It’s been a tough week.
Not only did we have the complete collapse of Terra (more about that below) but the entire crypto market took a bath in the process. We’re now in full bear market territory and it’s quite clear that we’re in for some volatile times.
Apart from the Terra saga and the high inflation numbers, we also had the Q1 Earnings Report from one of the most recognisable crypto companies in the space – Coinbase.
The numbers were not good and led to a nasty fall in Coinbase’s stock. In fact, the market is now valuing Coinbase on a P/E ratio that is pretty unheard of for a publicly traded company.
Is this justified? Or is it an overreaction to the current market conditions?
Well, that’s exactly what I explore today. Not only is this report essential for anyone interested in Coinbase’s stock price, but it’s also a bellwether for what crypto market conditions we can expect over the course of the year.
You can watch my video here.
📊 Main Portfolio 📊
Given that LUNA completely collapsed, it’s worth nothing in my portfolio now and I have taken it out of my calculation below. When it came to my UST holdings, following the depegging, I traded it for BTC & ETH in equal proportions.
Right now, I am not making any more purchases and will be hodling on for the next few days at least. If I am ever to hold my “dry powder” in stablecoin again, I will go back to spreading it between more than one stablecoin. Diversification is key…
ETH 38.83% | BTC 29.80% | SOL 7.00% | DOT 6.00% | ATOM 3.85% | RUNE 2.52% | NEAR 2.15% | APE 1.98% | ADA 1.62% | AR 1.60% | HNT 1.21% | MATIC 1.09% | FTM 0.90% | INJ 0.70% | LINK 0.61%| XDEFI 0.14%
🖼 NFT Portfolio 🖼
MAYC 94.14% | Meebit 5.86%
📈 Thoughts on Market 📈
One word: bloodbath, and there were many reasons for it. I suppose I should begin with the elephant in the room: Terra. After UST started to lose its peg, Terra’s Luna Foundation Guard began selling the billions of dollars in BTC it had stockpiled to try and restore its peg and reduce the sell pressure on LUNA. It’s safe to say that move failed.
Although most of the LFG’s sales of BTC probably occurred OTC, I suspect that there was some spot selling somewhere along the way, as evidenced by BTC’s continued price decline. As UST continued to depeg, it caused chaos across the crypto ecosystem, since UST had listed on multiple exchanges and was being used in numerous decentralised and centralised applications.
I couldn’t help but notice that the altcoins most affected during the drawdown were those that were heavily DeFi focused, i.e. those with lots of exposure to UST, namely Avalanche. Unfortunately for Avalanche, the LFG had bought up 200 million dollars worth of AVAX as part of its reserves, and it appears they sold some of it to protect UST’s peg as well.
Coincidentally, the Federal Reserve released a financial stability report that mentioned the risk of a run on the banks with stablecoins (which I’ll be covering in an upcoming video, by the way). Not surprisingly, this thoroughly spooked the crypto market, and everyone started worrying that regulators will crack down on stablecoins. This likely played a role in the slight depegging of Tether’s USDT.
The carnage continued into the middle of the week, with Treasury Secretary Janet Yellen making off the cuff comments about Terra during her testimony on Thursday. The same day however, the crypto market started to see a bit of a relief rally, and it seems to have started because of Janet – she mentioned that crypto doesn’t currently pose a systemic risk to financial markets.
Another nugget of good news was that Australian stock exchanges finally listed their first two crypto ETFs. Too bad the inflows weren’t enough to move the markets, and the news was all but missed. Meanwhile, Federal Reserve chairman Jerome Powell was officially confirmed for another term, creating certainty among investors and potentially adding to positive price action.
There were also some surprisingly positive developments in China, specifically Shanghai. A court there ruled that Bitcoin counts as virtual property, potentially opening the door to more crypto investment and ownership in the country. The last reassuring stat I’ll hit you with is Bitcoin’s hash rate, which hit yet another all time high about a day ago.
Now, obviously we’re nowhere close to being out of the woods, and it’s pretty clear that we seem to be entering rather than exiting the depths of a bear market. There’s really no telling how low we could go, but I see many people calling for 20k, given that it was the previous bull market top. In the meantime, be on the lookout for a long-overdue relief rally.
😱 Takes on Terra’s Terror 😱
This was one of the most unprecedented weeks in the history of crypto. In fewer than 3 days, a project with a combined market cap of over $35 billion completely collapsed. It really could be considered a Lehman moment in the crypto space.
I detailed exactly how the peg was broken and how the attack took place in my Telegram post the day after.
There is so much to cover about the failure of UST and the complete annihilation of LUNA and I will be doing a comprehensive video for you next week. And, I have covered some of the most important lessons that could be learned from the collapse in a recent livestream. However, there were some additional thoughts that I wanted to share with readers of this newsletter.
- “Smart” People Can Get Things Wrong: Part of the reason why Terra & Luna managed to avoid the shitcoin and ponzi label is because of the fact that they had some “Gigabrains” backing them. VCs & hedge funds that brought billions of firepower to the project. People wrongly assumed that, because of this institutional backing, it was more reputable than other projects. But, as we learned in the 2008 financial crisis, sometimes the smartest people in the world can be really wrong. Terra’s economics was crypto’s equivalent of a AAA-rated CDO.
