We are in a bear market. And that is fine. It is not fun to experience a bear market, but they are also not the end too. Traditional markets and crypto markets alike are retracing after the money printer taps are put to a halt. We are in an unprecedented macro environment with high inflation as a result of the irresponsible money printing ever since 2008’s Global Financial Crisis. The Baby Boomers left a huge mess for the Millennials to figure out, and unfortunately everything but cash right now is down bad.
I’m nearly down 50% from my All Time Highs and essentially back to where I am in late 2021. It’s a setback but I am not worried at all. My time horizon is in the decades range and money can always be made back, what’s important is the process of accumulating said wealth, and staying wealthy after the fact.
The crypto market is still extremely new, and being new means there are risks involved when trying out cutting edge technology that might break. Some call it financial engineering, some call it innovation, whatever it is, new technology is always met with strong sentiments from both sides, with a particular project that has caught the attention of the world recently: LUNA/UST.
I don’t think I have to elaborate about what happened, but essentially, the UST bank run risk has always been very real and discussed thoroughly across many twitter threads, blog posts and podcasts. Nothing is risk-free and every reward has an underlying risk. The Terra saga is unprecedented and a black swan event that no one would have expected to actually happen. Be it a targetted attack or not, fact is, the project has collapsed which means literally nothing is too big to fail. We saw an important lesson in 2008 with the collapse of the 4th largest Banking Corporation at the time: Lehman Brothers, at an astonishing 41B Market Cap at its peak. While comparing Terra blockchain (LUNA/UST) to Lehman Brothers is like apples and oranges, it is definitely an eye-opener to remind ourselves that nothing last forever and every empire will fall no matter how powerful or stable (pun intended) it is.
LUNA is the first investment of mine to actually go to literal zero, and honestly, that’s okay. I allocated 4% of my portfolio to LUNA knowing the risks involved and capping it to 4% also helped me to minimise my losses. Perhaps a reflection here is that I allocated simply because it was an easy bet and viewing it as a bluechip with a good flywheel (UST minted = More LUNA burnt = Higher scarcity in LUNA = Moon) and a pureplay on the growth of decentralised stablecoins.
Perhaps it is easy to focus on the upside when everyone is bullish and dismissing tail events such as death spirals and eventual bank runs from happening, but all in all, I have no regrets allocating my capital to LUNA because the upside was real and the chance of an actual bank run was really low. The important lesson here is to take profits and controlling our insatiable greed. I took out half my capital (+profits) from LUNA near $90-$100 and staked the rest to let the flywheel thesis play out. In short, I should have taken all of my principal out and let my profits run, that way, I won’t ever lose even if LUNA went to zero, so that would be my strategy going forward. Remember, nobody got hurt taking profits.
The recency bias and fears of UST de-pegging has led to a contagion effect among other Stablecoins within the broader crypto ecosystem. We saw slight de-peg in USDT, USDC, DAI and other stables when market participants were rushing for the exits following the CPI news, but many forget that over-collateralised Stablecoins like USDT/USDC/DAI works different from the partial collateral/algo model pioneered by UST. Yes, USDT collaterals might be in a blackbox, which is why you can always go with the more transparent USDC or DAI if you want a Stablecoin with diversified collateral (which comes with other risks too).
Market is just ‘the Market’
Are we going lower? Maybe. Are we going higher? Maybe. Is this over? Definitely not. The point here is, there is really no point in confirming whether X is the case or Y is the case. The market will do what the market does. The market is after all just me and you and a bunch of others exchanging different assets to each other and on different timeframes and instruments. There is no distinction between a bull or bear market (its all semantics), the market is really just, the market.
If you are a trader, then now is probably a tough market to be trading in as liquidity dries up. Speculators and leveraged traders will also be packing bags as cost of borrowing is going higher as a result of the rate hikes, and put an end to a decade long period of easy money thanks to the money printer since 2008.
If you are an investor (meaning you study fundamentals and invest for the long-term of at least 5 years or more), then this valuation reset is a God Send. When sentiments were bullish, speculators will take the helm and push valuations to unseen levels *cough* GMT *cough* OHM *cough* JEWEL, but with crazy valuations comes crazy downside risk too. It’s a game of musical chairs in which he who sits down (joins) the slowest gets rekt.
