keep in mind that you are not smarter than these people. I guess the saving grace here, though, is that they only dumped some and not all of their bags.
Anyway, back to my predictions…
In 2022, $BTC and $ETH likely reclaim their all time highs. With $BTC becoming more financialized and the creation of new $ETH wallet addresses slowing down, I don’t think $BTC or $ETH will really be where the party is at in terms of alpha in 2022. Or maybe they will be because so many people think they won’t be.
But, by the end of 2022, once the U.S. likely fully enters recession mode, there’s a good chance these assets will be priced lower than they are right now. (Long term, $BTC and $ETH are likely outperform more traditional investments. Understanding your investment time frame is key successful investing.) Short term, I’m always skeptical when I see headlines like the ones below; these usually mean that institutions are looking to pump their bags before they dump them them on you.
For more on the different ways in which this could all play out, I, again, would recommend that you read the threads from both Alex Kruger and myself above (David Sacks himself liked my thread, so it has to be official. I - a former ESL teacher turned “financial analyst” - am basically a pro now, as per Sacks’ “approval”.)
So, my prediction for 2022 is that it’s going to be a lot harder to make money in crypto markets. It’s hard to predict what the next big wave of capital will flow into, and since I don’t really like speculating in such a way, I’ll mostly be slowly and temporarily taking a large chunk of my money out of markets in the coming months. If we do enter some sort of deflationary environment, you’ll want to hedge, to some degree, by being in dollars. Everything from the valuation of tech. stocks to $BTC will take a hit in such an environment (in the short term). Again, I repeat, long term, I remain a proponent of $BTC and $ETH, mostly because they are my bet that governments are mostly incompetent and filled with bureaucrats who are incentivized to be in power for the wrong reasons. Also, I think you’ll see more and more pro-crypto politicians in the coming years, and $BTC and $ETH both have the Lindy Effect and the depth of liquidity necessary for larger institutions to buy in. In a recent interview with Zhu Su, the CEO and CIO of Three Arrows Capital, Su said something to the effect of “Don’t expect all members of government to be so statist,” which, according to my interpretation means, “Don’t expect members of government to act in favor of what’s best for the state.” I agree. These people will likely act in favor of wherever the money is coming from, and if that money starts to come from proponents of crypto, then crypto will be their new master.
(“SBF” is short for Sam Bankman-Fried. He’s the CEO of FTX, a massive crypto exchange. He was the second largest donor to the Biden campaign.)
Su has come to be one of my favorite voices in the digital asset space. His message is always quite sober and hype-free. I recommend listening to the podcast he does with Hasu, Uncommon Core, particularly the Dec. 13 episode entitled “Ethereum vs. Alt L1s”. It’s rare to hear big voices in crypto admit that their investment thesis for this past year was off, yet Su admits this on this Dec. 13 episode. I also highly recommend listening to the Up Only podcast. Below is a good episode to start with…
Like Uncommon Core, Up Only is quite sober and dispassionate. And the hosts, Ledger and Cobie, laugh a lot at how ridiculous the crypto space is. Cobie has been in crypto since, I believe, 2011 or 2012, and has a lot to share about how and why trends in the space come and go. I also like that Cobie seems to be dead inside as a result of being involved in crypto for this long. I think you really have to get to such a place to gain any sort of semi-objective perspective on the space.
But back to predictions…
So, yeah, my predictions: I think we will see a lot of volatility in both the digital and traditional asset markets, yet there will be a general uptrend for the first three to six months of the year.
The best and most consistent macro calls I’ve seen from anyone in either the crypto or the traditional market space over the past two years have come from David Hunter, so feel free to take a look at what he has to say.
This year, if you know how to trade vol, you’ll likely do really well. If you don’t, you’ll probably continue to survive on hopium and then watch your net worth substantially decline by the end of the year (but only right after people get so high on the ride up that they start predicting that markets will never go down again). It all really comes down to what the Fed does (very settling, right?), and I’m not really sure they even know what they are doing.
So, welcome to 2022. If you want to survive this market, I suggest the following: tune out the noise and begin to make decisions for yourself. If you can learn to countertrade both your emotions and MSM headlines, you might just do okay in 2022. If you don’t know how to do that, consider hiring a financial advisor to invest for you, because I, my friends, am not one, and nothing in this edition of the newsletter is financial advice.
I’m just here to document this degeneracy as it all unfolds.
Best,
Frank
Twitter: @frankcorva