This has been the most insane week that I can remember in DeFi. The markets have been dipping, and Frog Nation's in chaos.
Today I will cover:
• What’s causing the dip. Multiple macro forces at play including interest highs and the Russia / Ukraine situation.
• Bear market strategies. There's a time to play offense and a time to play defense. You should be playing defense now.
• The troubles facing Wonderland Time. Sifu (The co-founder of Wonderland) has been doxxed. He has a dark past consisting of scams.
Let’s get into it.
What’s causing the dip?
- The Feds are Likely to Raise Interest Rates in March. Higher interest rates means borrowers will need to pay more for the loans they get (mortgage, auto loan, business loan, etc.).
This means less money available for retail investors to get into Crypto.
- Russia Invading Ukraine. Russia has amassed 100,000 troops near the Ukranian border and is threatening to invade.
- The Biden Administration says Regulating Bitcoin is a matter of National Security. They are preparing to release an executive order.
They’re going to task several Federal agencies with increasing regulations on Cryptocurrency.
China is watching the Russia vs Ukraine situation closely. A weak US / Nato response could give them more encouragement towards invading Taiwan.
And there’s always the fear of another COVID variant.
The big question is…how long will this dip / bear market last?
I don’t know.
We've never seen a combination of macro forces happening at once like this before.
Keep in mind that everything's down including the stock market. This isn't isolated to just Crypto.
I don’t think we’re heading towards a possible 2 year+ bear market like we did in 2018.
There are still a lot of positive Macro forces at play.
- The president of El Salvador believe that at least 2 more countries will adopt Bitcoin as legal Tender this year.
- Arizona has just introduced legislation to make Bitcoin legal tender.
- Vladimir Putin says that Russia has competitive advantages in Crypto mining.
- Lebron has partnered with Crypto.com, and he's focused on education.
- Blackrock is working on an ETF that focuses on blockchain technology
- The ex-Goldman Sachs CEO, Blankfein, says that "Crypto is happening"
And finally, public interest is still high.
I’m short term bearish, but I’m long term bullish.
The most important thing right now is to survive, and position yourself for the next Bull cycle.
The real wealth in Crypto is created when you have the conviction to buy during bear markets.
I know things are grim now. But I want to acknowledge the current reality and help you position yourself.
Surviving a Bear Market
The best way to prepare for a bear market is PRIOR to one happening.
When things are going well, you should be taking profits and converting them into Stable coins or long term holdings.
But of course, we don’t have a time machine.
Let's focus on what we should be doing now.
Bear Market Portfolio Construction
I created a sample portfolio that'll do well in a dip environment.
Don't focus so much on the individual projects that I selected. If you want BTC, then get BTC. What's more important is understanding the risk buckets and allocation %.
There's a higher allocation towards stable coins and low-risk projects.
Keep in mind that everything is being either farmed or staked.
ETH can be staked in Rocketpool.
Terra / AVAX / FTM can be staked or yield farmed.
Obviously, the stable coins are being farmed.
Once the market becomes more bullish again, I'll start moving more allocation towards higher-risk projects.
Some of you might be confused about what makes up the different risk categories. I am working on a series of articles that'll go into it in more detail.
Dollar-Cost Average into the Dip
In May, I bought the dip with 100% of my ammo.
I thought ETH at $3200 and thought that was a great deal. And then it kept dipping, and dipping, and dipping.
It bottomed out at around $1750.
Don’t try to catch a falling knife.
A better strategy is to dollar cost average.
Let's say you have $10,000 USD to invest for 2022. WHEN should you get in?
Invest $833 on the 1st of each month.
It's simple. You can even automate it at a CEX if you want.
And you're relying on a system rather than trying to time the market.
Mine for More Fiat
Everyone says to “buy the dip.”
Chances are you’ve already emptied out your clips the past few months.
You should be scrambling to get your hands on every cent you can get.
Making sacrifices for a few years could set you up for life.
Sell everything that you don’t need. Got a Nintendo switch that you’re not playing? Sell it.
Delay gratification. Thinking about going on vacation? Postpone it to next year. Have a staycation instead to scratch your itch.
Trim the fat. Do you really need subscriptions to 5 different streaming platforms?
Do extra work. Pick up extra shifts at work. Do you have a skill? Then try freelancing. I’m going to reach out to some of my old clients that I use to do consulting for.
I hate consulting and clients. But making a few extra thousand and buying the dip? That's a force multiplier.
My friend is hardcore. He's relocating to Southeast Asia for a few years. The primary reason is for fun and life experiences.
The side benefit? An extra $3,000 a month that he can invest into Crypto.
Every portfolio should hold stable coins.
I always recommend Anchor Protocol on Terra Luna to start with.
