We’re all feeling it. Groggy, eyes blurry, feels like you haven’t slept in days because you haven’t and your eye is twitching from checking Coingecko so often. Whether you’re in crypto, capital markets or work at literally any company in America, this week’s market affected you.
But honestly dude *rubs eyes* I don’t even remember what happened last night…
The Pre-Game
Song playing: Old Town Road - Lil Nas 0x
There’s nothing like a good house party to get the night going, especially after a long work week. December 14, 2018 and ETH is bottoming at $84 after a year of down only; next stop? The moon. Little did we know…
Luckily stonks like SPX had also bottomed that week, and thus began the pre-game party that rode the SPX up nearly 40% until March 2020, the pandemic. The Saudi Prince hacking Jeff Bezos phone was a good sign the party was getting stated.
The Party
Song playing: (T)WAP - Cardi B
Russia and Saudi Arabia started an oil price war in February 2020 and then covid hit. March 2020 was like arriving to a house party early. It’s really shitty until you figure out the scene - where’s the bathroom, where’s the ice, who has the drugs - except everyone wants the drugs (vaccines) and dealer are charging exorbitant prices. And it’s a masquerade.
Only 6 months later Bitcoin and SPX recovered and reached all time highs. Toilet paper was more in demand than the dollar, everyone was shaving their head or making sourdough. Things started to get crazy bro, remember the first DeFi Summer? Compound had just revolutionized DeFi with community governance and frog nation was on the rise. 1 Yearn = 1 BTC was proof of concept that an ETH-based currency could be store of value. And I’ll never forget walking over to play beer pong when I saw Novogratz shilling SUSHI on CNBC. The entire nutritional food pyramid had been tokenized and a snapshot of Lebron taking a shot sold for $200,000.
Rekt.news was founded and flash loans were picking up steam. Web3 was also finally being realized as acts like Twitter banning Trump in January 2021 proved the need for censorship resistance infrastructure. The metaverse was a dream being chased and if you didn’t have an NFT you couldn’t sit with us.
In Q1 2021 we were so high on NFTs, we had convinced ourselves that SHIB at $8 billion valuation was mainstream adoption. SPX continued to soar thanks to money printer go brrr and interest rates were at their lowest ever. Then Coinbase IPO was the local top and we got bored, so so bored. SO bored that Bored Apes Yacht Club was invented in April 2021, as solace for the pandemic soul. It only took 5 months for Steph Curry to join the ape party. Next thing we knew, the rather orderly stablecoin experiment hit 5th gear with new stables like the uncollateralized and unpegged (3,3).
In October 2021, SHIB market cap was $41 billion, about the same market cap as Etsy, and Tesla would soon start accepting Dogecoin. In retrospect, bankers analyzing Elon’s tweeting trends to predict Doge movements is about as ridiculous as taking the 10th shot of tequila before you go to the bar. By the end of 2021, over $17 billion in NFTs were traded, the GDP of Botswana. We should’ve known the party was almost over when dad arrived, Meta. At least we had the friends and anons we made along the way, it was one of the best parties we’d ever been to.
The Hangover
Song playing: The Morning - The Weeknd
Everything that seemed sustainable during the pandemic is proving not to be. It seems crazy how much we believed, some call it mass psychosis, but maybe if everyone is crazy then nobody is crazy. Remember Clubhouse? This hangover will check our hubris.
In 2021 companies like Peloton had their cake, convincing us to buy a bike for $1,500 and pay an additional $50 per month to use it, instead of us buying a $100 classic bicycle. Peloton closed this week with $500 million in losses. Today SoftBank’s vision fund posted a $20 billion loss, only a year after it was the most profitable Japanese company. Meanwhile you can watch the play by play of $4.6 billion of their wreckage on the hit show WeWorked on Hulu! Even our dot-com darling Apple is down 22% this year.
The dollar, oil prices and inflation are at all time high, a monetary trilemma of sorts. While war is the Russia-Ukraine war is the prevailing crisis, The sanctions that aim to punish the offenders are punishing other global vendors.
While it feels like we’re close to the bottom (and maybe we are!) my gut tells me the worse is yet to come. We must still be drunk because a Warhol just sold for $195 million, the most ever paid for any American artist’s work. Professionals like Julian Emanuel of Evercore isi say that we won’t see proper capitulation until the VIX is above 40 or the puts to calls ratio is above 135 (more people betting it’ll go more down than it’ll go up) and Arthur Hayes bought crash June 2022 puts. I heard recently that SPX below 4k would be a free fall, we touched sub 3.9k this week. But how are credit markets? Have we felt enough pain?
