How to navigate "crypto winter" (and some timeless investment advice)

BOS Update June-July 2022

“Be greedy when others are fearful—Warren Buffett”

Legendary investor Warren Buffett, also known as “the Oracle of Omaha” has had a successful career spanning six decades in the markets. One of his oft-repeated quotes is “be greedy when others are fearful”. If you were following this advice, then you would be feeling very greedy right about now.

Not only crypto markets, but stock markets and other investment assets have seen eye-watering corrections as the central banks struggle to get inflation under control. A combination of increasing interest rates and removal of stimulus packages has “Mister Market” feeling very fearful indeed.

Despite all the death and disease during the COVID pandemic, it almost felt like the banks were our friends: trillions in extra cash was printed, stimulus cheques flowed freely, and interest rates on loans were ridiculously low. But those who have been in the markets for many decades know the bad news: good times do not last forever.

Sure, supply chain issues are a thing, and so is the war in Ukraine, but by far the largest contributing factor in the latest downturn is the irrational exuberance of central banks printing far too much cash, and the necessity to stop.

Printing 41% additional M2 cash supply meant that everything went up in price. Price rises seemed good if you owned stocks, crypto and real estate, but once the price of lettuce, eggs, fuel and other necessities started rising, the banks had to turn off the cash taps and reign back the loans.

The original problem was the pandemic, so they printed more cash. Then the problem became too much cash (inflation) so they had to wind it back. Now that cash supply is drying up, interest rates are increasing and loans are being called in, anyone who had too much borrowing is feeling the pinch.

Coinbase and BlockFi are laying off 20% of their staff; meanwhile, Binance is advertising for 2 000 new positions. It seems that the former companies may have become irrationally exuberant during the good times, and did not plan for the inevitable bust after every boom, whilst Binance was more cautious.

Binance CEO, Changpeng Zhao (commonly known as “CZ”) stated on Twitter, “It was not easy saying no to Super bowl ads, stadium naming rights, large sponsor deals a few months ago, but we did. Today, we are hiring for 2000 open positions.”

Singapore crypto hedge fund manager Three Arrows Capital (3AC) had to unwind many positions during the crash: they sold around $40 million worth of ETH when prices were dropping, and there is no news on their $100 million NFT fund (many NFT’s have plunged 99.5%).

Onchain data suggests that 3AC may have invested up to $1 Billion in the failed Terra/Luna project; their billion-dollar investment would now be worth around $600.00; more than a 99.99% loss. Rumours have been circulating that 3AC may be officially bankrupt, whilst other rumours suggest a competitor will buy them.

The issue may be that 3AC borrowed funds from FTX, Celsius, BlockFi, Nexo and BitMex plus a few more crypto lenders. When 3AC goes down, it could pull some big names with it; not necessarily to zero, but potentially a 10-50% drop for some of the larger lenders. As the old saying goes: if you borrow $100 000 from the bank, you have a problem. If you borrow $100 million from the bank, the bankers have a problem.

Unconfirmed reports suggest that FTX or Binance could buy out 3AC as a way of bailing out the fund and expanding their own operations. It makes sense to purchase your competitor if the price is low enough. Interestingly, Celsius has recently declined an offer from creditors, suggesting that CEL may have the strength to carry on under its own resources.

As reported in a recent tweet, Bostoncoin bought #CEL at $0.07 in 2019, and held it at $7.00 in 2021. We intend to buy more CEL at $0.70 in 2022 and hold it to $70+

Crypto.com (CRO) has for several years given from 3% cashback up to 10% cashback on its prepaid Visa card purchases, and provided up to 16% yield on crypto staked on the platform. More recently CRO seems to be scaling back the rewards to a more sustainable level; around half of what they once were.

Gemini exchange, brought to you by the Winklevoss twins, has partnered with Amex to provide their own crypto card, with a more conservative 1-3% cashback on spending.

Whether your business is crypto, finance or selling widgets, it seems that it pays to plan for winter, even when winter seems far away.

“The bad news: nothing good lasts forever – the good news: nothing bad lasts forever”

Whilst residents of cryptopia have watched in horror as the cyclone that wiped out Terra/Luna seems to be heading towards Celsius, Voyager, Three Arrows Capital and BlockFi, the credit crisis brings opportunity for others. Whilst it seems we may be in the midst of crypto winter now, some are planning for summer.

It seems that FTX may purchase BlockFi for a steep discount, and anyone buying stock in CoinBase can now do so at prices up to 80% off.

Meanwhile, one-time crypto-cynic now Bitcoin fanboy Michael Saylor, has accumulated even more Bitcoin during its flash-crash sale. Saylor now holds twice as much BTC as Tesla, making him the largest crypto investor in the world.

The government in El Salvador has stocked up also, buying an additional 80 (eighty) Bitcoin whilst the price was below US$20 000.

Billionaire music icon Jay-Z and Twitter founder Jack Dorsey have set up an organisation to educate the underprivileged on the advantages of Bitcoin. In addition to programs in India and Africa, the duo will also provide crypto education to a housing complex in Brooklyn, where Jay-Z grew up.