[Re-sent] Scepticism pays during Crypto's Lehman's

Scepticism pays during Crypto's Lehman's

June 03, 2022

Friends and associates,

Crypto suffered a Lehman’s-esque event in May 2022 as UST and the Luna ecosystem unravelled in spectacular fashion. The collapse highlights the ever present risk in crypto and the importance of Sound Money’s conservative approach in the face of “too good to be true” investment opportunities. I am optimistic stablecoins but Luna’s UST had the opposite impact to what I expected, which provides a great opportunity to reflect on the future. The destruction in crypto in May 2022 reminds me of a recent visit to Yosemite National Park where giant Sequoias have survived for thousands of years through rain, wind and fire. Creative destruction is one of the most powerful forces in nature and crypto is one of the last bastions of naturally occurring free markets - it benefits from this cleansing process.

  • I remain positive on stablecoins despite USTs failure.

  • Crypto contagion post Luna as retail, funds and BTC are all impacted.

  • Regulation probability increases after large players falsely advertise crypto risks.

  • Creative destruction within crypto is one of its biggest strengths.

  • Bitcoin remains as secure as ever despite the volatility.

Video covering the implcations of the Terra Luna UST unwind.

Despite the focus on Luna, the unraveling of this experimental crypto must be viewed in the context of the Fed liquidity winter. Luna’s growth and eventual unwind would have been highly unlikely without the liquidity injections of 2020/2021 and the subsequent tightening of 2022. Now that the winter is biting in earnest, the first signs of Fed policy reversal are underway.

  • Liquidity tide goes out, exposing assets further out on the risk curve.

  • Scepticism, caution and asset allocation pay dividends.

  • Macro conditions start to improve but too early to call a macro bottom.

  • Fed laying the groundwork for its capitulation as recession fears increase.

  • Luna unwind has hit bitcoin demand, providing caution for the next quarter.

  • Bitcoin dominance will confirm creative destruction.

TLDR: More pain is expected in crypto over the coming months as Luna unwind takes demand into bear market territory but we are approaching the macro bottom and the Fed is preparing for loosening in 2023.

Wishing you all the best for the month of June.Rob