Performance and Time.
The macro is gloomy as the Fed changes the tone from easing to tightening. Large retailers miss earnings or project losses. People lose jobs. Who’s even thinking about crypto?
I’ve never experienced a recession in my conscious life. When The Great Recession happened, I lived far from the U.S. and didn’t see the aftermath. Still, when I got into crypto, I quickly understood that Bitcoin would likely perform poorly during recessions, even if it’s a recession triggered by a reaction to rising inflation.
It never made sense that people who live paycheck to paycheck would start hoarding $BTC during tough economic times. In my opinion, their minds fixate on other, more prosaic things like food and bills.
Thus, it doesn’t surprise me that Bitcoin is reacting badly to the Fed’s policy. It’s in line with the stock market because it’s a speculative asset. And when interest rates are rising, and the river of cheap money dries up, speculative assets decline.
Does it mean crypto is dead, though? Let me bring up another cliche, which contrary to “inflation hedge,” makes sense. So far, crypto has “died” hundreds of times.
Red dots mark “crypto is dead” articles over time. Source.
Crypto is an asset class that was able to rise to a level where governments have to pay attention, companies officially put billions of dollars worth of it on their balance sheets, and institutions are so involved that users start to make conspiracy theories. If it didn’t fail in 2013 and 2017 when it was way smaller, why would it die now?
Going into the market during the bearish period gave me a thick skin and PTSD. I believe those who joined us amid the bull or during the 2022 decline don’t have this yet. If you’re nervous about your holdings right now, you will have PTSD on the next bull run. It’s good, and it will protect you from doing irresponsible things when the market is exuberant.
Now to the “thick skin” part. Crypto is still a relatively small asset class with very high volatility compared to stocks. On top of that, assets are still highly correlated, especially when the market is down.
Take a look at the charts below. The first chart shows the correlation between several leading blockchains’ tokens over one year. The second shows the same but on a one-month timeframe.
When the market grows, correlations get weaker because some projects outpace the broader market. However, when conditions deteriorate, they move in the same direction at a similar pace.
Should you have preferred some other source of information instead of SIMETRI, you still wouldn’t be able to escape this because diversification on a downtrend doesn’t work well in crypto yet. When the market is in a poor state, liquidity flows from altcoins to $BTC, but it also declines.
If you can’t time the market and diversify the risk on the way down, you stop thinking about it over time and grow a thick skin. You will need it to build a portfolio before the market reverses.
Why? Remember that correlation chart. Diversification makes sense when the market is doing well because some projects outperform others. Many say that our only case like this is $RUNE, but $RUNE is an outlier. We had some good ones that made 2-5x on average.
Many of the projects that are still in the green were picked during the previous bear market. That’s why it’s important to build a base now. Closing losing positions at this point is irrational. The loss is already quite high, so not touching open positions makes more sense if it’s not emergency funds. And it shouldn’t be emergency funds.
Picks are long-term. The approach to building a Portfolio is not to go in and out of the market trying to escape volatility. It’s embracing volatility and building a base of sound projects that will be well-positioned during the market’s growth.
Not all of these projects will survive the bear market, but that’s also a part of the design. That’s how funds function too. Some bets don’t work out, but those that do make it worth it. An average VC is ready for 8/10 projects to die. Our situation isn’t that bad.
Look at the chart below. Here our portfolio moves faster than $BTC and alts. That was on February 5, 2021. If you read that Digest, you will see that my PTSD showed when I was waiting for correction as the bull run was starting. The point is that if you want to have a chance of seeing a similar chart, you have to survive on the market.
The most frustrating outcome would be not using the depressing times when nobody cares about crypto to prepare for the times when everybody will talk about it. And this time will come like it always does.
SIMETRI Portfolio: Expected Outcome
When $BTC struggles around $30,000, there’s little optimism for altcoins. Therefore, it doesn’t come as a surprise that the portfolio is mostly in the red. Another move down in $BTC will lead to more severe sell-offs because liquidity now flows largely to $BTC and $ETH.