You may also argue that crypto don’t really have much fundamentals, which from a Traditional Finance perspective might be true, but there are inherent factors which you can consider as Fundamentals such as the Project Team, Token Valuations (FDV/PE ratio/PS ratio etc.), wallet distribution and more which can be valued from a fundamental standpoint. Even with great fundamentals however, our thesis can still be wrong because investing in the forefront of technology means there are unseen risks which simply cannot be modelled or predicted, as we’ve seen from LUNA.
Crisis = Opportunity
Now that markets have flipped bearish, I think it might once again present a huge opportunity for sidelined capital to start allocating further before sentiments flip bullish. Crypto market participants are an impatient bunch who expect tokens to pump 3-10x in the matter of days, and the current market simply bore them to death. NFTs are the same as well. Speculative flippers are exiting the market as volume dies off and everyone fleeing for the safety of the dollar. But you really have to ask yourself: Are you really going to guarantee your losses by going back to cash and succumb to inflation? Not gonna be me. Yes, tokens might continue going lower and I am going to catch falling knives, but I am investing for the long-term, I am not exiting into the sunset tomorrow or next week, neither am I using my emergency funds or holiday fund which I require next month.
If you are over-invested, meaning you are using short-term funds for your holidays/house purchase/car purchase/wedding and putting them into Altcoins, you are probably over-invested. Short-term funds should be placed into lower-risk, lower volatility type assets which in the crypto equivalent world is BTC/ETH or Stablecoins. Of course, nothing in crypto is risk-free given we are on the tail-end of the risk curve, but personally speaking, investing in crypto requires you to have a time horizon of minimally 4 years (1 Bitcoin halving cycle) for you to actually compound your portfolio. If you are trying to make it within 1 year, you are setting unrealistic expectations for yourself unless you are a god-tier trader or simply got lucky (eg. Bought BAYC, forgot about it and mooned). Crypto is an attention market with narratives changing at the speed of light. It really requires you to be on the edge of the market (wherever your niche is) and be extremely active in order to make life-changing returns.
The Barbell Portfolio Strategy
Having a long-time horizon does not mean bagholding your tokens to 0 and only selling them at Year 3 or Year 4. Having a long-time horizon means believing in the industry and building out a prudent portfolio which not only fits your risk tolerance, but also maximising for the best case scenario possible. For myself, that is utilising a Barbell Strategy Portfolio that forces me to invest in long-term, lower risk assets (buying and holding, passive investing) and the highest risk, highest reward assets (that will be actively managed), while foregoing the middle risk, middle reward assets.
Doing so allows me to concentrate my portfolio and consistently accumulate lower-risk assets (for me its ETH and USDC) and exposure to the highest risk/reward assets (right now its RBW) and increase my portfolio’s upside potential. My strategy will be to always rotate between 2 sides of the Barbell (Lowest and Highest Risk), taking profit from the high risk when times are good and rotating them into ETH/USDC to compound my gains, and buying into Highest Risk asset pool when an opportunity presents itself.
The lesson here for myself is to continue being consistent in my portfolio strategy (which have worked and pushed me into 6 Figures), and to keep taking profits because nothing lasts forever. Bearish sentiments are a good time to consolidate your holdings, and get rid of low conviction bets which don’t really make sense.
Don’t Get Shaken Out
The final point is about Survival. It’s always good to live to fight another day, and never put in more than you can afford to lose. If you get shaken out of the markets right now, you will miss out the incredible gains that come along once sentiments flip and macro gets a grip of itself and of reality. If you are not with the markets at its worst, you don’t deserve the markets at its best. It’s as simple as that. Also, bearish times = slower pace so take this time to upgrade your knowledge and keep educating yourselves. I personally found more time to read more books and learning new things as the markets slow down. Take in some fresh air and enjoy the real world before heading back to the markets. Your body will thank you for it. As I’m writing this on a train to Paris, I wish you all the best in your investing journey. There is always a light at the end of a tunnel. Keep fit, keep healthy and keep grinding. We will all make it eventually.
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