This is going to be a relatively short update (I hope).
June in hindsight was peak pessimism and likely a local bottom moment for crypto (both from a sentiments and on-chain perspective). We are long overdue for a bounce anyways as markets don’t just go lower, just as how it does not always go higher without a pullback.
Since macro has already been addressed far too much in every group and on every platform, I won’t waste my time talking about it here and will instead concentrate on the long term.
The Merge
As we all know, the Merge is finally going to happen soon after years of delay, roadmap changes and pivots. The tentative date is set to happen sometime in September, but be well prepared to know that unforeseen circumstances may appear given the complexity behind the technicalities of the merge.
There are also talks on CT regarding ETH1/ETH2 and a whole thread on forks, which I won’t discuss here but regardless of what happens, Proof-Of-Stake will enable the new Ethereum to enjoy greater security, higher scalability and a smaller carbon footprint (sustainability).
So what does this mean for ETH holders? It is a great news obviously. But take note there is bound to be increased volatility nearing the merge and price can swing hard in both directions. I would only pay close attention if I am an active trader, but I am not. I take the long-term view on things and all I’d do is accumulate.
Risk Management For ETH
In terms of risk management, I am sitting majority in GLP right now after converting my ETH into the index at around $1700/ETH.
The benefits here of GLP is clear, if ETH continues to climb beyond my conversion price of $1700, (50% profit taking into stables within GLP), I will be up in USD terms, albeit much smaller if I held 100% in spot ETH, however, if ETH were to somehow dump hard or go below $1700, I will be up in ETH terms, meaning I will be able to stack more ETH provided I realise the ETH stack by selling off GLP when that happens.
These are not even counting the yield I am earning for providing liquidity into the GLP pool too. To me, the additional yield paid out in ETH and esGMX are a great cherry on top, but GLP on its own is a superior product on its own in my opinion.
It has no impermanent loss, and has the deepest liquidity for ETH and USDC on Arbitrum, and the protocol literally generated a record $804K in fees for GLP and GMX holders on 29 July. Pure cashflow generating machine.
I won’t elaborate on GLP further, because there are already tons of Twitter threads, Substacks and Youtube videos that describe the mechanics behind GLP and how it works. I am not trying to convince anyone to buy into GLP nor GMX, but just sharing what I am doing and a good product deserves a good mention, right?
July 2022 Portfolio
A Minor Addition
My portfolio probably looks similar to last month’s update, with the execption of GMX.
If you have been following CT over the past month, you would have known that Arthur Hayes has been aggressively accumulating GMX on-chain with one his many wallets, which brought some attention towards the project, making it one of the top performing DeFi tokens out there.
GMX inherently is a good coin. It has the best tokenomics in DeFi in my opinion, as the cashflow generation model and value accrual back to stakers, multiplier points to align incentives for long-term holders, and even the GMX Blueberry Club NFTs are a net positive for sustainable protocol growth and ensuring short-term and long-term participants gets proper, differentiated incentives alignment.
I started accumulating GMX via Olympus Pro, which at one point was offering a 40% discount on GMX, subjected to a 7 day vesting period that unlocks linearly.
As you can see above, the wETH bonds for GMX tokens currently have a negative discount rate, or priced at premium due to high demand, so the arbitrage opportunity to obtain discounted GMX is no longer available.
Nonetheless, I was able to take advantage of this arbitrage through a time consuming process since it takes time for contract to refill tokens while other users are also competing at the same time to obtain the bond.
GMX is a very small portion of my portfolio as I simply accumulated via Olympus Pro, but if prices were to get near my cost basis, I would be happy to buy more. In the current market, you will pay a painful lesson if you get too greedy.
Immutable X Staking
Immutable X recently launched their staking campaign where users are required to send their IMX tokens to L2 and perform 1 trade on the IMX marketplace.
If you have not known already, IMX token value accrual comes from trading volume on the IMX marketplace orderbook, since there are no gas fees for transacting on Immutable. While the gaseless transaction model is great for DApps that require high frequency transactions, it can also lead to Sybil attacks and transaction spams that can jam up the marketplace and lead to performance degradation.
