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ResearchConviction in fragile times

Conviction in fragile times

May 31, 2022

Gritt here, I hope everyone had a nice long weekend.

Two weeks ago, the largest, single-asset wealth destruction event in crypto history occurred. I’m here today to provide an update on the current crypto landscape, and linked here you can find my post-mortem on Terra (LUNA) if you want to dive deeper.

A tenuous time

The collapse of Terra’s LUNA and the associated stablecoin UST was crypto’s Lehman Brothers moment, and the ripple effects have rocked the ecosystem.

Rising rates, geopolitical strife, and slowing demand have crushed risk-on assets, crypto included. Bitcoin and ether are down ~60% from all-time-highs while altcoins are down ~80-90%; it’s been a steep reset in valuation alongside equities with similar growth profiles.

During the week of UST’s collapse, sentiment felt remarkably similar to Bitconnect’s crash in 2018; the crash led to panic selling, bears dancing on crypto’s supposed grave, and stymied investor appetite for 18 months.

Though the macro-environment is worse today than it was four years ago, we feel hopeful, not hopeless. We believe crypto is a far more resilient asset class now than it was in 2018, and that there are some silver linings to be seen in this cloudy crypto moment.

Conviction through the fragility

The pace of institutional capital flooding into the space has been remarkable; we’ve seen more than $25B of venture capital invested in crypto companies year-to-date. We’ve also seen dozens of real-world use applications driving both efficiency and transparency launch and scale. The world of crypto is growing, and fundamentals are in an exponential uptrend.

I’ve been particularly impressed with Ethereum’s structural endurance throughout this correction compared to cycles in the past. Levels of conviction in the long-term prospects for this blockchain continue to soar as developers launch projects at a record rate.

Calls for regulation have echoed around the globe, and I’ve been encouraged by the stances that most regulators are taking. Most countries have embraced that crypto will change the way the world operates and now have focused their attention on attempting to ensure that the marketplace remains fair and secure. It’ll be uneasy, as government pushes often are, but for crypto to flourish we need regulation, and I welcome this chatter.

The path forward

The last downcycle introduced DeFi and NFTs to the world, and we’ll see an incredible amount of innovation coming out of this period.

After our latest portfolio update, we believe we’re positioned relatively defensively. Given current macro conditions and sour sentiment, being overweight bitcoin, ether, and cash feels prudent. If prices go lower, we’ll consider being buyers with our cash reserve to average down our entry price.

Seeing red is never fun, but those with the conviction to stay the course may set themselves up for long-term success. Fundamentals are in place, conviction is strong, but patience will be key. We’re confident and ready for whatever comes our way next.

We’ll continue to provide updates, and please let us know if you have any questions.

Best,

Gritt

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