Surviving Cryptomageddon
Some thoughts on crypto, the importance of quality curation, and some thoughts on risk market setups.
We’re just a couple days away from Thanksgiving - a day that will provide some much needed time away from the screen and all things relating to crypto’s demise. There are so many things I’ve wanted to touch on that I just haven’t had the time to tackle because I’ve been so busy; Twitter, the red ripple, MSM’s abhorrent coverage of SBF, the list goes on. But the reality is I just don’t care enough to make the time. When I’m not examining shitcoins crypto investments, I’m busy herding cats on a basketball court two days a week.
When I coached my daughter’s soccer team in early-Fall, I noted how different the competence gap is between a 3 year old and a 5 year old. The same is true for basketball, though this league is a 5-6 year old league. After three games, I’ve discovered my basketball team is young and short. We look like the teams that UCF-grad and former Celtic-great Tacko Fall is playing against in China. Just hopelessly outmatched:
All I can say is thank God we’re not keeping score. I will also be taking a break from youth coaching for a while when this season is over. It’s fun and very rewarding trying to teach kids how to play a team sport, but Faybomb needs a break… and a glass of scotch.
Moving right along…
How to Survive Cryptomageddon
Well, where to begin? FTX is toast. As is Celsius, 3AC, BlockFi, and a slew of other degen organizations. This sucks, but I want to take a moment to reiterate something I wrote on Seeking Alpha last week in my latest Bitcoin article titled Bitcoin Is Dead (Again):
it is imperative that we not conflate the failings of a centralized company in the world of finance with the failing of decentralized crypto networks. They are not the same. With the exception of Terra, which was highly centralized in its operations, every other collapse in the crypto industry this year has been by a centrally controlled and managed business
This is 100% true. Bitcoin is fine. Ethereum is fine. These networks are still healthy and making new blocks. The only thing that has changed is the price of the native assets to the networks. The decline in Zcash has been incredibly unfortunate, but again, same story. It’s making new blocks and any assets that have been held through self-custody are exactly where they should be. The layer 1 blockchains that have real utility will survive this washout.
As participants, the way we survive investing in crypto winter is the same way we survive a bear in normie finance; that’s with a fundamental approach to sound traditional investing principles. First, stay the heck away from leverage. Do not borrow money to speculate. Period. It is a fast track to ruin. It works great when you’re riding a wave to highs. It blows you up when things move against you. Don’t do it. Even the pros suck at it. Second, risk management and position sizing. Scale into your buys over time and you’ll be fine. Always keep cash ready to buy things on sale. Finally, work really hard for cashflow so that you have the dry powder.
It isn’t the legitimate builders who are getting carried out right now; it’s the degenerate gamblers who have been drawn to this space like mosquitos to a bug zapper that are losing their shirts. Who is next? I can’t even begin to guess. The speculation now is that Digital Currency Group, or DCG, could be in jeopardy because of issues at Genesis - a DCG lending subsidiary. This has led to rampant speculation online that Grayscale, another DCG subsidiary, could be at risk of being dissolved by DCG to raise the capital needed to save Genesis. I’ve laid why I don’t think that will happen, but the fact that we’re even having these discussions online is very telling.
Another way to survive this is by giving the right minds your attention and ignoring the nonsense. A lot of people are getting bad information from people who may not understand what is happening in this market.
Curate Wisely
I will certainly remain committed to sharing crypto-related news pieces here as often as I am able but the reality is most of my crypto commentary will be through BlockChain Reaction. Heretic Speculator is more all-encompassing as it pertains to my financial and philosophical perspective and I really want to keep it that way. Crypto remains a fascinating area of exploration, especially in a deep bear market like the one we’re in now. Because of that, I want to take a minute to share four names in the crypto space that I think are worth your time if you’re even slightly interested in following the developments in crypto over the next couple of years on your own.
Don’t just take my word for anything. These names have been carefully selected for what I view to be measured and sensible engagement with the Twitter platform:
Lyn Alden of Lyn Alden Investment Strategy
Erik Voorhees of ShapeShift
Ari Paul of BlockTower Capital
Neeraj Agrawal of Coin Center
Brief thoughts on each
Lyn Alden is an engineer and financial analyst. I picked her first because she isn’t crypto-only. Bitcoin plays a part in her portfolio but she also covers energy and global macro. You’re going to get a very honest take from her. If you don’t have Twitter, you can follow her work here. Erik Voorhees is an entrepreneur and liberty advocate. His work is more philosophical than analytical but I think he does a really terrific job over at Money & State.
Ari Paul is a former portfolio manager with an MBA in economics. He publishes far less frequently than Erik or Lyn do on their personal blogs but you can follow his work here if you don’t have Twitter. Neeraj Agrawal is the Communications Director for Coin Center, a pro-crypto think tank that is currently suing the US Treasury department over Tornado Cash sanctions, so far successfully I might add. You can check out the website for that organization here. One more point on Erik, FTX collapsed shortly after he put SBF in a philosophical pretzel on the Bankless podcast. It’s pretty great:
The tune from Curb Your Enthusiasm being used over the guy who had Larry David in his Super Bowl commercial is what those of us in video production call “brilliant editing.” If you want to see Sam fumble his way through his response to that question, you can watch the full debate here. It starts at 1:27:00 and after several minutes of trying Sam still struggles to put together a coherent answer to Erik’s question.
The charlatans are getting dragged. This is good. I remain highly bullish the industry long term. Frankly, I’m incredibly excited by the opportunity that is now in front of us. Crypto is being purged of malinvestment and bad-actors in a way that hasn’t really been allowed in the traditional financial industry in my lifetime. Bitcoin has no central bank - that is a feature not a bug. Now, as for traditional finance, here’s what I’m seeing at the moment…
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