Our New Year Special: 2020 Review and Lessons #65
Market Meditations | January 1, 2021
2020 has been a roller-coaster year. From the March Crash, to the DeFi Summer to the astronomical Bitcoin rally and ATH. Let’s revisit these incredible events and draw lessons from them.
2020 has been a roller-coaster year ? From the March Crash, to the DeFi Summer to the astronomical Bitcoin rally and ATH.
For today’s newsletter, we revisit these incredible events and draw lessons from them.
Let’s approach 2021 as better traders, who have learnt from the past and are ready to mould our futures ?
MicroStrategy Stock Up Over 200% Since Initial Bitcoin Purchase ?
Since MicroStrategy’s initial purchase of BTC, not only has it made $1 billion in unrealized profits, but its stock increased by over 200% over the course of 5 months. We can’t help but wonder how Citigroup is feeling about their MicroStrategy downgrade / ‘sell’ rating back in early December due to ‘aggressive’ BTC purchases. Read more.
FinCEN: US Citizens to Disclose Offshore Crypto Holdings of $10K+ ?
FinCEN the U.S. Treasury Department wing tasked with monitoring potential legal violations of domestic financial laws, wants Americans to report if they have more than $10,000 in cryptocurrencies with foreign financial or virtual asset service providers. Read more.
Yearn.Finance Founder Andre Cronje Releases New DeFi Protocol yCredit ✨
It allows users to deposit ERC-20 tokens and receive 99.5% worth of deposits as a credit line in the form of yCREDIT tokens. For instance, if a user deposits $100 worth of ETH, they will receive $99.5 worth of yCREDIT. If they burn $100 worth of yCREDIT, then they will receive their ETH back. Read more.
Grayscale Concludes 2020 with Huge XRP Purchase and 10x in AUM ?
The company’s assets under management (AUM) have increased ten-fold throughout 2020 to above $20 billion. Information shared by the monitoring resource CryptoWhale asserted that Grayscale had taken advantage of the recent XRP developments with a massive purchase at a lower price. Read more.
eToro USA Latest Exchange to Announce Suspension of XRP Trading ?
The company made the announcement on New Years Eve, following in the footsteps of several major American-based cryptocurrency exchanges that have taken similar courses of action towards the embattled XRP token. Read more.
2020 in Review: The Good, The Bad and the ATHs
In a year dominated by a worldwide pandemic, our industry was one of the few beneficiaries. For our latest edition of the year, we wanted to do a review of this spectacular year for crypto and look back at some of the defining moments that shaped the market this year. We have organised these as follows:
BTC Bull Run.
With a buffet of options to choose from, let’s dive in!
In desperate search of liquidity, everything that could be sold for cash was dumped in the heat of the moment in early March.
Correlations went to 1 and even gold, known as the most popular store of value and generally able to withstand a sell-off in the stock markets, crashed 15% as investors and traders needed cash in order to prevent positions from being liquidated.
Bitcoin had its worst day in 7 years, dropping +40% on March 12th before reaching a bottom at $3600, arguably because popular derivative exchange Bitmex pulled the plug in order to prevent further liquidations from dragging down the price even further.
The government and central bank response that followed was pivotal for this year’s price action. In order to stop the bleeding and prevent the pandemic from doing even more damage to the economy, central banks started printing money en masse.
QE infinity and interest rates being lowered to zero with later on promises from the U.S. Federal Reserve that they would do ‘whatever it takes’ in order to keep the economy alive.
Markets loved the vote of confidence and started their V-reversal. Bitcoin traded as a risk-on asset and remained strongly correlated with the S&P 500 within the first few weeks after the March crash.
Fears about rising inflation due to all the stimulus were already present and some investors started looking at bitcoin as the best hedge available against all the money printing that was yet to come.
❗️REMEMBER: March 12 was a reminder to everyone that using leverage comes with risk and risk management should be everyone’s top priority. As always, you can find my full ? risk management course on YouTube ?
When bitcoin was going through a long consolidation phase over the summer, another sector within the crypto industry exploded.
The launch of Compound’s liquidity mining program started the DeFi summer that provided incredible opportunities for traders, investors and even yield farmers.
A lot of projects launched their own liquidity mining program when they saw that Compound was able to capture the market’s attention and grow its user base and liquidity by distributing its own token COMP.
Those technical enough to find the projects worth farming made a killing switching over from one protocol to the next by providing liquidity in order to receive all the different governance tokens that were launched.
