Thoughts on the Down Market
Crypto has always been a high-risk/high-reward space, and investors should be prepared (both emotionally and in their positioning) for market capitulations like this one. It’s why we look to manage risk, try to buy at reasonable price points, and diversify our portfolios with high-conviction, low-beta plays.
While it certainly sucks to be down so much today, I think it is helpful to bring into perspective why we invested in the first place and where we are today.
(A) We are still early in Crypto/DeFi/Web3— we might lose money today, but investing in the space should continue to be a positive expected value play years from now. While the chart below is no guarantee and probably on the optimistic side of things, it is still a powerful visualization of how early we are if crypto’s applications continue to expand and become more accessible:
(B) Being down is never fun. However, remember that you are holding on to the same assets as a couple of days ago. If you had conviction in those assets, it shouldn’t matter what the price is today, as long as your intrinsic valuation of those assets is greater. Benjamin Graham’s Mr. Market concept is doubly valuable in the volatile world of crypto. On days like today, Mr. Market gives us terrible prices for the same assets we considered valuable yesterday. If I hold a $10mm market cap coin that went down to $5mm, but I think it should be worth $100mm — the short-term market price is just noise. Always remember:
(C) While it does not feel particularly panicky today despite the big drop, there is a significant number of people acting out of fear and forced to sell either due to liquidations or fear of liquidation. These types of conditions are an investor’s dream when looking for outsized r/r opportunities. One straightforward way to benefit from this is bidding for bLUNA collateral being liquidated as the price of bLUNA falls and getting more bLUNA at a discount (assuming you are bullish LUNA). It might feel scary to buy assets as they are falling in price, but that view is emotion-driven — it is less risky to purchase assets for a lower price even as they fall, with the caveat that the crypto market does have its idiosyncracies — excessive fear can kill a project even if there is nothing fundamentally wrong with it
Some Lessons Learned
- When it feels like its time to take profits or high prices feel uneasy, don’t let FOMO stop you from de-risking
- Always leave yourself a stables stack to be able to invest with on a downturn
- Don’t spread yourself thin across so many ecosystems that it becomes difficult to act swiftly when markets get volatile (e.g., I borrowed a significant amount on Geist and bridged it all out, and now am not able to bring leverage down without bridging assets back)
- The value of doing your research is knowing what to do when things suddenly change from what CT or your favorite YouTuber pitched you on
Next Steps for Me
- Look into projects I feel may be undervalued — MULTI, CRV, FTM come to mind — and figure out where to raise cash to invest in these projects
- Bring up my health ratios to a comfortable level— conviction doesn’t matter if you get liquidated
- Re-assess my portfolio where necessary for coins (mainly alts) that I was holding without much conviction (ASTRO I got airdropped, farmed SPELL, farmed PTP, rotating TRI into AURORA or NEAR since I prefer to keep the L1/L2 token than the protocol alt-coin with limited reason to exist)
- Continue to look forward to Crystalvale in DeFi Kingdoms, now at a less uneasy price point to hold all my xJEWEL at; potentially rotate xJEWEL into JEWEL-FTM, JEWEL-LUNA, etc. to increase my exposure to tokens I feel may be undervalued while also farming even more JEWEL
Nothing in this blog constitutes financial advice and is simply the writer’s opinions. Do your own research and be aware of the risks of potentially losing all of your money.