Q2 2022 Outlook: Macro & Micro
It’s a tumultous time. Buckle up, sit tight, and enjoy the ride.
Looking Back - Q1 2022
What a wild ride it has been! Q1 & Q2 (so far) have certainly taught me a lot - from the highs of the bull (I still remember when Jewel was $20) to the absolute crushing times of the bear; from the wild exploits of Bean finance to the collapse of Terra - it feels like years have passed since my entry into the space. Yet when I look back, it’s only been ~9 months since I joined this fantastic place known as Crypto.
I think what’s more entertaining to me is to look back at my past plays - my Q1 2022 substack, in particular. I’ve come to realise how naive I was last time, and how hilarious it is to look back at what my past self was thinking. Likewise, I’m sure in the future when I come to revisit this article, I will be filled with new knowledge that makes what I say here laughable.
That being said, I don’t think it was a bad thesis - other than OHM. In my defence, my idea towards OHM was because it was like a “bank” rather than a token that would 10x - which was the right approach, and allowed me to cope with its downfall; That aside, the key focus areas I talked about (GameFi and NFTs) did pop off, with my tokens (Jewel and Magic) going from $2 → $20 and $0.3 → $6 respectively.
What I wish I had known, that I only learned in Q1, was that I was stupid for making such long-term predictions when you’re trading the beta of an already high beta asset. My core learning point of Q1 was learning just how ruthless the market really is.
In all the bulls’ exuberance, we think BTC/ETH are boomer coins, and that they should make way for the new alts that have barely existed for over a year; Well, the market giveth, and the market taketh as well.
My portfolio is down -70% from its ATH and despite my best efforts to heed the advice of GCR, I sometimes find myself imagining what life would be like if I was a top seller.
Self-pity aside, I’m truly grateful for this lesson; Like all lessons in this space, it was a trial by fire, and I survived, though scarred. With this experience, I now approach the market in a more time-sensitive and analytical manner.
On A Macro Timeframe: Go Long!
With the context being set, I’ve been thinking about how I’ll be playing the coming days, months and years.
Having been too young to remember the 2008 crisis, I can say that I have 0 experience navigating financial crises, nor am I a qualified economist that can tell you what’s happening in the global economy right now. However, as a person living on Earth facing the same circumstances as you, I am qualified to give you my amateurish opinion on this.
And my opinion is that, like every good hedge fund, you should always hedge the tail risks. Just like how although the weatherman says that tomorrow is sunny, venturing out without an umbrella when you see dark clouds and putting all your faith in the weatherman is pure stupidity.
So to better understand what you should buy in the case of an economic collapse, I asked people more experienced than myself - people who have had actual experience navigating such situations. Their advice was two-fold:
To preserve wealth
To buy strong growth stocks in strong growth sectors because on a long enough time frame, they will on average see continued outperformance; but in the short term, speculative stocks will always see a downtrend.
Therein lies the need to view events within a certain timeframe; On a long enough time frame, your immediate worries can vanish. Now then, translating this to crypto, I have actually stabled ~70% of my portfolio already - that’s hedging my downside in case of a downturn.
On top of that, if markets do take a hit, I personally am bidding ETH instead of SPX; this is because I’m young, can afford to take risks, and would like to make a directional bet. The long-term bull case for crypto has not changed.
Back in the Dot-Com bubble, only certain companies survived, and those companies went on to become giants of the Web2 age. I believe that we’re in a similar situation, just with one key difference - the fact that coins like BTC/ETH have already survived for 13 and 7 years respectively, and have slowly grinded from nothing upwards. They didn’t pop up in the middle of the bubble, rather they have shown perseverance and stability through having survived so many years prior to the world at large knowing about crypto.
This is known as the Lindy Effect - the phenomenon that the longer something has survived, the longer it is likely to exist in the future. Their continued survivability lends them verifiability. Your alts, contrary to popular belief, will likely not survive.
Now comes the next part - why ETH over BTC? For that, let me refer you to No Bitcoin By Cole; I share many of his sentiments.
The core idea is that ETH has so many usecases now, and while you may say that BTC’s core concept wasn’t to be used as a currency (which I agree, SoV =/= currency, you don’t see people transacting with gold back when Bretton Woods was a thing), the problem is that its recent performance mirroring the SPX is not a good indicator of the whole “inflation hedge” idea.
BTC to me has a more obscure picture than Ethereum; betting on Ethereum is sort of equivalent to investing in the Internet / giant online country. Oh, and I’m also leaning towards bidding other alt-L1s, but will have to observe the whole L2 vs L1 narrative.
So let’s theorize -
In the worst case event - economic downturn, I’ll have ammo on hand and a plan to ladder in the bottom and hold on out; I know I’ll be fine given my timeframe
In a bull case - I still have 30% unstabled to utilize
In a crab scenario - my strategy isn’t market neutral, so naturally it’s quite ill-fitted in this scenario; in such an event I’ll be forced to wait out.
On A Micro Timeframe: Sit On Hands!
As the old adage goes - in times of uncertainty, sometimes the best thing to do is to do nothing at all. There’s no need to overcomplicate things - sit on your hands and chill.
In the short-term I’m looking to dump many of my alts for stables / ETH. I will always be looking for short-term opportunities to bid, but only when signs of relief have shown themselves, and that the rally is sustainable.
Although another popular point of view that I’m currently tinkering with is the idea that to trade the wavy chart pattern that we’re seeing these days. I think it’ll be good practice for me, but while the idea is tantalizing, I’m forced to remember a scenario from Taleb’s books, where he tells a trader that he’s bullish on the market, but still short. When asked why, he replied with the idea that although he’s bullish, the downside far outweighs the upside. I talk more about the idea here:
As such, if I do trade the local bounces, I’ll find myself working with as little capital as possible.
Realistically, I see myself just chilling for the next few weeks / months / years, and at some point I will slowly start laddering in to fulfill my macro policy, but that point is not now.
Remember, it is never in the best interest of a money-maker to be a “maxi”. Hence, never stick to one idea, and be as liquid as flowing water. Tail-end events can happen, and to discount them based on your “model” or indications is to kid yourself. By keeping them in the back of your mind, you force yourself to be insured in such an event. And by being like water, you make sure that you’re able to adapt to any and all circumstances the market throws at you.
That’s all from me. I actually wanted to make a longer post talking about my longer term views for ETH / Crypto in general, but realised that I should probably write another article for that. So look forward to that!
Good luck, ladies and gentlemen. May fortune every be in your favour.