Crypto Portfolio Update (January 2022)

2022 began with the markets reaching all-time highs due to the continuance of the Santa Rally and the emergence of new storylines such as FOAN (Fantom, ONE, Atom, Near) and even the Simp DAOs phenomenon, which prompted markets to get frothy right from the start.

Of course, the unsustainable rally had to end, and sentiments shifted shortly after the Federal Reserve signaled their intention to begin tapering, rate hikes and begin Quantitative Tightening, which in short means higher interest rates and less money printing – typically indicating that inflation is high and central banks are taking measures to reduce it.

The news rattled the markets, and many began to de-risk into cash, which meant that risk-on assets like stocks and crypto were the first to feel the impacts, and we witnessed Bitcoin, Ethereum, and the rest of crypto went into free fall as leveraged traders liquidated while panic sellers sold irrationally.

Changing Macro Landscape

Since the Fed began its accommodating strategy of QE to prop up the markets and promote its economic rebound in 2008, the markets have been on a “Up Only” mindset. Interest rates have been at an all-time low for decades, and risky assets such as equities (particularly growth companies) and cryptocurrency have profited from this macro development.

In 2022, we begin to feel the consequences of all these years of money printing, with inflation reaching up to 7%. The entire macro dynamics is extremely complicated, and I don’t want to get into the details, but long story short: Inflation is out of control, and central banks are considering raising interest rates and potentially dealing with their ballooning balance sheets, which the markets do not like.

My 2022 Outlook

With the macro landscape out of the way, I am not investing for a 1-3 year horizon, so I’m zooming out to the big picture and I just can’t see why crypto will remain at where it is 5-10 years from now.

NFTs are turning mainstream as social media outlets like Instagram, Twitter, Facebook are integrating with NFTs and mainstream brands like Meta (Facebook), Apple, Microsoft, Nike, Adidas, Prada, Gucci and many many more exploring the metaverse and launching their own NFT products. Top signal? Adoption? Bubble bursting soon? That opinion depends on how much you know the space and it’s up to you to decide.

Layer-1/2s, in my opinion, will continue to grab market share away from Ethereum in 2022 as Ethereum attempts to fix its congestion issues and upgrade to Ethereum 2.0. We’ve all seen what Layer-1s like Solana, Avalanche, Terra, and Fantom did in 2021, and that outperformance is certain to continue in 2022.

Alternate Layer-1 projects such as Fantom and Luna may continue to outperform in my opinion, while Layer-2 projects such as Metis and Roninside-chain may help to scale Ethereum even further, gaining significant market share and becoming the “Steam” of crypto gaming, respectively.

Cross-Chain developments will also likely become a narrative some time in 2022 as the Cosmos ecosystem has many exciting developments incoming like EVMOS (EVM Compatible Cosmos Zone), Gravity Bridge (Ethereum to Cosmos), shared security and liquid staking that will boost liquidity and porting of major EVM projects onto Cosmos. Just imagine EVM + IBC.

DeFi derivatives are also in the early stages of adoption, with Dopex and GMX serving as the primary decentralized options market and hybrid perpetual/spot market, respectively. The derivatives market’s total addressable market (TAM) (even in TradFi) is massive. To entice investment banks and other large players into the crypto space, there must be an institutional grade DeFi structured product for these TradFi veterans to port over to crypto.

In terms of NFTs and metaverses, Crypto Unicorns and Emberswordreleasing soon might be the ones that will spark the gaming bull run, but who knows, maybe the macro landscape continues to weigh on the markets and we see 2022 being a risk-off year as interest rates rises and whales pack up their bags.

Overall, I believe that 2022 will be a year in which crypto continues to rise despite the macro environment, although this remains to be seen as we have yet to see any genuine rate hikes from the Fed, nor have they begun quantitative tightening.

