CC#014 - June 2022 TradeAssist Performance Snapshot.

Choosing to see opportunity rather than pain.

June was a depressing month for crypto - in every sense.

June 2022 was bitcoin’s worst month since 2011, with the asset dropping by almost 40%. This was in addition to the 38% decline from the 1st of April to the end of May 2022, examined in my previous performance snapshot.

Arguably things were worse across the rest of the crypto sector.

Following the fallout of LUNA/UST - now TerraClassicUSD and TerraClassic - in May, attempts to revive the Terra project, the most recent being migrating all aspects over to the Polygon network, failed to inspire much investor confidence.

The institutions connected to TerraLuna started to collapse after being forced to liquidate their now negligible holdings setting off a chain of contagious misery.

Among them was Three Arrows Capital, a multi-billion dollar crypto hedge fund whose management have subsequently disappeared without a trace. Before its collapse, Three Arrows had been one of the crypto sector’s largest and most highly regarded hedge funds.

Some commentators have referred to Three Arrows collapse as crypto’s ‘Lehman Brothers’ moment - a reference to the American bank which defaulted at the start of the 2008 sub-prime mortgage crisis, almost taking the global mortgage market with it.

In further negative news, on the 12th of June, Celsius Network, one of the largest crypto CeFi (centralised finance) institutions, abruptly ceased allowing investor withdrawals without warning. Investors watched with horror as over $12 billion (as of May 2022) of capital ceased to be under their control and no longer felt like their money.

Locking up $12 billion of assets has understandably concerned and angered the wider crypto community and highlighted the importance for investors to own their assets outright. Most investors are now examining whether to entrust significant parts of their portfolios to third parties with ambiguous, opaque, high-risk business practices.

Rumour prevailed, with analysts hypothesising that the company was bankrupt and would ultimately collapse. However, Celsius has so far paid back $1 billion to its institutional creditors behind the scenes without commenting publically.

With withdrawals still not possible at the time of publication, I suspect the lack of communication will ultimately damage the company beyond recovery. In addition to an economic bankruptcy, their ultimate downfall might be public relations bankruptcy. For this reason, if withdrawals ever resume, the outflows will be sustained and massive.

At the time of writing, the ultimate endgame for this crypto bear market is still uncertain and, I suspect, not over. The collapse of significant crypto institutions and similar events have evaporated any optimism and hope from the crypto market, effectively resetting its psychology to how it was in 2018/19 despite the contextually higher prices, wider adoption and improved technology.

Investor psychology, rather than any legitimate issue with crypto, make prices more likely to dip lower for a few weeks until bitcoin below $20,000 becomes perceived as ‘normal’ and an opportunity rather than a threat.

Against the broader backdrop of economic uncertainty, worldwide inflation at multi-decade highs, central banks raising interest rates (in a desperate attempt to abate inflation) and the threat of a bear market for securities, crypto is just another asset class weathering a strong financial storm. Unfortunately, making money during these conditions does feel like attempting to put out the sun using a fire blanket.

Yet, there is hope.

One stark difference between 2018 and 2022 is the tone of traditional financial institutions. In 2018, they were one of the harshest critics of cryptocurrency, regularly denouncing it and attacking the sector with glee.

In 2022, following Celsius’ collapse, Goldman Sachs offered to buy the distressed crypto institution for $2 billion. JP Morgan prefers to make bullish statements and predictions about Bitcoin rather than Real Estate - a contrast to their 2017 policy of firing staff for even mentioning Bitcoin.

Even governments and multi-billion dollar companies have become bitcoin whales, led by Microstrategy, which owns almost 130,000 bitcoin and Tesla (43,200). At a national level, governments including Bulgaria, Ukraine, and even the United States own 260,000 bitcoin between them!

Bitcoin, at least, is no longer an economic outsider but is becoming an increasing part of the global financial system, for better or worse.

Where does this leave us?

In a recent article, I stated that I believe the bottom for significant cryptocurrencies, including bitcoin, is close; any purchase below $20,000 or $1200 for Ether is ‘safe’ if your time horizon is measured in months or years.

While the further downside is undoubtedly possible, I implore you to not become complacent.

Any exposure during the prices of early 2022 to high-quality prominent crypto projects will likely be profitable again sooner than it may feel right now. It’s perfectly possible to see new all-time highs for significant crypto projects by 2025, at the latest.

Be patient ‘smart money’ rather than impatient ‘dumb money’.

Dumb money is panicking at these prices and experiencing wild swings of emotion, not unlike the financial markets themselves. They either have no additional capital to invest or have lost a considerable (80%+) portion of their portfolio.

Rather than panic sell, ignore crypto altogether or assume it’s all over and there are no opportunities, history tells us that the best thing to do when prices sell off is to hold what you already have or, ideally, buy more.