2022 Performance Review + Reflections

GM, and Happy New Year!!!

In a nutshell, 2022 will be one of the worst years since the 2008 Global Financial Crisis. I believe that enough has been said about what happened this year in other “2022 reflections/recap/year ahead reports,” so I’ll skip the general recap and instead focus on what happened for my own portfolio specifically.

Before I go further, I present to you my outlook laid out and updated in June 2022:

L1/L2

L1: Ethereum (Network effect + ultrasound)

L2: IMX (Best games on-boarding + Best scaling tech dedicated towards gaming)

Cross-Chain

ATOM, OSMO (IBC/Interchain security/mesh security/inter-fluid staking, ATOM 2.0)

GameFi, P2E

ILV, Embersword, Tatsumeeko, Blocklords (MMORPG gaming thesis. Most avail on Immutable, awaiting for bull and gamers to flow back in)

Derivatives

GMX, DPX (Battletested protocols on Arbitrum + GMX with the best tokenomics in crypto rn. DPX becomes attractive only after token incentives for vaults end, will see how it performs without incentives)

Web3 Infra

FOLD (RPC aggregator, block builder, MEV Democratisation opportunity)

Six months later, I asked myself: Is my thesis for the tokens listed above still valid? And my response has evolved somewhat. The important question is not whether these tokens can potentially create narratives, but rather how demand will come in (organically or through Ponzinomics), whether on-chain data supports the narrative, and how the project plans to survive in a long bear market like the one we are currently in.

Important Crypto Investing Lesson for 2022: 99% of tokens are Ponzis, and you should always be prepared to take profit aggressively (if any)

To the TradFi folks and normies who were skeptical of crypto – you were (half) right. Crypto was and continues to be a very experimental technology that many people are still trying to understand. Smart contracts are novel and have many applications, but in the case of 2022, many were used by web3 developers to create Ponzi loops/flywheels for the developers to get rich quickly.

In fact, the vast majority of smart contracts we see today in DeFi are forks of projects like UniSwap, Aave, Compound, Balancer, Yearn.Finance, and others, with little of the “real” innovation that web3 proponents touted crypto to be. I believe that crypto is still in its “Warring States period,” and that there will be a lot of consolidation before we see true mass adoption. The amount of landmines (smart contract hacks/phishing/scams, etc.) present in crypto today will need to be cleaned up if we want governments around the world to adopt these public blockchains to help spur global normie usage.

On the bright side, despite this year’s CeFi contagion, DeFi remained unbreakable. UniSwap continued to process billions of dollars in token swaps, Aave continued to operate, and GMX is still used by retail traders, among other things. While more bodies will be washed up after the FTX contagion and global liquidity drought, I remain optimistic about DeFi protocols that are truly innovative. As previously stated, I believe 2022-2023 will be a period of consolidation within DeFi, with battle-tested protocols with decent and sustainable yields continuing to gain traction and market share, and copycat projects slowly dying off as they fail to create a moat for themselves.

Net Worth Dropped 42.5% From 2021

Going into 2022 with a 100% crypto portfolio, I was blinded by the insane gains of 2021 and invested nearly all of my cash position in volatile tokens in the hopes of compounding that growth. In light of sky-high inflation, the Fed’s decision to raise rates and begin quantitative tightening caught everyone off guard. As the global economy contracted and dead bodies began to appear, things began to deteriorate. Terra/Luna happened, and while I was unaffected because I only had a 5% allocation into LUNA, it was the first time I saw an investment go to zero, and it served as a wake-up call for me to improve my risk management.

After the Luna collapse, we saw more CeFi projects that were essentially long UST with no hedges. Celsius, Hodlnaut, and other CeFi businesses went bankrupt, along with 9 figures in retail/lazy institutional capital. The market fell further, and I decided to buy more ETH on the cheap, and I’ve been buying ETH on a weekly basis since it fell below $1500.

As the market gradually recovered from the Luna crash, I decided to de-risk my portfolio by selling any remaining altcoins for USDC/ETH, finally admitting to myself that this bear market might last even longer than I anticipated.

Moving forward, the FTX collapse did not affect me because I was able to withdraw my funds two days before the collapse due to numerous red flags I saw on Crypto Twitter. I also advised the Investing Beanstock Telegram Group to withdraw funds from FTX as a precaution because if I had not warned, more people would have lost money, and I would be kicking myself for not mentioning it.

With the FTX collapse, my only risk exposure was the downside risk of my ETH position, but aside from that, I’ve already gone majority cash, with the remainder devoted to accumulating as much ETH as possible.

