Price Down, Noise Up.
If you’ve been following crypto Twitter or reading news, you heard about the debacle around Daniele Sesta, the founder of Abracadabra and Wonderland, and his partner known as 0xsifu.
The panic was contagious to the point that it spread to Terra’s stablecoin, UST, which caused it to depeg from $1 once again since May 2021, albeit for a brief period.
On top of that, you most likely heard that the SEC rejected another BTC ETF, and Biden wants to regulate crypto.
You may have forgotten or are not yet experienced enough to remember that on bearish trends, the noise gets amplified and drowns the constructive signal. So, this email is an attempt to bring the signal to you.
First, Wonderland. Most of the tweets I’ve seen over the past 24 hours focused on one thing: ethics. I don’t want to get too much into ethics because it’s personal business. All I want is that you know what’s in front of you. That way, you will be able to make the most informed decisions.
So, ethics aside, Wonderland wasn’t damaged to the point where it cannot recover. However, the execution risk increased substantially. Plus, the ongoing panic caused even large players like Alameda to get rid of the assets associated with Daniele. Such a stigma will take time to wash off.
Wonderland’s treasury is still at over $200 million. That’s a substantial sum of money, even though it may seem otherwise. Consider how many great projects exist under the $200 million threshold.
Wonderland funds.
While treasury management in Wonderland is erratic and mostly dependent on Daniele’s vision, it doesn’t mean that he will drive the project to zero. At least, that wasn’t manifested in his previous actions. Quite the opposite, he restored Popsicle for some time, and we used the opportunity to close it at high multiples.
And that’s, in my opinion, the most important signal. You can entertain yourself by reading stories, but only one thing matters: how did it influence your account. In the case of Daniele, your account should not be doing badly because of him or 0xsifu.
In my opinion, while Wonderland is in deep trouble, it can still come out of the predicament merely because it has the funds to operate. The FUD will not go away fast, but it will fade, and Daniele’s further actions may make a repeat of Popsicle comeback, but this time for Wonderland.
However, that doesn’t mean $TIME is a good investment. It never was. The most vocal people on social media, who create the most noise, are those who got greedy on a high APY rebase token. Keep in mind that most of the decline in $TIME was due to people being overleveraged.
Now, onto UST. In our report on Terra, we mentioned that being an algorithmic stablecoin, it’s at risk of losing its $1 peg. In fact, a depeg already happened in May 2021. However, there wasn’t so much leverage in the system at that time.
Since Abracadabra introduced Degenbox, a product that can leverage UST loans up to 10x, this strategy has been extremely popular. It’s not available all the time. The vault opens only every so often and gets filled almost immediately. And for a good reason: who doesn’t want to have a low-risk 10x increase of their funds.
The issue here is that since UST is algorithmic, it can lose its peg under extreme conditions. The panic around Daniele and his projects spread over to UST because it is a part of Degenbox. People started to unwind their loans, causing the price to depeg briefly on the Curve pool. While that didn’t have devastating effects, I’m sure it got many people nervous.
UST has a straightforward mechanism to restore the peg. Moreover, the depeg was local to Curve, and Chainlink didn’t register it. So, technically UST didn’t suffer too much, but the noise was high to the point where a person reporting the depeg had to delete his tweets.
Now, for the macro part. I’m already deaf to BTC ETF rejections. We’ve been hearing about them at least since 2017 with no breakthroughs. The signal here is that it doesn’t play that big role anymore. Institutions are more interested in DeFi than BTC ETF.
For the regulatory scrutiny, I remember the good old 2018-2019 days where we’d had news about regulatory crackdowns almost weekly.
Founders going missing (or claiming themselves dead), teams closing projects, all this is possible when the market is down trending. And the harder the price falls, the closer we are to the crypto Goblin-town. It’s the opposite spectrum of bullish euphoria.
My only wish is that you ignore the noise and keep your eyes peeled for the signal. You wouldn’t believe how much we heard about why Ethereum was a dead project when ETH was $80. Now it’s $2,400.
SIMETRI Portfolio – Still In Profit
As promised at the beginning of the year, we’re reworking the portfolio ROI calculator so that it reflects profits and your entry points. I have some preliminary results for you.
As the market is depressed, I decided to make it even harder for our ROI to shine and excluded Thorchain from calculations. Then, I accounted for all the profits that we had so far.
If you consider a $40,000 total investment (40 active picks), you would have realized a profit of around $57,500 and the currently unrealized portfolio value of around $27,000. This amounts to a net profit of 112% on this depressed market in a realistic scenario where you followed all our take-profit recommendations.
For the optimistic scenario (not taking money off the table at all), you’d have a 144% profit.
If you’re interested in when our portfolio performed best, here’s a chart. The line on the chart reflects take profits.
