Together with Aave GrantsDAO: 
“We can know only that we know nothing. And that is the highest degree of human wisdom.”
― Leo Tolstoy, War and Peace 
Thursday Know-nothing Mailbag
Q: This is a bear market, right?
It feels too soon — didn’t we just have a bear market? — but I guess it is, yes.
The pandemic crash was so brief and the recovery was so steep that there wasn’t time for all of the bull market imbalances to get flushed out of the system.
It’s usually those imbalances that turn corrections into bear markets, not things like geopolitics. Politics of any sort generally have no more than a passing effect on markets.
But this is a weird one.
Money is fleeing risk assets for the safe haven of Treasurys today, as you’d expect. So rates are lower, which is generally part of the process that helps stabilize risk assets in a sell-off.
But what happens when geopolitics are inflationary?
Futures for wheat, natural gas, oil and metals are all higher today, which suggests further inflationary pressure in the near term.
This is, however, non-monetary inflation. Which is not really inflation: The dollars spent on higher energy bills are dollars that won’t be spent elsewhere.
So, geopolitics may induce the global recession that the Fed was needing to rein in inflation.
That means lower interest rates and easier monetary policy, which is ultimately bullish.
But it may be a long, rocky road.
Q: How long of a road?
Markets love to climb the proverbial wall of worry, so the road will be as long as it takes to build a good one.
It seems to be happening fast, however. We’d only gotten to the top of the Covid wall of worry when we started in on inflation, interest rates and quant tightening. Now we’ve got geopolitics on top of it all.
It’s a substantial wall already, so I’m hopeful we can get climbing it soon.
For crypto, however, the best outcome may happen if we get a more protracted bear market: That would mean more builders building and less degens…degen-ing. Which is the real long-term bull case.
Q: What do I need to know about Russia and Ukraine?
I’ve been to Moscow (twice!) and have read War and Peace (also twice!).
So I know enough about Russia to know that I don’t know anything about Russia.
And I certainly don’t know anything about Ukraine, other than that it has a fascinating history.
The only thing I do know is that the whole thing stinks.
I’d much rather be fielding questions about Ponzinomics and dog coins than geopolitics.
Which is a timely reminder that those of us who get to spend most of our days thinking about crypto and markets are incredibly privileged.
I know I haven’t answered the question…that’s because I can’t. But I can point you in the direction of someone who can.
Q: Is it bullish for crypto if Russia gets kicked off of SWIFT?
I’m not sure.
It would not be a great look for crypto if bitcoin becomes the alternative means of payment for rogue governments.
Bitcoin is already burdened with the money laundering and anti-environment scaremongering; we don’t need to hand the naysayers another major source of FUD.
And it’s not just perception risk.
Western governments could make bitcoin unsuitable for large-scale usage almost as easily as it can turn off SWIFT: They’d only have to shut down the fiat on-ramps.
Judging from today’s comments from President Biden, however, that seems like a tail risk at the moment.
Q: Will you be fessing up to last week’s blunder?
I wouldn’t say it was a blunder, exactly. I just temporarily misremembered that I don’t know everything about crypto.
You’re referring, I think, to the sweeping statement I made in the mailbag that “there are no SPACs in crypto.”
I’ve since learned from an alert reader that there is: Aelin.xyz.
In fairness, Aelin is not exactly a SPAC.
It's missing one key element of SPACness: the ability to buy in below the offer price.
Most SPACs trade at some small discount to the $10 redemption price. So buyers in the secondary market usually get paid a risk-free return to wait and see what the deal is.
There's no risk-free return with Aelin, which I think will make it difficult for it to really catch on.
But, it's close enough to a SPAC that I officially retract last week's sweeping statement.
As penance, I will go re-read some of Vitalik’s more technical blog posts — those always remind me that I really don’t know anything (yet).
Q: What’s this Luna/UST/bitcoin news all about?
I’ve previously mentioned my mental model for the Terra ecosystem, which is that I see the tokenomics around LUNA, UST and ANC as Do Kwon’s effort to buy enough time to develop exogenous use cases for UST.
This week, Do Kwon collateralized UST with $1 billion of bitcoin, bought with LUNA.
LUNA rose on the news, I think because this is perceived to de-risk UST to some degree.
My personal take is that the addition of collateral to UST is an admission that the Terra ecosystem was not developing quickly enough.
The $1 billion of bitcoin buys them a little more time to build.
Q: Seen anything this week that makes you want to renounce your US citizenship?
Yes!
In checking Twitter for the latest sentiment on UST and LUNA, I noticed there is an incredible looking trade available to non-US citizens.
On FTX.com (i.e., the one not available to US citizens), UST perps trade at a funding rate of -18%, which buyers can leverage up to 20 times.
I wouldn’t recommend buying anything on 20x leverage, that’s just asking to be margin-called.
But even 10x leverage would give you OHM-like APYs — but with stablecoin-like risk.
The best thing about the trade is the liquidity: It’s not deep enough for institutions or whales to bother with, but more than deep enough for minnows, like me.
But only non-US minnows, unlike me.
Dear SEC: Let us trade perps!
Honestly, not being able to trade perps is the biggest complaint I’ve got at the moment.
I wish everyone else in the world could say the same.
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Date: Thursday, March 3, 2022 Date: Tuesday, March 8, 2022
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Written by @bgilliam1982 and @aaronhasapen.
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