As of 31 Dec 2022, this is how my crypto portfolio look like:

60/40 portfolio haha, but with 60% ETH and 40% in stablecoins. For now, majority of my ETH is deposited into Dopex’s Weekly Covered Call Vaults while my stablecoins are in Dopex’s Weekly Put Vaults to earn yields. A smaller portion of ETH is being experimented in Opyn’s Zen Bull Vault.

Syfe Custom ETF Portfolio

With the macro outlook, I did not expect much. The no-look, DCA portfolio is also in negative returns which is expected. There’s really no much to say here, but my custom allocation remains the same which is split up into the following:

60% QQQ ETF (Nasdaq-100 Index)

25% CSPX ETF (S&P 500 Index)

10% VWRA ETF (Entire Stock Market Index)

5% ARKK ETF (Speculative Bet)

Best Trades/Investments of 2022

Despite the negative growth on my net worth this year, I wanted to highlight some realised wins to remind myself in the future that despite being a bear market, gains can still be made as long as you know where to look (and understand it).

Crypto Unicorns: 24x and 9x (on Floor Unicorns)

Mythic Unicorn Land: 9x and 5x (2 Land NFTs)

Rare Unicorn Land: 4x

RAIDER: 4x

RBW: 4X

Akutar: 5x

Compared to last year, I am not going to make any predictions for what will happen in 2023 – as that is simply impossible to predict and 2023 in my opinion will be even tougher for markets simply because every market participant is hungry for yields/returns and any opportunity present will be efficiently identified, making it extremely hard for retail to compete due to asymmetric information.

And as always to be included in a end of year reflection to mentally prepare myself for the next year, I bring a few paragraphs written in 2021 as a great guiding principle for investing:

General Thoughts

Timing the market is not my game; instead, when I invest in a project, I focus on adopting a business owner mindset. My philosophy is that if a company is of high quality and growing, I should consider investing even if it is overpriced. Attractive investments are extremely rare, so get in early and ride the wave, ignoring the noise and investing consistently.

On Market Crashes

This is the one thing that investors and layman alike fear the most. The market will always swing between being overvalued to undervalued, which at the extremes will lead to bull run or market crash, and it is all due to market sentiments of greed and fear in play.

Looking back on history, the stock market experienced a severe (40%) crash every 10-15 years or so on the average. All times, it has recovered and exceeded the previous high within a few years. The same goes for crypto as well, while there are currently only 3 distinct market cycles within crypto that we can refer to, each cycle the market cap trends higher as the asset class continues to mature.

Timing the market may work short-term but not long-term

Some may think a good profit can be made if we sell our investment when the market is overvalued and then buy back in when it crashes. I think this is very difficult to execute successfully. Miss one cycle and you may need to wait out many years or miss out completely because narratives are changing every single day.

Each major market correction can offer opportunity to greatly magnify our portfolio performance. Many fails to realise that a lower price, in fact, reduces and not increases the risk.

The importance of a war chest

Keeping a sizeable warchest is important. A war chest of 5% in cash will not have that much impact. But keeping too much cash (50%), will mean you are only enjoying half of the earning growth of your investment during the in-between years. I personally think a good ratio will be in the 10%-20%.

Lastly, we have to be mentally prepared. Just imagine that your portfolio is cut by 40-50%, what is the impact to you financially, do you still have other incomes to cover the expenses? I always ask myself that if my portfolio is reduced by half, will my life be any different and will I panic. Stress test our financials to such scenario will help to prepare our mindset when it happens.

Because it will happen, the only question is when. (Already happened multiple times this year if you are in crypto)

As 2022 comes to an end, I wish each and everyone all the best in your journey towards financial freedom, good health and peaceful family ties and of course, happy new year in advance! To those who read all the way till the end, I sincerely thank you for the bottom of my heart for the unwavering support thus far.

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For those who wish to learn more about Crypto

What is Bitcoin? Answers here

Do your due diligence on Bitcoin in my post here where I debunk some of the myths regarding Bitcoin.

What is Ethereum? Simple Guide Here

I did a bite-sized article on Ethereum for you to get a crash-course on what the buzz word is all about here.

What is Decentralised Finance (DeFi)?

Or do you want to learn more about DeFi in a simple to understand manner? Click here to learn more

How to Value Crypto Assets?

Learn more about how you can put a “fair value” on crypto such as Bitcoin, Ethereum and more here

Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.