2022 WRAP UP
BACKED BY BITCOIN BLOG
DECEMBER 31, 2022
FROM THE
DEPTHS OF THE CRYPTO WINTER
2022 has been a tumultuous year. It seems like we have had
negative news after negative news resulting in red candle after red candle in
the price of bitcoin. This year has resulted in an epic drop from $69,000 BTC
to the lows for the year of $15,500. While this seems like an insane drop that
the market cannot come back from, the crypto industry has endured many scandals,
hacks, and aggressive corrections in its short history. In past cycles the
price of Bitcoin has dropped around 85% from the euphoric highs after rising
thousands of percent from the lows of the previous cycle. We currently end the
year around 79% down from the high as we proceed into 2023. I’ll include some
charts at the end of this blog to get a good macro look at what has transpired
this year and what has transpired in previous cycles.
Getting to some of the crises that happened, and the lessons learned from those. I think these are things we need to take with us into the future as we create the infrastructure for a new form of money. To start the year macro factors caused sell offs of all risk assets including stocks and cryptocurrencies. It seemed harder and for Bitcoin to continue to hold at key support levels. The Terra Luna collapse caused Bitcoin to fall under $30,000 and the later FTX scandal caused additional ripples throughout the industry.
As we
unpack what happened we have some key lessons to understand. These lessons are
foundational to cryptocurrency, and they are incredibly easy to forget when you
enter the euphoric phase of The Wall Street Cheat Sheet. It is imperative that
we understand and respect the importance of self-custody. We also got a chance
to watch decentralized finance operate to perfection. Liquidations happened
with the falling prices however, the liquidations happened within predetermined
smart contract parameters. This was a risk that all users clearly understood
The Terra Luna Collapse
Terra Luna saw the almost overnight erosion of 40B in wealth. This happened due to a de-peg of the stable coin that was associated with the Luna coin which resulted in a large amount of FUD (fear, uncertainty, doubt) surrounding the Luna coin. There are many explanations on why and how this happened. I choose to focus on how this happened and the lessons we should learn from this. Luna was giving out 20% APR paid out in stable coins. In my opinion, this was unsustainable and the reason why I stayed away from Luna. However, many of counterparts were jumping in. I personally saw a colleague of mine lose millions in this ecosystem. I kept my cash on the sideline and continued to dollar cost average into altcoins with use case.
Terra Luna showed all the
signs of something that was unsustainable. The red flags were how quickly the
market cap grew and understanding we were in a bull market. There was also the
issue of 20% APR when other platforms were giving you 8%-10%. Also, we have to
learn to trust our gut on things. It’s better not to make money than to lose
money. This was shown in the catastrophic events of Terra Luna. However, the
year wasn’t over.
The FTX Scandal
This is the one that I thought was obvious. I saw the rise of Alameda Research. I saw all the memes surrounding Sam Bankman-Fried and I saw all the money, big partnerships, and regulatory relationships as well. I was skeptical because I knew for a fact there were players that had bigger exchanges and a longer running reputation within the crypto industry. I saw all the YouTube partnerships FTX had going on. I saw Miami Heat arena and the World Series & Superbowl ad campaigns. I saw it all for exactly what it turned out to be. I saw it as something to be avoided and again something unsustainable. Crypto is about the long game and it is to be played in 4-year cycles. Crypto is also a game of self-custody and to me it seems like large investors want someone else to be responsible for their money. Crypto is about being responsible for yourself and holding your own keys. You are the only one who should be able to access your money.
We should have learned during terra luna how important
security and self-custody are. People who have been in crypto for any number of
years have seen hacks of exchanges. We have seen malicious developers create
tokens which resulted in rug pulls. This is nothing new. This is happening on
such a large scale because institutional players have not studied the history
to understand what has been built and what true ownership is. Cryptocurrency is
for the purpose of empowering us to be our own bank, not create new banks that
exist on a blockchain. This idea of decentralization is what The New World
Bankers are built on. This belief system is what will make us as free as we
want to be.
In Review
We talked about the two largest collapses of the year within the blockchain industry. We also talked about the mindset that it will take to avoid these types of losses in the future and to be smarter investors as we navigate these markets. We talked about how to spot a sustainable model and we talked a lot about self-custody. 2022 proved to be a lesson in simplicity. Our main rules should be based on self-custody principles. The majority of our wealth should either be in cold storage, locked in a smart contract because it’s being borrowed against, held in a wallet as DAI or USDC or invested in an alt-coin with utility. Exchanges should be used to go from fiat and into crypto.
They should not be used for
storage. I do store a small amount to be able to use my crypto debit cards, but
we need to become much more paranoid about the security of our money. This year
taught us that we cannot trust others to be responsible for our money. We either
exercise financial sovereignty or pay the ultimate price. Many people
experienced the destruction of their wealth this year, it’s important that we
recognize this as part of the cycle and learn the important lessons that the
market is teaching us.
Technical Analysis Section
In this section I wanted to highlight a few charts that I think is relevant to how we need to see 2022 and how we need to understand this cyclical market. The Wall Street Cheat Sheet will also outline the psychology of the market and understanding where we are relative to this sheet should influence our decisions. Not the macro news, not price, not the word of celebrities and not popularity. These charts give us the hard data that we need to be able to make calculated decisions in this market. In case you can’t tell, we are in between anger and depression according to the Wall Street Cheat Sheet. The FTX scandal was complete clear as day capitulation. We can probably look forward to a long, boring crypto winter. I plan to accumulate as much as I possibly can at these levels and take the lessons of 2022 into the future.
To Your Success,
Donny Diamond Hands
