Myth Of Money: Brrr...Crypto Winter Is Here?
Welcome to this week’s edition of Myth of Money, a weekly newsletter on the digital asset markets read by 12,000+ investors.
Disclaimer: The following is not intended as investment advice. Do your own research.
In crypto, the name of the game is volatility, and only a fool enters this space expecting an upward only momentum. Over the years, we have witnessed 50-90% drops, before bouncing back to all-time highs. Those who can afford to stay in the market long-term end up reaping the rewards.
Current Macroeconomic Conditions
The Federal Reserve is implementing a period of quantitative tightening. That means after two years of pumping nearly free money into the system to avoid COVID-related economic collapse, the government is taking measures to slow down the resulting inflation by raising rates and suctioning cash out of the system.
In addition to monetary policy measures, the economy is struggling due to supply-chain disruption and a potential food shortage as a result of the Russia-Ukraine conflict.
The era of ‘easy money’ is over, but that doesn’t mean opportunities have dried up. Those investing in value and cash-generating businesses will continue to prosper, as well as those solving long-term problems (think water, food, electricity, transportation or Elon Musk’s entire portfolio).
Markets gave pulled back, awaiting an impending recession, but it is yet to be seen if this recession will arrive. There is already more money in the system than ever before. A record number of millionaires have been minted, who want to spend on things they couldn’t previously afford such as travel, cars, watches, etc. In 2020, the booming markets did not reflect the economic despair created by COVID. In 2022, it is possible the markets will no longer reflect the booming economic conditions left as a result of a two-year stimulus. The “K-shaped” recovery could flip, and once the market participants realize that the awaited recession in fact did not come, the “supercycle” could continue.
How does this affect the digital asset markets?
I want to be very clear - crypto and blockchain-related innovation are here to stay. It is simply not possible to wipe out the amount of human capital that has entered space over the last two years. Those that were only here for easy money, however, are in for a rude awakening.
The areas where I see value at these prices are the following:
Bitcoin - governments, sovereign wealth funds, pensions, and endowments are all starting to buy the asset as a store of value. Bitcoin will reach a value of $1M USD per coin in the next 5-10 years. Pick how much you want to accumulate, and spend this dip doing just that - accumulating.
Infrastructure - a large part of my portfolio is exchanges, wallets, etc. I believe these companies will all survive and thrive. If executed correctly, infrastructure provides necessary financial services in both bull and bear markets. Investing in digital financial infrastructure is similar to investing in banks, which make money in all cycles.
Metaverse - as much as I wish this one wasn’t true (I want children to play in the grass instead of on the screen), the GDP of the metaverse is only going one way. This is the time to buy up blue-chip plays in the space and invest in teams building for the long-term.
I will continue to deploy capital into the digital asset industry and support projects I believe will succeed 2-5 years from now. And more importantly, support founders that I believe have what it takes to go the distance.
When can we expect a recovery?
Many ‘predictors’ of markets will say, “I can tell you the time or I can tell you the price, but I cannot tell you both.”
Best-case scenario, we are back in a supercycle in the next 6 months. Worst case scenario, things get worse before they get better. Bitcoin drops further, and we see cascading liquidations (including Michael Saylor who is rumored to start experiencing liquidations at $21,000 BTC). In this case, there will be a lot of pain and a lot of opportunities. Make sure you have enough cash to survive the next 2 years.
The next programmed digital asset reset is in 2024, at the next Bitcoin halving. Approximately every four years (and exactly 210,000 blocks), the mining difficulty doubles, which requires twice the amount of energy and computing power for the same Bitcoin reward. This pushes the floor price of Bitcoin upwards and restarts the digital asset bull cycle.
This powerful event will turn around the downtrend. Remember - BULL markets give you money, but BEAR markets make you rich.
This Week By the Numbers 📈
Top Stories 🗞️
Seychelles-based crypto exchange KuCoin will devote part of its recent $150 million raise to expand technical features and support developers building on the KuCoin Community Chain (KCC), a public blockchain. “We know the difficulties and obstacles that developer teams have in their initial stage of development,” a spokesperson for KuCoin said. “Therefore, we will devote more resources to discovering and supporting high-quality developers and early innovative projects.” KCC will move to a cross-chain model that supports applications from multiple blockchains and build a layer 2 system that allows for faster transactions at a lower fee.
America’s largest crypto exchange Coinbase has rolled out Web3 application functionality including a hot wallet and browser for a limited set of its mobile app users. The app will allow select users to access decentralized applications (DApps) on the Ethereum network such as Uniswap and OpenSea. Along with the mobile browser that provides access to DApps, there is a hot wallet that customers can use to exchange funds. Unlike decentralized hot wallet apps such as MetaMask, the Coinbase hot wallet will have a co-custodial setup. This means that the private key for the wallet will be stored by the company and can be personally stored by the user.
The largest investment bank in Japan, Nomura, is set to establish a new subsidiary company to help institutional clients invest in cryptocurrency and non-fungible tokens (NFTs). The firm will bring together several crypto services under one single company with a staff of about 100 people by 2023. Nomura is one of Japan’s ten largest banks, with $569 billion in assets under management as of Q1 2022. Nikkei Asia, a Japanese news outlet, reported that the subsidiary company will be established abroad, but the board will start off seated by Nomura transplants while the company acquires talent in the Web3 and blockchain space. It will initially be led by Jez Mohideen, head of wholesale digital operations of Nomura.
The Securities Exchange Commission (SEC) of Nigeria has published new rules relating to the issuance, exchange and custody of digital assets in the country. This comes 20 months after the Commission initially issued a statement on how it would classify and treat digital assets. “Digital assets” is a catch-all term for all types of crypto assets. SEC’s position is in stark contrast to that of the Central Bank of Nigeria (CBN), which currently restricts local financial institutions from doing business with crypto-related businesses. Notably, the new SEC rules require token issuance platforms and exchanges to maintain trust accounts with receiving banks. Overall, this development could bring legitimacy to crypto and related businesses and ultimately open new doors for crypto usage in Nigeria, which is one of the leading countries for crypto adoption globally.
The orange pilling adventure in El Salvador continues. In a video that beggars belief, 44 central bankers and financial delegates from emerging markets around the world shout “Bitcoin!” while posing for a photo in El Zonte, El Salvador. It seems that by day three of El Salvador’s financial inclusion conference, the central bankers were warming to Satoshi Nakamoto’s innovation, enjoying a trip to Bitcoin (BTC) Beach. The central bankers from countries including Paraguay, Ghana and Egypt descended on the town to spend Satoshis and interact with locals, including some minor celebrities.
Deal of the Week - Izumi💰
Founded by an experienced gaming team, Izumi combines AR and blockchain to create a seamless gaming experience. Similar in concept to Pokemon Go, Izumi utilizes a geolocation augmented reality experience that is supported by all major smartphones. Players can get outside to catch, trade, and battle unique Izumi NFTs.
Izumi utilizes the new “Move-to-Earn” category, where players can take be actively participate in a game to earn tokens, giving it built-in stickiness and virality. The game uses a two-token system - one for governance and one for currency.
Why do I like this deal?
In a world where most NFT sales and gaming projects are money-grabs, Izumi shines a light on the potential of gaming with a concept that is both engaging and sticky. Led by veteran gamers, the company with a love for the gaming art form and experience taking projects to market (Call of Duty, Halo, XBox and more). Furthermore, the investment terms are generous, even in current market conditions.
For an introduction to the team or to learn more, hit reply to this email.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. I have invested in 20+ companies and funds. Check out my portfolio here.
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