Crypto Portfolio Update (June 2022)

Bearish sentiments have taken over. Liquidity is drying up quick.

I have re-adjusted my portfolio towards capital preservation and going mostly risk-off. We are pretty much at the mercy of macro and the Federal Reserve’s decisions in the coming months.

Recession is (Probably) Here

The global economy is more or less getting worse, and as liquidity becomes tighter, struggling businesses with fragile balance sheets will inevitably start to fail one after the other. After the sudden demise of LUNA/UST, we have already witnessed a wide range of similar events, beginning with Three Arrows Capital and continuing with the nefarious influence it had over a number of other lenders, including publicly traded firms like Voyager Digital. There will inevitably be moments when human emotions get in the way due to the barrage of negative news, bankruptcy proceedings, and scandals as defaults and insolvencies become more prevalent, while sinking corporations battle to find a foothold in their dire balance sheets and fight for survival.

All of them were manifestations of human nature rather than flaws in the underlying blockchain technology.

Now that a multi-billion dollar hedge fund like Three Arrows has collapsed, everyone should learn this crucial lesson: Even among experienced investors, let alone the average retail investor, risk management is appalling when it comes to leverage.

The moral of the story is to avoid leverage at all costs since, while it may temporarily bring you enormous money due to good fortune, it can also instantly ruin you and turn your life upside down.

The Importance of Decentralisation & Self-Custody

Actually, it’s not a bad thing when centralized lending organizations go bankrupt. Decentralization, and ultimately self-custody, are pushed forward with renewed vigor. These so-called “Fintech” businesses and Centralised DeFi (CeDeFi) platforms prey on unsuspecting retail players by portraying themselves as being as secure as a bank while engaging in irresponsible gambling on the backend.

It is a painful lesson for everyone to always take into account the real risk of the counterparty and custodian risk if anything bad were to happen. Give more respect to Murphy’s Law.

I have effectively removed all crypto assets away from centralised platforms, and will be avoiding them until proper regulations govern these bodies similar to how banks are regulated after the clown fest in 2008.

For those asking, “What about those funds on FTX/Gemini/Binance? Do we take that out as well? If so, where do we put it?”

There is an easy solution. The maximum level of security is to utilize a Cold Wallet (Ledger or Trezor are both suitable) and secure your Seed Phrase (12-word/24-word) at all costs. Alternatively, you can send it to your own Metamask wallet for self-custody (and avoid dealing with any smart contract). Please note that this is not financial advice, but self-custody is the only method to reduce the danger that your funds may be lost due to counterparty and custodian risk if you leave them on a centralized platform.

June 2022 Portfolio

As of 8 July 2022

Keeping It Simple

Compared to the portfolio update in May, I have reduced my weightings of alt-coins and increased my weighting of ETH and Stables. Pretty self-explanatory from the pie chart above.

I am mostly in DeFi Option Vaults (DOVs) like JonesDAO and Opyn right now with my ETH stack and another portion of stables and ETH in GLP. I also have spare ETH just sitting in my wallets, as I am not planning to let my entire stack sit in DeFi (it is not risk free!).

I also increased my stake in IMX as I somehow bought into the local bottom. There are lots of developments around Immutable as a project right now and I believe it’s a team that knows what they are doing, and they have a long runway ahead to survive in the current market. Do note this allocation is under my high-risk category, and I am actively looking at the changing macro situation and might take profit in the near future. I have sold all my liquid RBW position for ETH, and the remaining RBW tokens you see here are illiquid, and only unlocks some time next year. I consider it gone but so be it.

Currently, I am still down more than 50% from all-time highs. A part of me wish for the bullish sentiments to come back, but I am genuinely glad that I am able to accumulate ETH at a relatively discounted price now that valuations across all asset classes are deflating as liquidity tightens and almost every market participant is going risk-off and back to capital preservation mode.

The whole point of allocating towards DOVs like Jones and Opyn is to try and make use of the sideways market to churn out yields by collecting option premiums. I am also doing a small delta-neural position on certain pairs to milk out more yield while the bear plays itself out. It ain’t much, but its honest work.

GLP has also been performing relatively well, as I get to earn pretty decent yields paid out in ETH (10%+ APR) while I get around 50% exposure to BTC/ETH and 50% to Stablecoins. It is one of the most underrated innovations in DeFi right now, and GMX is the only one utilising such a unique oracle model for their exchange with excellent value accrual towards liquidity providers (GLP) and GMX stakers.

Dollar-Cost Averaging is King

I am not planning to time market bottoms, neither should you. It’s an impossible task and the best way to gain exposure to a potential market bottom is if you dollar-cost your way there.

I am personally buying spot ETH or minting GLP on a weekly basis, depending on price action, it might be one or both. Most of the time its ETH, but I accumulate more GLP if I get too lazy on timing the market.

Is this the end of crypto? I doubt so. But it will be for 90% of the trash projects out there with Ponzinomics and terrible token value accrual. The remaining 10% of projects will rise out of the current market stronger, and potentially yield great returns for long term holders. The key here is determining which are the 10% and how to avoid the 90%.

Since ETH is a long-term investment that I will never totally sell, I plan to buy as much cheap ETH as I can during the current down market.

Conclusion

This is going to be relatively short update. If you want to learn more about the projects mentioned above, the May update provides more details. I also recommend you checking this post out on one of the best books I have read in my short investing journey. Absorb his wisdom and you will be duly rewarded.

Also some quotes that I feel is useful for the current market condition right now:

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros

“The individual investor should act consistently as an investor and not as a speculator.”__ — Ben Graham

“Know what you own, and know why you own it.” — Peter Lynch

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch

“The most contrarian thing of all is not to oppose the crowd but to think for yourself.” — Peter Thiel

_“Rule #1: Don’t lose money. Rule #2: Don’t forget Rule #1.”__ – _Warren Buffett

“The four most dangerous words in investing are: ‘this time it’s different.’” – Sir John Templeton

Good luck anon. See you on the other side

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For those who are already into Crypto

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What is Ethereum? Simple Guide Here

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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.