“Blood in the streets” runs thick in the crypto sector … exactly how bad 2022 was for investors … when Luke Lango will become a buyer … the latest Fed-speak
Crypto is dead……which means it’s about time to take a closer look at it.Let’s do a quick 2022 review to put the destruction into perspective.As we approached 2022, the market cap of the entire crypto sector was nearly $3 trillion (back in November 2021).After the 2022 bear, that market cap crashed to less than $800 billion.The two biggest cryptos by market cap, bitcoin and Ethereum, lost 65% and 67%, respectively (not as bad as their total top-to-bottom losses). And the contagion rippled throughout the entire sector.Take bitcoin mining companies…Looking at the five largest public bitcoin miners (measured by bitcoin hashrate), the company with the best return was CleanSpark…which lost 79%.Then, we have the token crashes.Both Luna and FTT saw their values basically go to $0 as the projects and businesses associated with them collapsed.And, then there are the debacles involving Three Arrows Capital, Celsius, Blockfi, and of course, FTX and Sam Bankman-Fried (SBF). The collateral damage kneecapped even the most promising altcoins.Take Solana, which had been hailed as the “Ethereum Killer.” Well, SBF was a big investor in Solana through his failed hedge fund Alameda Research. So, when Alameda went down, so too did Solana.The Ethereum Killer was at one point the fifth largest crypto in the world, with its price hitting nearly $260.At the end of December, it had crashed to about $8.29. Let’s call that a 97% wipeout.But Solana was happy to share the pain.On the year, FTM dropped 87%… SUSHI, CVX, and KDA all lost 89%… AMP investors saw a 90% loss… GALA came in at 91%… and the GLMR coin lost 96%.If there was ever a posterchild sector for Nathan Rothschild’s infamous “buy when there is blood in the streets,” it is crypto.On that note, let’s turn to why it might finally be time to look at the sector again.
Is the bottom in for crypto?
For that answer, let’s turn to our crypto expert Luke Lango of Crypto Investor Network.From his Saturday update:
We do believe the bottom is in for cryptos in this cycle.Bitcoin usually drops 80% over 50 to 60 months during crypto winters, and it bottoms around 12 months before a halving and when money supply growth turns up. We’re getting all of those “bottoming” dynamics right now. Bitcoin is roughly 80% off its highs. We’re 58 months into this downturn. We’re about 15 months before the next halving. And money supply growth has nowhere to go but up later this year, considering M2 money supply growth is at an all-time low of 0.01% right now.
To make sure we’re all on the same page, the halving refers to an event specific to bitcoin. Bitcoin miners (computer whizzes who solve complex computer puzzles to release new bitcoins) are rewarded with an amount of bitcoin that’s already baked into the system.Roughly every four years or so the reward for releasing new bitcoins is cut in half which, historically, has been a huge tailwind for bitcoin’s price. The next bitcoin halving is expected to happen around March of 2024.To be clear, Luke is not diving into the sector yet.Back to his update:
We are still waiting for an official pause on Fed rate hikes and for Bitcoin to break above $20,000 before we add new cryptos to our portfolio.Those two events would significantly de-risk the bull thesis and would make us comfortable with buying cryptos aggressively.
In the meantime, Luke and his team are researching the specific corners of the market that have the most potential
Jumping out at them are dApps, which they’re confident will lead the next boom cycle.For readers less familiar, dApps are “decentralized applications.” This means that they run on a blockchain of computers, rather than a single central computer.Take Uber. That’s a centralized application. All the details of the ridesharing funnel through Uber’s centralized computer network. So, Uber has complete control over the app and the overall experience.A dApp version of Uber would provide the same function – ridesharing between a driver and a passenger – but the mechanics of the transaction would happen independent of a central authority, thanks to the vast network of computers used.Back to Luke:
We like to view dApps as “applied blockchain” projects. They will be tangible and will display the real-world value of cryptos.We think the best-in-class dApps will be the biggest winners in the 2023/24 crypto boom cycle. Therefore, our research these days is heavily focused on finding the best dApp projects with the biggest long-term upside potential. And soon enough, once the coast is clear, we will issue Buy Alerts on these best-in-class projects.
If you’re curious and want to read up on specific dApps, some popular ones today include Uniswap, Pancake Swap, Aave, and Upland.And to join Luke in Crypto Investor Network so that you can be a part of the dApps his team eventually recommends, click here.Now, a moment ago, we quoted Luke writing that he was waiting for an official “Fed Pause” before making any new purchase recommendations.The timing of this Fed Pause is one of the biggest variables out there today. But there’s also the real bull market kick-starter – the eventual interest rate cuts.On that note, we have some updates with our ongoing “Fed Watch” series.
The Fed presidents continue to toe the party line on their “higher for longer” talking point
Regular Digest readers know we’ve been tracking statements from the various Fed presidents as they relate to upcoming policy decisions. There are three key issues:– When the Fed will pause rates hikes– At what level this pause will happen (the terminal rate)– How long the Fed will hold the terminal rate before eventually cutting ratesWe’re interested in these answers not solely for their impact on inflation, but because of degree of pain they’ll usher in for Main Street budgets and corporate bottom lines.We have a handful of new Fed comments since Monday.First up is Atlanta Fed President Raphael Bostic. Here’s Bloomberg with the details:
[Bostic] said the central bank should raise interest rates above 5% by early in the second quarter and then go on hold for “a long time.”“We are just going to have to hold our resolve,” he told the Atlanta Rotary Club on Monday…Asked by the moderator how long he saw rates above 5%, Bostic said: “Three words: a long time. I am not a pivot guy. I think we should pause and hold there, and let the policy work.”
Next up, we have San Francisco Fed President Mary Daly. Also from Bloomberg:
[Daly] said she expects the central bank to raise interest rates to somewhere above 5%, though the ultimate level is unclear and will depend on incoming data on inflation…Daly last month said she sees rates remaining restrictive for longer than seen by markets, which have cuts priced in for this year. She said holding the federal funds rate at its peak for 11 months is a “reasonable starting point.”
Finally, yesterday, we heard from Federal Reserve Governor Michelle Bowman. In her own words:
I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time in order to restore price stability, which will in turn help to create conditions that support a sustainably strong labor market.
That is a lot of hawkishness.
That said, here in the Digest, we’ve profiled the perspective that such comments are a deliberate poker face from the Fed
And yesterday, our macro expert Eric Fry of Investment Report threw in his two cents.In short, while he’s not making an explicit judgement on whether we’re seeing a poker face from the Fed, he does believe that buying at today’s prices is going to reward investors down the road. From Eric:
…It’s not that the Fed’s rate hikes are irrelevant; it’s that they are not as relevant as most investors seem to think. The trend is what matters, and there’s no question that the interest rate trend of the last few months has been down.I think we’re approaching the silver-lining stage – the moment when investors begin to believe that the Fed has accomplished its task of taming inflation…I expect the market to begin “looking ahead” to when inflation concerns have diminished……Unless the inflation and/or interest-rate trend has changed and the Fed shocks the heck out of us, I believe we are now in an environment where investors can put their cash to work in expectation of solid and even large profits down the road.
If you feel torn about what to do with your money today, remember, investing doesn’t have to be a binary “in or out” decision. Dollar-cost-averaging is an effective way to avoid regret.Have a good evening,Jeff Remsburg