Decentralized exchanges did more daily volume then some of the biggest (centralized) exchanges, token values exploded in value and protocols attracted billions of dollars from yield farmers looking to find the next YFI.
Although the hype during the summer was clearly not sustainable and tokens saw a sharp correction soon after, DeFi’s growth this year was almost unimaginable last year. There’s now over $10 billion locked up in various protocols that are trying to rebuild a new financial system from the ground up.
Decentralized exchanges like Uniswap, once thought of as yet another empty blockchain promise, found product market fit and allowed the average retail trader to speculate and invest on-chain without using any of the existing centralized exchanges that dominated crypto until this year.
✅ TIP: One thing is certain, DeFi is here to stay. Perhaps like many you had previously overlooked it but as a new year dawns upon us it is well worth increasing your knowledge and awareness of this space. For there will be new opportunities and those who spot them first are often the ones who reap the biggest rewards.
Bitcoin’s Bull Run
By the end of April, Bitcoin had more than doubled to about $8,600.
There was an important change around this time. Institutions were waking up to the fact that whilst fiat currency can be issued subjectively at the will of central bankers, there are hard coded limits on bitcoin’s supply, which are programmed into the underlying blockchain network.
This distinction was further strengthened by the May halving. The halving showed the blockchain network was operating exactly as designed. An ever diminishing supply curve against the backdrop of trillions of new fiat currency printings. Bitcoin inflation kept tightly under control whilst fiat currencies look to be headed towards soaring inflation.
Bitcoin then took a bit of a back seat during the summer, as described in the above section ?It was really through summer onwards that the narrative of Bitcoin as ‘digital gold’ became so firmly cemented that prices shot passed $20,000 and landed at an ATH.
Early October was already impressive: bitcoin returns up 50% YTD at $10,800. However, few traders expected us to get to where we are today. A couple entrants that tipped the scales:
MicroStrategy: initial $425m into BTC.
Square: initial $50m into BTC.
PayPal: allows 346m customers to hold BTC and other cryptos on its networks.
Further endorsements: JPMorgan analysts, Stanley Druckenmiller, SkyBridge, AllianceBernstein, BTIG, BlackRock, MassMutual etc.
Each endorsement was bullish and helped get us where we are today. The MassMutual endorsement in particular was interesting for it showed that bitcoin could also be an investment for more financially conservative institutions.
✈️ NEXT DESTINATION? 2020 has been a fantastic year for bitcoin. Will it be a gift that keeps on giving? It is difficult to argue a bearish case given that the fundamentals that led us here look like they are here to stay. Monetary stimulus and fiat currency weakness are set to remain. And so, it is likely we will see more institutional demand and further price rally. Short of a Ripple-esque black swan event, we (and many other analysts) are optimistic. As coindesk writes:
“The story of bitcoin in 2020 might be a classic tale of how a new technology emerges at the fringe, gradually wins the attention of a few well-heeled and respected money managers, then suddenly gets swept up by the rest of Wall Street, heralded as the next frontier for savvy investing and fast profits.”
The world has suffered during 2020. We have seen changes and events occur which seem more fitting to a movie than they do reality. The crypto industry has been one of the few beneficiaries. We experienced a March Crash, a powerful reminder of risk management. We saw a DeFi summer, which was full of new opportunities that will likely continue to be an important theme. Finally, BTC shocked and awed, racing through $20k and ATH, underpinned by fundamental themes that look like they are here to stay. Well, only time will tell. We will be with you, reading, researching and writing each step of the way. Welcome to 2021.
Jameson Lopp: A Masterclass on Security & Privacy
Things I learned:
If you have the right attitude, you can probably do a lot more than you believe you can do. Perseverance is a skill that can be learned.
If you have a strong level of privacy, the attacker will have a hard time even getting to your security in the first place. The more layers you have, the higher the cost to attack.
The cost of someone reaching out to you has become so much lower.
Security is a form of insurance, you have to invest in it upfront.
You should assume that every bit of information you give to a third party will eventually leak.
You can only reasonably fit so many people into your life. Social media artificially inflates that number, and makes you think you can fit more people in your life than you actually can.
The best want to work with the best. Your company culture and ideology get baked in really early. It’s best to define them early and keep them as strong as possible as more people are hired.
The point of wealth is to be productive and serve society through creating a legacy for yourself. Use your wealth as a tool to find better solutions for problems that society is facing.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.