The Process of Bottoming Out
Is the Downtrend in the Crypto Markets - the Wild West of Finance - Starting to Stop?
Hello hello
Please pardon the delay in my writing and please excuse me if this edition of the newsletter is all over the place. My brain is tired from writing a lot at work, and my body hurts from the half marathon I ran on Saturday. But I wanted to touch base.
I know that some of you take what I write here seriously, and I don’t take your attention and faith in me for granted.
So let’s start with what sent crypto markets into a bit of a downward spiral.
Reflections on the LUNA/UST Collapse
While the Terra (LUNA) ecosystem, which supported the TerraUSD (UST) stablecoin, fell apart less than two weeks ago, it already feels like old news. I shared my thoughts about what happened in regard to this situation here and wrote a follow-up piece about it here if you’d like to learn more. For a more extensive overview of what happened, the video below provides the best breakdown of the collapse that I’ve found to date. (And as I sadly often have to say, please pardon the stupid tile.)
It seems like the Terra community voted (I wrote about the vote in the second piece I linked in the paragraph above) to hard fork the LUNA chain and to send new tokens to those who owned and staked LUNA before the crash. I owned some LUNA and some UST (and luckily got out of my positions before the assets completely crashed), and while I would be partially reimbursed if the Terra community issues new tokens, I can’t say I’m in favor of it doing so, mostly because I’m a proponent of blockchain technology because I like the idea of rules without rulers.
Halting and forking blockchains to fix “mistakes” just seems like a new form of banks and large financial institutions cheating.
I believe in creative destruction in the crypto world, especially since it no longer exists in the world of traditional finance (unless you’re just so demonstrably bad at managing money, like Melvin Capital). The institutions that govern us in the real world love to prop up failing companies with taxpayer funds. It’s gross and it’s created so much zombie company bloat in our system. Most highly industrialized countries are suffering from this, as well.
Do Kwon and the Terra community tried to build something very cool, and it didn’t work out. That’s okay. Experiments like the Terra (LUNA) ecosystem and UST help us to learn and to grow. Now, in my humble opinion, it should be left for dead, especially if Do Kwon did in fact dissolve Terraform Labs Korea days before this crash. Also, it seems that Do Kwon will be busy with legal matters, and won’t have much time to focus on the Terra ecosystem. I have nothing personal against the guy; I just hope he doesn’t drag this out.
I’ve heard the stories of people committing suicide or getting divorced because they put all of their money into UST or LUNA. I have sympathy for these people and their families, but I also really can’t wrap my head around why someone would put their net worth into crypto protocols that are just a few years old. As I heard these stories, I thought of a question that friend asked me back in November. First let me give you some context…
A friend of mine offered to take me out to dinner to celebrate an achievement. I knew that she wanted to go out into investing in crypto, so I said to her, “How about we don’t go out to dinner? I can cook something and then you can take the money that you would have spent on an expensive dinner and use that as your initial investment in the crypto space.”
She liked the idea and took my suggestion to invest the money that would have otherwise been spent on an expensive dinner and followed my advice to invest it in LUNA when it cost about $42 per token. Within weeks, the price of LUNA shot above $100 and my friend texted me asking me why she shouldn’t put her retirement account into these assets (half jokingly, I hope). To be honest, I forget exactly how I responded, but I know that I definitely said something along the lines of DO NOT PUT YOUR RETIREMENT ACCOUNT INTO THIS ASSET.
Did I know that LUNA and UST would fall apart? No. Did I know that these assets are a part of the Wild West of finance? Yes. And in the Wild West, things often go very wrong.
This entire crypto space is an experiment. The reason that I mostly write about BTC and ETH is because these assets, while still risky, are basically institutional grade assets at this point. They at least have the market caps of institutional grade assets, but even they are still part of this larger experiment. If you buy them and hold them for long enough, my guess is that you’ll make a decent return. If you go further out on the risk curve and start putting huge sums into money into untested, newer altcoins, then you are practically setting yourself up to get destroyed.
