The following are the key highlights and takeaways from our June 2022 Quarterly Crypto Markets Review letter to investors.
- LUNA, an algorithmic-driven pair that attempted to peg UST 1:1 with the US dollar, failed miserably impacting retail and institutional investors. We had no exposure to the LUNA/Terra/Anchor fiasco.
- The fallout from LUNA has us keeping a close eye on other stablecoins like USDT (“Tether”) and USDC (“Circle”) as neither are bankruptcy remote from a backing point of view.
- Furthermore, Silvergate Bank (SI-NYSE) and Signature Bank (SBNY-NASDAQ) are also on our mind for counterparty losses.
- Bitcoin has been through such periods before and appears to move in four year cycles related to the halving events where the supply of bitcoin created with each block is reduced by half.
- Bitcoin is perhaps best regarded as a technology with massive potential to address a fundamental human activity – value transfers – through network activity with extremely low costs outside of traditional channels.
- Bitcoin is and will remain highly volatile which reduces its use case as a store of value or a medium of exchange – both of which have faced a wall of anxiety by regulators and central bankers.
- As with any risky asset, the valuation of bitcoin is sensitive to rising rates and when the Fed’s hiking turns to cutting, we expect that bitcoin will rally accordingly.
- Staking of ETH2 is so far operating according to plan though with relatively low yields that are comparable to the yields available in Canadian bank or energy pipeline stocks.
- The primary issues that have prevented our involvement in staking are that the ETH2 is locked until the full merge of ETH into ETH2; that yield is paid out only when the merge happens and finally there are some issues around the custody of ETH2 that has given us pause.
- We did not invest in or with Celsius, BlockFi or any other yield farming platforms that we viewed as offering unsustainable and unsupportable yields.
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