Bitcoin and ether are both nearly 60% off their recent highs, and my altcoin portfolio is orders of magnitude worse. And, yet, it still feels like a party in crypto. I’ve been to TradFi conferences that emptied out because the S&P had a 2% down day. Permissionless, in contrast, was packed and full of energy last week.
We shouldn’t take that energy for granted: The Terra collapse has likely sped up regulation and slowed down institutional adoption. It’s now on us to demonstrate to both regulators and investors that digital assets are more than just trading sardines.
We have to fight for our right to keep partying in crypto.
So, let’s get into some of the issues.
Q: Is crypto worth nothing?
Christine Lagarde thinks so: “My very humble assessment is that it is worth nothing. It is based on nothing.”
Personally, I have enough belief in the hive mind of markets to assume that an asset class with a $1.2 trillion market cap is worth something — not nothing.
Lagarde, however, values her own centralized (but very humble!) judgment over the market’s collective, decentralized judgment. She’s therefore concerned about people “who will be terribly disappointed” and wants to spare them that fate by regulating crypto.
I, too, hate being disappointed, so I’m in favor of the criminalization of disappointment. Who could argue?
It would be difficult to police, however. Lagarde can’t even save her own son from inevitable disappointment: When asked about his involvement in crypto, she responded, “He’s a free man.”
And, yet, she doesn’t think the rest of us should be.
Call me crazy, but I’d rather be free with a risk of disappointment than unfree with no risk of disappointment.
To paraphrase the Beastie Boys: I will fight for my right to lose money however I want.
Q: Should I DCA into BTC?
I’m guessing those are not two airport codes (Washington DC to Burlington, Connecticut, maybe?), because surely you wouldn’t be coming to me for travel advice. (I’m planning to drive up 95 on Memorial Day weekend, so I definitely do not know what I’m doing.)
But if you’re asking about dollar cost averaging into bitcoin, I do have an opinion: No, you should not.
That’s not a call on bitcoin, however: I’m just philosophically opposed to dollar cost averaging — weird, I know, but hear me out.
When you think something is going higher, the opportunity cost of being underexposed to it is always bigger than the benefit of averaging in at lower prices.
If that’s not the case, consider shorting whatever it is you’re considering buying. This is especially true in bitcoin. If you like bitcoin enough to buy it, you presumably think it can at least double or triple from here. And, like everything else, the downside is only 100%.
Dollar cost averaging bitcoin is therefore only helpful if you’re wrong — and here’s some official financial advice: You shouldn’t be investing on the assumption you’re going to be wrong.
DCA is not a trading strategy. It’s for investing a little each month because you have a little extra each month to invest.
Those two things got conflated along the way somehow, and we should unconflate them.
And, in any case, having not enough of something that’s going up feels way worse than having too much of something that’s going down.
Don’t do that to yourself: Buy a full position.
Q: Is Terra like Lehman?
I see a lot of commentary that Luna was crypto’s Lehman moment, and we survived it. And I agree that crypto weathered the LUNA storm admirably well. But, no, it’s not Lehman.
Their market caps were similar, but, for one thing, most of LUNA’s market cap was paper gains. LUNA didn’t incinerate its peak market cap of $40 billion, only what everyone’s cumulative cost basis was.
Lehman had a peak market cap of $60 billion, much less of which was paper gains.
More importantly, Lehman was levered 50:1: It filed for bankruptcy with $619 billion of debt.
And even more importantly, no one knew who owned all that debt. The bank run on Lehman turned into a bank run on everyone because in opaque TradFi, even the most trusted counterparties become suspect in times of stress.
So, no, LUNA was never the systemic threat to DeFi that Lehman was to TradFi.
Q: Is Tether like Lehman?
That’s a closer analogy, because Tether does hold real assets, so there is some contagion risk.
But those assets are (reportedly) unlevered, so the market cap comparison is again apples-to-bowling balls.
Tether has processed $10 billion of redemptions since the Terraflop, and the peg has barely budged. So, I’m feeling confident that their reserves are close enough to what they say they are.
On the other hand, Lehman inexplicably limped along for a further six months after the collapse of Bear Stearns…so who knows!
Q: I see what you did there with Terraflop/teraflop, very funny.
Q: Is it good that Terra flopped now and not later?
Yes, for sure.
Stablecoin in- and out-flows are already having an impact on the Treasurys market, so we need to get our stablecoin house in order before it gets much bigger.
Q: Can we stop talking about Terra now?
Yes, agreed. (Especially now that I’ve gotten my teraflop joke in.)
If you people don’t stop asking about it, I’ll just have to write my own questions next week.
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