I hate periods when markets dive but not for the obvious reasons.
After years of panics, I managed to become pretty zen about it…and by zen I mean I do not trade single name stocks. I hold bonds. I have a diversified portfolio. I zoom out.
Even if I am forced to stay glued in front of Bloomberg for the biggest part of the day. The usual trick of not opening your trading account does not really work for me.
I hate it because these days I do not have only the financial media screaming PANIC, I have a constant stream of meme-account on Twitter that jump on the bandwagon. Perma-bears that can finally express their “I told you so” they were holding for years. The first-timers that really lost their shirts.
I cannot even play it cool at the office because you are supposed to panic and play the part. Why are you not running around like a headless chicken? What are you hiding? Why you do not care?
It is going to pass guys. Otherwise, I will have bigger problems to deal with.
But I still have writing-FOMO. People read more when there is a crash. Jump in lazy asshole. Can I contribute with something original for you and for me? Kinda.
Can I snowboard in the metaverse?
I spent the period between 2015 and 2020 hoping to see Bitcoin go to zero. Yes, I was one of those guys. Did not have a single pound invested and yet I was checking the price and the graph. Did those fools lose it all?
I also read and learned. I helped friends open their Coinbase account when no one knew how to buy a bitcoin. “if you have to lose money, at least lose trading and not because of a hack”. What’s Ethereum? What’s a fork? What’s an ICO? What’s a cold wallet?
I pulled the trigger in August 2020. Bought my first £50 of ETH on Revolut.
It is incredible how a single action can completely switch your mind. 0.000x% of my wealth was invested and I was suddenly a maximalist. No matter how many times I was repeating myself how actually stupid it was, “you should hope for a crash asshole! there is way way way more to buy ahead of you”, every time the price went up I was happy.
We are not born to do this shit.
In the end, if you want to have an opinion on something the only way to do it is by trying it (which, by the way, means that if you are a white dude like me you should keep your mouth very very shut on anything women and/or minority-related).
My portfolio
I continued to buy regularly since then. I opened an account on Kraken because I wanted to play with perpetuals (hey, but you are resident in the UK and Kraken does not allow you to trade futures if you live there! Good spot Watson. Maybe some things are not meant to be shared on a public platform). I added BTC, AXS, SOL, MANA and LUNA. My target is to reach 2-3% of my portfolio in crypto; I was probably halfway there in November last year, I am a bit farther now 😉
Little aside on Kraken. I hate the fact that they display only the daily variation of your portfolio and not the total gain/loss. I read somewhere they do it so users do not get scared by the accumulated losses. That’s so fucked up. Coinbase does the same to be fair, so it is a shared disease. The fact that Revolut is the one doing the less shady stuff, they introduced this metric in 2021, is quite telling…
The period between Nov-20 and May-21 was quite intoxicating. In Jan-21 ETH price started to accelerate; in April and May, the acceleration went parabolic. Like a CrossFit noob, I could not keep it to myself. I knew it was stupid and meaningless, the gains accumulated were peanuts and yet…that’s the feeling of getting a 3x in a few months? Now I understand…
And then in a few days it was over. But I continued to buy.
COINS
The more I read and study, the more I find interesting projects. But I have to approach it my way:
- I do not have the time to join and learn how to use Discord, I have even less time to participate to those conversations. Maybe one day I will but now it is definitely a luxury I cannot afford. This means I will not get to participate to things I would like to, like KrauseHouse.
- I have to find shortcuts. My main ones are NotBoring, The Generalist and Patrick. This means I will be very late on a lot of things and I have to accept that.
- Given all the above, do not let me even start on NFTs. The other day I thought it might be the right moment to buy an ENS domain: at $75 (most of it gas fees) is not unreasonable. I am mainly doing it because my brother owns protasoni.com and I am pissed tho. This is not a judgement on NFTs, it is a lack of time and money.
- I am fascinated by DAOs. One day Sahil Bloom came out with the idea of buying the X-Games and I found his strategy brilliant. I do not buy the fairy tale of every token holder to be able to say a word about the governance of the DAO but I think the starting point, i.e. stock ownership, is reaaaaaaally low: why in 2022 BlackRock has to vote on my behalf on CEOs comps and I cannot do it via an online portal? There should be few, key decisions that should be submitted to all shareholders and I think there are the tools to make it possible (now that I further think about it, there are 200 reasons why this should not happen and might generate unintended consequences but…not easy to design these systems uh?).