- Risk Management & Diversification: The people who got most badly burnt by the collapse were those who invested more than they could afford to lose, and invested it all in LUNA or UST through Anchor. Of course, it didn’t help that there were some influencers out there giving terrible advice. The LUNA position I had was worth less than 2.5% of my overall portfolio and I took a 10% loss on my UST position (which was 7%). So, combined that was about a 3% loss in my total portfolio. Of course, this was painful, but it’s manageable. It’s now more important than ever to understand the risks of overleveraging yourself in a highly concentrated portfolio.
- Never Dismiss All Criticism: There were many people who highlighted concerns about the Terra Ecosystem and its susceptibility to death spirals. These concerns were all justified, but they were completely dismissed by the founder. He insulted someone who shared a thread detailing a potential Terra attack – the exact one eventually used! There seems to be a culture of dismissing critiques of your crypto as “FUD” and, they may often be. However, by carefully and constructively addressing “FUD”, it could allow you to discover some landmines in your portfolio.
- Avoid Projects With “God” Figures: It was quite clear that Do Kwon was raised to a God-like status in the Terra community. Too many people relied on his every word and followed him religiously. This created a God delusion, where he mocked anyone who criticised him. He even famously tweeted this gem less than 2 months ago. Despite these antics, many were hoping Do would have a magic fix for Terra (one which never came). Yes, it is true that there are other projects with popular founders. But, the ones that will truly survive are those where the founders have gone to great lengths to reduce their roles and influence.
- Maybe… just maybe… some regulation?: I know that this could be seen as sacrilege, but there is no doubt that stablecoin regulations would have prevented $UST from becoming the uncontrollable and unstable force that it did. The idea of at least some common sense regulation should not be scoffed at. It’s a point that Rob from Digital Asset News made in our fireside chat at the Coin Bureau Conference.
Of course, there are going to be many more lessons to be learned and I can’t wait to do a deeper dive into this sorry saga in an upcoming video.
I also want to add that I know that many people lost a lot from this. But, take it from someone who has made and lost some serious sums before (and knows many who have too) – We’re All Going To Make It 🙏
🌅 Failure Should Be An Option 🌅
While all the news was coming out about Terra’s implosion, there was an interesting headline that caught my eye. This was reporting about a comment that US politician Pat Toomey made in response to Terra’s collapse, and that’s that “failure should be an option – it’ll probably take some failures in this space in order for the market to figure out what works.” Wise words.
This got me thinking, because in crypto, failure is always a possibility, and there isn’t always a VC or angel investor willing to bail your project out. There are hacks, exploits, scams, rug pulls, pump and dumps, and sometimes projects that just fail. In this and other ways, the philosophy in crypto is very different from the philosophy in today’s wider society.
In our society, the authorities see failure as something that cannot be allowed to occur by any means. The craziest part is that this aversion to failure is instilled as early as childhood, with schools in many Western countries basically banning sports so that nobody feels like they lost or were left out. I’m sure many of you have heard about those participation trophies too.
So, I’m not all that surprised when the authorities at other levels of the societal structure implement similarly protective policies. In the case of the Federal Reserve and the like, there seems to be a sort of imperative to ensure that no companies fail, least of all the big banks. Heck, there’s a division of the US government whose explicit purpose is to prevent stock market crashes.
In short, failure is frowned upon at every level in society, yet in crypto it is allowed to flourish. Failure allows newer and better projects to come in, and it allows existing projects to learn from the mistakes of others. Fun fact: sometimes forest fires are required for forests to remain healthy. In some places, preventing forest fires for so long is what’s been making them worse; fear of failure! Jordan Peterson talked eloquently about this during his appearance at Bitcoin Miami last month.
This begs the question of how long regulators and politicians can postpone the failure of the current financial system. I say postpone, because at this point it’s inevitable. Financial institutions are on the brink of being replaced by cryptocurrency, and the fiat system we have now is starting to inflate itself away. To what extent will they go to prevent this failure? Are CBDCs their only hope?
🔥 Deal of The Week 🔥
Just a quick reminder that it is not too late to take part in my 1 BTC giveaway. Learn how to take part and potentially bag yourself some free Bitcoin in just a few minutes!
🔮 Video Pipeline 🔮
- A TradeFi Scandal For The Ages
- Cryptocurrency Decentralization: Why is it key?
- Worst Crypto Scams Ever! Don’t Fall For It!
- Fed Financial Stability Report: What you need to know!
- Terra’s Death: A Detailed Post Mortem
- EU’s MiCA Bill And What It Means For Crypto
- The IMF: Everything You Need To Know!
- The Global Food Crisis: How Bad Could It Get?!
🏆 What’s New At CoinBureau.com This Week? 🏆
✅ Yield Guild Games Southeast Asia Review– YGG’s First Regional SubDAO
That’s all for today. I know that the crypto markets were brutal over the past week, but the fact that you are still here, reading this newsletter is testament to your commitment. That’s why it means even more to myself and Team Coin Bureau that you have continued supporting our efforts in crypto education through both the good times and the bad.
Regardless of what market we are in, we will continue doing our best to provide the crypto community with the knowledge and education they deserve. That’s our commitment to you.
Guy your crypto guy