The Fed waited until over 8% inflation to start quantitative tightening. On the plus side, medical care and services are only inflated 3.5%. 50 bps rate hikes are confirmed for the next several meetings in the US, meanwhile China refuses to raise rates and Europe is moving slow - is there consensus? Should there be? India is considering shutting its exports of wheat to protect domestic supply, not only is Shanghai locked down but Beijing is close to a quarantine and Europe is literally meters away from war.
Ongoing supply chains, oil prices spiking and foreign inflation isn’t helping the case. Argentina has 55% inflation and 49% interest rate. Take that in. Even the companies you thought had their shit together 6 months ago are facing frenzy. Twitter and Meta have announced hiring freezes.
Crypto’s high beta exacerbated the impact on the web3 community. While many say The Unpegging of UST was obvious, and there certainly was a lot of vocal criticism, it’s easy to see why thousands of investors would support the idea when most of our nation states rely/relied on similar mechanisms. It’s hypocritical for Yellen to disparage UST in congress when the Federal Reserve has played the same games with gold and following Bretton Woods. Any attempts to hinder token innovation that strives away from that model is an attack on monetary rights.
This is one of the sad truths, had there been enough of a bailout like 2008 perhaps Terra/UST would have survived, but they took on too much debt while not enough people cared. I wonder what would’ve happened had more of the Ethereum or Cosmos community been involved? What if it was similar to EIP999, would UST have been bailed out? Was the issue bad debt or just bad marketing? Some called it an attack, I would call it the invisible hand. But just like you always invite back the guy who drank too much, people can always return to Rome.
Experts like Zoltan Pozsar feel these events are larger than simple inflation, we’re experiencing a global repricing event and what he calls Bretton Woods III. What will be the new global reserve currency? Which commodities will become the backbone of our future economies?
Our hearts say to keep partying - the web3 revolution and new monetary system are the new frontier - but our bodies say we need to rest.
The Recovery
Song playing: Don’t Stop Me Now - Queen
What should make us feel better is we’re not alone. Misery likes company and the company is filled with suits, nerds, retail and funds.
Hydrate
You’re likely dehydrated, physically and financially. However, if we’re heading to a rumored recession and the Fed follows through with its QT starting this month, the drought will continue.
A recession is defined as two consecutive quarters of negative GDP growth. While Q1 2022 saw 6.5% US GDP growth - down 1.4% from Q4, it’s not negative growth. So if a recession is coming, it’s likely not to be in 2022. Plan for at least 12 months of runway if not 36 months.
If you’re a start up, learn from comrades Consensys, Status and WeWork and prioritize long-term sustainability. If you’re a regulator, listen to the voices of the innovators instead of the capital allocators. If you’re an institution, take the lessons from the gamestop short squeeze and support the nerds and meme artists building the world’s new technologies.
Vitamins & Electrolytes
A hangover always gets better with some gatorade. Treat yourself to standard self-care practices - take an exercise class, meditate, read a book, pay with fiat. Lastly, treat yourself to that ginger shot and green smoothie, it’s cheaper than making it yourself!
The crypto market is 24/7 behind devices that heat up our gonads and hypnotize our eyeballs that it’s easy to forget the real world. It might be time to take a break from the metaverse. We didn’t deserve $150,000 SOCKS yet. Do you have clean white socks for the summer?
Rest
Burnout is real and many have been building from the 2018 bear market through 2022. Take this time to rest, recharge, ideate. We used to say bear markets were good for building as cope, but now we know it’s true. Ethereum alone tripled its market cap from peak to peak (2017-2022). If that’s not proof of concept that build, play, rest, repeat works, I don’t know what is.
Rebuild
Good jobs reports mean a lot of people want / need to work, this is great for crypto because most of those web2 and fiat contributors are probably bored and in need of a new revolutionary mission to get behind.
But we can’t just hire crypto experts, we have to create the pipeline of 0 to hireable to make sure we’re growing the pie of talent. The plus side of an economic slowdown is more time. Let’s take the time to train new contributors to go 0 to hireable so we poach less and recruit more.
Another plus side is most funds have finished raising. Whether it’s a16z, Variant Fund, Sequoia Archetype or others, most funds spent the last 12 months raising so they could support more founders. So while the economy slows down, expect venture capital to stay sharp. The biggest bets are made in a bear market.
This is not financial advice.