- More than one year in and I still do not have a clue what yield farming is (I mean, I know it is a thing…)
There is a new protocol, idea, approach to solving a problem every day. Take KlimaDAO and its corresponding Web2 (??) version KRBN ETF. Both are ways to ‘invest’ in carbon credits, the former more with the idea of promoting the right action first and profit as a consequence, the latter putting profit first and good environmental outcomes after. Will increasing the cost of carbon credit today produce the right incentives or does it represents just more costs for selected consumers (not all the world is subject to this regulation)? Is KlimaDAO just a Ponzi by design?
AXS – play-to-earn models are incredibly interesting. On one side, the economic model requires (required?) game publishing companies to always innovate, i.e. to publish new games and make older ones obsolete. On the other side, Magic The Gathering survived 25 (? I lost the count) years and old cards continue to increase in value. The exception to the rule? We will see.
How to invest in crypto
- do NOT follow this blog
- I was expecting a crypto winter but it does not mean it’s not hurting when it happens. On the other side, I thought SOL was gone forever (upward) and now I have the opportunity to buy ‘at a discount’. Talking about layer 1 protocols, Kai Wu expressed a very interesting theory on this podcast on how to value them. It is something I cannot do it by myself but I hope he is going to share some insights on his Twitter account. Investing in protocols present a unique set of challenges. On one side, the more people build on one, the less reasons they have to move onto another. On the other, each protocol weaknesses are public and strengths can be easily copied; new protocols can quickly gain market shares because of a more favourable design or, simply, better incentives (see Uniswap and Sushiswap).
- Talking about Josh Brown, here what I consider a seminal post on how to ‘trade’ crypto. Yes, the post is not about crypto at all.
- If there is a place where Technical Analysis should work, that’s crypto. Bitcoin has no fundamental value, it is like the wet dream of a technician. TA has its own ‘transparency issues’ about rules, interpretation of those rules and signals. If you believe in TA, this should be your favourite dish. I have traded FX for some years and TA seemed to work for me in short time frames like intraday. But this statement should be read with a lot of caveats attached to it, first and foremost HFTs were not so prevalent those days.
- There is crypto and crypto. While Bitcoin has no fundamental value, all the other tokens (ok almost all, forget about DOGE&friends) have an ‘utility’ function as well. As P/E fluctuates for stocks, I would expect crypto winters to come and go in the same fashion. LUNA intrinsic value is based on its function as a payment gateway/money transfer; while the value of this service flow and ebb over time, a new solution might disrupt it for good any time.
When a new crypto summer will arrive (hopefully!) and the value of my crypto portfolio exceeds 2-3% of my assets, I will rebalance back to target. While this rule might work for the whole portfolio, it cannot be used for every single coin. For example, if a protocol fails, its coin will go to zero and it would not make sense to continue to buy it…how do I define a crypto winter and a (soon to be) dead protocol? It is a problem I am still working on. Risk management is still king.
OpenSea vs LooksRARE: a case study
OpenSea is the biggest marketplace to trade NFTs. It is such a winner in the current environment that it raised funds at a valuation higher than $13bio. FTX and Coinbase launched their own versions too. But they are all centralized versions, Web2-like; it is a bit weird to see a key element of the Web3 revolution linked to such an old concept. Let me introduce you to LooksRare, a native Web3 version to exchange NFTs.
In his essay on Web3, Packy included the below graph to show how LooksRare was taking over OpenSea. Incredible uh?
Unfortunately, Matt Levine explained to me (and everyone else reading his newsletter) that this growth is a bit drugged. LooksRare has a token, LOOKS, that can be staked and each owner receives a part of the platform fees. Cool! As every other marketplace in the world, when LR started had a chicken-egg problem: buyers wants to see sellers and sellers wants to see buyers. If you own an NFT why should you try to sell it on LR if no one knows the platform? If you do, LR will give you a bunch of LOOKS for free (the amount is set to decrease through time). That’s the incentive. The incentive is also easily milked: if you sell NTFs to yourself, using two wallets, you get LOOKS for free. That’s how the above volumes exploded.
Still, LR got its platform going, people had a look, tried and then maybe abused it. Will still be there trading partners when the LOOKS incentive disappears? Will you be the bag-holder if you stake your LOOKS instead of selling them immediately? Who knows. The interesting part is that you have people now calling it a Ponzi and others that see it as one of the few tricks LR could do to get the party started.
There is an enormous amount of value linked to successful marketplaces; so far in Web2, that value has been retained by the founder, some early VCs and a very late stage stockholders. Users only got to pay fees. Now the paradigm might change.
Another big and legit question mark was raised by Moxie, the founder of Signal, in this now infamous post. Centralized structures had so much financial success because they can innovate faster and more effectively than shared protocols. Maybe that’s what users really want, to use a great platform for a fee instead of being involved in coding, company decisions and a sub-optimal service.
Or maybe the future will be something in-between.
What I am reading now:
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