January 2022 Portfolio

As of 30 Jan 2022

Based on my 2022 outlook and some rebalancing I did, this is how my portfolio currently looks like at the end of January. I might be looking to concentrate my portfolio further and definitely looking for an entry again into ATOM (Cosmos) and the rest of the Cosmos ecosystem to align with my 2022 outlook. (I previously sold off ATOM during the mania phase at $36/ATOM)

In terms of performance, I am down 22% from my all-time highs (in early Jan) but still net positive as long as Bitcoin doesn’t nuke below $20,000 USD. I consider my allocation to be rather conservative as I am mostly in top 100 projects and my focus right now is on minimising downside risks instead of maximising upsides.

If market sentiment begins to improve, I may consolidate and concentrate my portfolio even more to position for the upside. During the initial dips, I cut many losses in riskier tokens like TEMPLE and GF and instead rotated into stronger fundamental tokens.

Axie Scholarship Payout Dropped Significantly

With the worsening macroeconomic outlook, hyperinflating SLP supply, and scholars losing interest due to the shrinking payout (in dollar terms), my passive income strategy via Axie Scholarship has taken a hit this month. Axie prices on the market are at an all-time low, and SLP has also dropped to 1 cent per SLP. However, since August of last year, the scholarship has averaged out to 5100 SGD per month in payout.

Many of my scholars had left, so I had to consolidate the Axies into stronger scholars, giving them 10 Axies with 40 energy to spend each day. This is also a good reminder for myself to not put too much emphasis on Axie, despite being bullish on it long term, because it is largely dependent on whether the Sky Mavis team can execute on their new roadmap, solve the SLP hyperinflation problem, and ensure that the game is fun first and the earning aspect comes second.

The short to medium term outlook for Axie Infinity is bearish, but it all depends on the team’s ability to pull it off. By the way, I’m not going to sell my Axies anytime soon; I’m just finding it difficult to break out of the negative flywheel the game is currently in because scholars see the game as a chore rather than a game for fun and enjoyment.

NFT in a booming bull market

NFTs, on the other hand, are on the rise and seeing greater volume than ever before. Some of the projects I am holding are doing very well. The Genesis Kaiju Kingz floor has increased to 6 ETH, the Crypto Unicornsfloor has increased to 2 ETH, and Crypto Unicorn Mythic Land plots are also nearing the 2 ETH floor at the point of writing.

That is nearly 20 times the mint price, and several other NFT projects are nearing or breaking new all-time highs. The unique relationship between NFTs and Ethereum prices is fascinating to observe; as falling ETH prices meant cheaper NFTs in USD terms, where falling ETH prices benefit the NFT market.

This suggests that it is unlikely to see another multi-year bear market like the one we saw in 2017/18. Back then, the market structure was completely different, with few innovations and projects that were merely Bitcoin/Ethereum clones (forks).

Today’s crypto market is dynamic, with sectors ranging from Layer-1s/2s to DeFi to NFTs to Derivatives to Gaming and many more. We may see bearish sentiments in some sectors but bullish sentiments in others, as we are witnessing in the NFT markets right now.

What’s Next?

The next Fed meeting is in March, and it could be the first hammer that signals a shift in central banks’ stance toward containing inflation and winding down their accommodative stance toward the markets since 2008. The markets will most likely be in a state of uncertainty and doubt until the next meeting, so we can expect a sideways market in the short term.

During this time, my goal will be to accumulate my strong convictions and further concentrate my portfolio. When the market is choppy, it is the best time to accumulate, and when market participants are fearful, it is the best time to find pockets of value.

Key Projects on my Watchlist:

1. Cosmos (ATOM)
2. Metis (METIS)
3. Ronin (RON)
4. Osmosis (OSMO)
5. Immutable X (IMX)
6. Secret Network (SCRT)
7. Convex (CVX)
8. Dopex (DPX)
9. Pocket Network (POKT)
10. Celestia (Token Not Out Yet)

Which projects are you looking at? Let me know in the Investing Beanstock DAO telegram chat and we can discuss this further!

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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.