Crypto portfolio update

Invested in: USDC, NFTs, ETH

Net return: 626.8%

Comments: Everyone reading this newsletter should by now be aware of the UST de-peg and the LUNA crash.

I've been asked my thoughts about it, so here it is.

The success of LUNA/UST is based on

1. Most people believing UST to be worth $1, and
2. There being sufficient resources to back this belief

In the end, the second assumption failed to hold... and so here we are today.

Although LUNA was - until a few days ago - among the top cryptocurrencies in market cap, I avoided it because it was easily the most fragile.

Anyone who took a cursory look into Terra would find that the vast majority of people on that chain was there for only one reason: the 19.5% yield on Anchor. The main premise of the blockchain was centered around that single application; Without it, most of the TVL wouldn't be there.

I didn't foresee the LUNA-UST mechanism being exploited (this guy did), but the ecosystem's heavy reliance on a single un-sustainable application was reason enough for me to keep a distance.

Another one for the history books

Everyone knew Anchor's 19.5% yield was too good to be true, but they wanted to milk it for as long as it lasted.

Alas, as the saying goes, they saw the profit but not the peril.

There's a saying in DeFi: If you don't know where the yield is coming from, it's coming from you.

Most people knew that the 19.5% yield was subsided by the protocol. What they didn't realize was that the yield was also - and I would argue, largely - supported by themselves and their fellow yield farmers.

You see, a key component to the whole equation was belief; The belief that:

1. UST was worth $1, and
2. The price of LUNA would keep going up

These beliefs encouraged people to behave in ways that kept the system running and the yield flowing.

This is what most people overlooked; They had their eyes on the delicious 19.5% and ignored the glue that held everything together.

It was only when the glue started to unravel that people saw how fragile the system was. LUNA blew up in exactly the way it was designed to.

Those late to this realization suffered the brunt of the implosion.

Okay, so what now?

The first thing is to recognize that the LUNA crash has triggered a paradigm shift in the crypto industry. We are no longer "just in a dip", so to speak.

When a top-10 chain goes to zero in 2 days, the whole game changes.

The resulting financial and psychological damage, in addition to the global risk-off sentiment, means that we are most likely in for an even more painful bear market than previously expected.

The industry is on its knees, and few new investors would be keen on any cryptocurrency after hearing about the LUNA collapse in the news.

And, let's not forget... the issue isn't over; We are yet to discover the secondary knock-on effects. A few crypto funds will certainly blow up, and who knows what other horrors this might lead to.

I'm old enough to remember what happened during the Lehman crisis of '08. A similar "contagion effect" could occur here, with one major difference: we don't have a government/ central bank backstop.

It is therefore likely for things to get significantly worse in the foreseeable future.

Looking around, I struggle to come up with a bull case for crypto in the coming weeks and months.

What all of this points to is simple: lower prices. Or, at least, I don't expect broad prices to rally significantly any time soon.

A sliver of hope

All this being said, if I had to pick one sector to invest in right now, I'd pick high-end profile picture NFTs.

Just like how luxury handbags and watches are able to maintain high prices during a recession, so too will status-driven NFTs.

The thing is, of course, that such NFTs are pricey. This is a full topic that I won't be able to cover in a single newsletter. The more I think about it, the more it seems I should start a community for such purposes.

Anyway, I'd expect the market leaders (BAYC, Cryptopunks, etc) to outperform in this market environment simply because they are least likely to fall as much as everything else.

In light of this, I've dipped my toes into this segment and have become an Azuki holder.

There had recently been a scandal surrounding one of the Azuki founders that led to a big sell-off in this collection of NFTs.

Many holders were afraid that the Azuki brand was irreparably damaged and wanted to get rid of their holdings as the price began to crash.

Upon looking deeper into the issue, I concluded that the reactions were overblown and that the brand would recover before long.

I could, of course, turn out to be wrong.

In any case, I've put my money where my mouth is and have purchased at least one Azuki NFT. This will either turn out to be a great decision, or a painfully regrettable one. We shall see!

Portfolio changes

With everything I've said, it should come as no surprise that my portfolio today looks vastly different than it did two weeks ago.

I've:

• Sold my NEAR holdings
• Reduced my ETH holdings
• Increased my USDC holdings
• Added NFTs to the portfolio

Additional thoughts (rant)

In a bull market, everyone looks like a genius.

It is only when a bear market comes around that you find out who the capable investors really are.

I've noticed a disturbing pattern among crypto influencers who continuously hedge their bets by being vague about their views.
Example: "I think price will go up, but it could also go down, so be careful."

Sadly, such platitudes are enough to fool most people. This is the classic charlatan approach of saying something without actually saying anything.

They don't disclose how much they've invested in a project/token, so if it goes up they can say "I bet big on it!", and if it goes down they can say "I only invested a small portion of my portfolio so no worries".

Heads they win, tails they win. These are dangerous people spouting 99% nonsense. 

The problem is that even though you can bullsh*t people, you can't bullsh*t the market. You either know what you're doing and are making money, or you're not.

You can't talk your way out of risk, or reality. Too many people throw their opinions around without taking on the risk of being proven wrong.

If someone makes a clear call and loses, I can respect that. They have the guts to bet on their convictions.

But if someone makes vague calls and never tallies their wins and losses, they are cowards pretending to be heroes. They cheat others by masquerading as winners without taking on any real risk of damage.

The worst part? Many of these influencers have hundreds of thousands of followers.

It pains me to see well-meaning people fall for such antics. They are the sheep who ultimately get led to the slaughterhouse; They become exit liquidity for the smart money.

I hate that things are this way, but it is what it is.

Bottom line: Be very careful who you listen to.

 My new online identity

In other news, I bought an NFT with actual utility:

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 Quote of the week

Only when the tide goes out do you discover who's been swimming naked.

- Warren Buffett

Thanks for reading, and have a great weekend.

Cheers,
Slowmad

P.S. If you have any questions or feedback, let me know at: chris[at]digitalslowmad[dot]com