BTC and ETH are risky enough assets if you are looking to get a decent return on your money. No need to play outside of those sandboxes if you don’t have years of experience investing in these markets. I barely play outside of those sandboxes, and I’ve put thousands of hours into studying this space.
So, if you are wondering why this is one of the first newsletters in which I’ve mentioned LUNA or UST, now you know. Newer, untested entities have a tendency to fall apart, especially when they grow too fast, as LUNA and UST did.
Before I move on, here are some reminders of some rules and tips for investing in this space:
Don’t invest more than you can afford to lose
Don’t trade with leverage
Dollar cost average into coins like BTC and ETH when markets are down
Do with those rules tips what you will, as I’m not a financial advisor and none of what I write in this newsletter is financial advice.
The State of Crypto and Traditional Markets
I offered some of my thoughts on whether or not both crypto and traditional markets have fully bottomed out here. TL;DR - What happens in both crypto and traditional markets is highly dependent on what The Fed does from here.
It’s so weird that The Fed has gotten us into this mess. It’s almost like it’s filled with unelected bureaucrats who don’t and who have never had any skin in the game and have no experience outside of their little financial overlord bubble.
These are the types of people whose daddies got them into Ivy League institutions.
Actually, no wait, some did have skin in the game - well, money in the market - and they sold their positions in November of 2021.
Odd that 15% of global wealth has been wiped out since then.
You may want to wait until The Fed gives a buy signal to enter markets again, like Darius Dale advises below,
but I’ve been dollar cost averaging into projects that I like.
What the MSM Missed This Week: Eyes on El Salvador
I was quoted here today stating the following:
“El Salvador’s President, Nayib Bukele, and The Central Bank of El Salvador hosted 32 representatives from different central banks around the world and 12 other financial authorities from other countries this week to teach them about the benefits of Bitcoin.”
At this international conference, Bukele and his team educated the attendees about how Bitcoin could help to bank the unbanked and more broadly encourage financial inclusion in countries around the world where many have historically been excluded from financial services.
Some have referred to this event as “the Davos for Bitcoin,” yet the attendees at Bukele’s Bitcoin event represented countries that are often not represented at elite events like Davos, which is currently taking place. The majority of the countries represented in El Salvador this week were predominantly located in Africa, Latin America, and Southeast Asia. Not one of them was a member of the G20.
It’s hardly surprising that Bukele, who has been known to be a bit of a provocateur, hosted financial representatives from exactly 44 countries, the same number of countries that met to develop the Bretton Woods financial system in July of 1944.
(I don’t think “game theory will kill the $USD,” or state money in general, but I love the meme.)
On May 19, the final day of the event, all of the conference participants traveled to El Zonte, a region of El Salvador that has recently come to be known as “Bitcoin Beach”. The economy of Bitcoin Beach is largely fueled by bitcoin. It’s often noted as the world’s first circular economy on bitcoin.
So, if you tend to doomscroll on Twitter when the market is down - desperately searching for some sort of hope that the crypto market won’t just sink forever - be sure to follow the @bitcoinbeach handle. Seeing Tweets like the one below might make you feel a bit more optimistic about bitcoin’s price action in the long term.
So weird that The New York Times didn’t cover this. So so weird.
Homework
Here’s Jon Stewart interviewing Mr. Burns Goldman Gary Gensler. Most of us already know how much of a clown Gensler is. It’s nice to see the likes of Jon Stewart starting to call him out, as well.
I believe you can watch the whole interview on Apple TV+.
Final Note
Keep your head up and keep learning. We’re still likely in the early innings of this digital asset renaissance. Play the long game.
Best,
Frank
Twitter: @frankcorva
Currently Reading: The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor, by William Easterly
Just Finished Reading: Bitcoin Billionaires: A True Story of Genius, Betrayal and Redemption, by Ben Mezrich
Recently Watched: Olivia Rodrigo: driving home 2 u