• 19.5% APY
• You get paid in UST stablecoins
• Battle-tested and proven. You can get insurance for it if you want through NexusMutual. (I just checked, there are none available now)
There are concerns that Anchor Protocol won't be able to pay 19.5% APY forever due to its yield reserves dwindling.
It should be fine for now.
Most likely they'll have to lower it to around 15% to make it sustainable.
Recommend: UST, USDC
Avoid: USDT, MIM
MIM (Magic Internet Money) is the stablecoin from Abracadabra. Avoid for now.
I'm also farming on Hundred.finance. (Buy and lock HND tokens to maximize your yield)
Just because Crypto is down doesn't mean everything is down.
Think about the traditional stock market. There's energy, healthcare, technology, financials, consumer staples, etc.
The same might apply here.
What sectors exist in Crypto? There's DeFi, Layer 1 Protocols, Layer 2 Protocols, GameFi, exchanges, NFT's, etc.
Perhaps there will be some sectors that will do well despite the bear market.
“Ser, I’m a simple man. Can you recommend to me what to buy”
Alright, not financial advice. Just sharing what I’ve been picking up the past few days.
Remember, you don't know my risk analysis or current portfolio right now!
• Terra Luna (low). Decentralized stablecoins will only become more valuable over time. The L1s are in a war with each other: AVAX, FTM, SOL, ETH, etc. Terra is a rather unique protocol that's focused on disrupting FinTech. They're not competing with the other Layer 1's in being a cheaper & faster Ethereum.
• Secret Network (medium risk). L1 Privacy blockchain. More and more regulations will happen. They just announced $400m in funding. If you remember how NEAR, HARMONY, AVAX, and FTM exploded after funding, then you can see my hypothesis.
• Metis Dao (high risk). L2 ETH scaling solution that’s gaining traction. Ecosystem is booming. Vitalik’s mom is on the team.
Wonderland's in Shambles
The entire Frog nation was shaken yesterday.
Sifu is one of the co-founders of Wonderland. He was doxxed and revealed to be Michael Patryn.
Why is this a big deal?
He's the guy behind QuadrigaCX.
A Canadian exchange that went insolvent a few years ago. The Co-founder, Gerald Cotten, mysteriously "died" on a trip to India.
His body was cremated but no one actually verified that he died. They couldn't access around $200m of funds because only Gerald had access.
Well, someone discovered that some of the funds were transferred over to sifu.eth in 2019.
It was revealed that Sifu was the co-founder of QuadrigaCX.
I broke everything down into a thread below.
This news sent shockwaves through the entire Frog Nation ecosystem.
Abracadabra and Popsicle Finance's price has plummeted.
Wonderland has been one of my favorite protocols. You probably joined this email list from reading one of my threads on the Wonderland.
I sold my position at a loss in the morning as soon as I found out.
I'm NOT telling you to hold or sell.
I want to walk you through MY decision making process.
- Opportunity Cost. I can recoup my losses better by investing in other protocols, rather than hoping the wMemo price goes back up.
- Loss of Trust. Wonderland was a billion dollar operation that was run by 2 ppl and some devs. I always wondered why they didn't hire a community manager, or expand their team.
Especially when the community was begging for it.
It made me realize perhaps they didn't want outsiders digging in. We don't know how deep this rabbit hole goes.
- The Narratives. You know that I'm all about trading the "metagame." Rebasing projects have performed poorly. It's hard for a project to bounce back after trust is lost.
- Too Stressful. I got tired of waking up every morning and wondering "What is going to happen to Wonderland today?" It was taking too much of my energy to keep up with.
I hope that the price recovers.
Perhaps there's a way if they bring on a competent, and doxxed treasury team.
But I prefer sitting this one out and watching on the sidelines.
The DeFi Edge
p.s. I was attacked many times yesterday on Twitter.
Some people were upset that I was promoting Wonderland so hard.
And others were upset that I "turned my back" on Wonderland.
I believed in the Vision.
I thought a decentralized VC fund is a great idea.
Dani had a great reputation.
And Sifu was doing a great job farming the treasury. I trusted Dani's judgement since he knew Sifu in real life.
I saw a community that was confused, and it was an opportunity for me to contribute.
I did my best with the information I had.
There are risks of a protocol being hacked.
Or maybe Wonderland would make bad investments.
I never thought in a million years that Sifu would have the history that he does.
As soon as that information came to light, I realized that I can't support this project anymore.
Especially the fact that Dani knew a month ahead of time, and didn't disclose it to investors.
One guy even suggested that I delete my account and start over again.
I promised you authenticity and transparency.
It was a mistake to promote Wonderland.
This is not my 1st mistake in the space, and it won't be my last.
I focus on cutting-edge DeFi projects that come with higher risk. I won't pretend to bat 100%.
I'm sorry if anyone lost money because I supported this protocol.
I will learn from this and put my best foot forward.
It's all I can do.