The team knows this, and have features in place to prevent this but it still remains as a viable risk for the project. Another concern is whether trading volume can remain elevated at all times to ensure value accrual towards IMX stakers make sense, as IMX is quite skewed towards initial investors and VC tokens unlock will begin in November, and take note they are up 8x on their investments right now. I might be looking to sell some or all of my IMX before November just before the unlocks, and then sit on the sidelines and see how their order books perform over time.
A plus point here is that they are one of the best, if not the best at business development and forging partnerships with traditional game studios and onboarding some of the biggest names within the gaming space. The founders have a deep network and understands the gaming landscape deeply, and a bet on Immutable is a bet on blockchain gaming in my opinion, or at least that is how I think about it and why I invested in the first place, despite some of the caveats I mentioned above.
Price action wise, IMX is mostly hype driven right now as the StarkNet integration and app-specific L3s are still in development, and more partnerships yet to be announced on which games will be using the L3s on top of StarkNet. Customer acquisition cost through the staking campaign and trade-to-earn initiatives might also backfire if the order books cannot gain traction, so that is one more point of concern there.
Overall, IMX is my highest risk bet on my Barbell portfolio right now, even though it is sitting in profit right now, I remain cautious given the macro outlook and will take profit and the shortest notice should it deviate from my own investing thesis.
Watchlist
You probably see that I still have a slight warchest of Stablecoins yet to be deployed. Things may look less gloomy now that the FOMC meeting and Q2 GDP results are released, and we will probably see a slight rally heading into August or sideway action typical during a bearish sentiment before the Merge narrative heats up once again.
The Fed is also looking to ramp up QT in September up to $95 Billion per month, so my guess is we are bound to see more zombie companies get wiped out as liquidity continues to shrink. For perspective, QT started on 15 June at a pace of $47.5 Billion per month, so it will be a 2x increase in the pace of Fed balance sheet reduction and the market will definitely feel the impact soon.
When that happens, I will be ready to deploy capital through DCA, and a few key ones that I am looking to accumulate are the following (depending on the situation then of course):
- More ETH because ETH = Good Coin (Will start deploying below $1200)
- GMX (Good token with good cashflow and value accrual, will start deploying below $20)
- BNB (Good product market fit with biggest CEX + DeFi ecosystem, and BNB burns are good, will look to accumulate below $220)
- SOL (A counter-thesis bet with one of the largest devs ecosystem. Might have Lindy and will look to accumulate below $33)
- Moonshot bets with extremely small positions (ILV/DPX/APE)
Take note the above is just a mental reminder for myself, and does not constitute as financial advice. Everyone has different risk tolerance and time horizons, so copytrade is futile. Always remember to exercise your own due diligence and only put in money you are willing to lose.
Silver Lining?
Are the worst behind us? Maybe. Is the macro situation going to worsen? Has Inflation peaked? Is the Fed pivoting? Nobody knows and you shouldn’t focus on these things too much. (Unless you are a trader).
Here’s a recent excerpt written by Howard Marks which you likely need to read:
“I believe most investors have their eye on the wrong ball. One quarter’s or one year’s performance is meaningless at best and a harmful distraction at worst. But most investment committees still spend the first hour of every meeting discussing returns in the most recent quarter and the year to date. If everyone else is focusing on something that doesn’t matter and ignoring the thing that does, investors can profitably diverge from the pack by blocking out short-term concerns and maintaining a laser focus on long-term capital deployment.“
and also,
“All the discussion surrounding inflation, rates, and recession falls under the same heading: the short term. And yet:
- We can’t know much about the short-term future (or, I should say, we can’t dependably know more than the consensus).
- If we have an opinion about the short term, we can’t (or shouldn’t) have much confidence in it.
- If we reach a conclusion, there’s not much we can do about it – most investors can’t and won’t meaningfully revamp their portfolios based on such opinions.
- We really shouldn’t care about the short term – after all, we’re investors, not traders.
I think it’s the last point that matters most. The question is whether you agree or not.”
Good luck out there anon.
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