THE WORLD AS WE SAW IT IN NOVEMBER 2022

The World of Cryptocurrencies

Crypto November was awash in a sea of red. As if the global fiscal, military and emotional tensions would not suffice, Scam Bankman-Fraud’s (name creation curtesy of Willy Woo) house of cards imploded taking with it $150 billion in total market capitalization.

It is important to note, that not a single underlying cryptocurrency failed, but rather a centralized offshore corporation without any oversight taking a few other equally centralized institutions with it. As Ben Upward, CIO of Synchonicity Investments posited, the FTX crash “may be the washout that was needed to start recovering from this one-year bear market.”

Interestingly, decentralized finance (defi) applications were not negatively impacted. To the contrary, for instance decentralized exchanges (DEXes) encountered massive volume spikes to cover for centralized shortcomings. As Eric Vorhees, founder of ShapeShift, put it succinctly to potential regulators: “Yes, defi removes some of your power as regulators… but it solves the problems you’ve been trying to regulate. Isn’t that more important?”

On a positive note, crypto penetration progresses with its mile boots on. For one, Fidelity Investments being one the world’s largest asset managers with $4.5 trillion in assets under management (AUM) just opened their crypto trading doors to their 40 million retail customers. Not to be outdone, MoneyGram, the P2P payment and money transfer platform operating in 200 countries, added Bitcoin and Ethereum trading to its millions of customers. And another of the world’s leading money administrators, Apollo Global Management, is now offering crypto custody to its clients.

Moreover, Meta is using both Arweave and Polygon as part of its plan to introduce NFT minting to Instagram users. JPMorgan just swapped sovereign assets on the Polygon blockchain, and borrowing protocol MakerDAO is working with French bank Société Générale to bring real-world assets on-chain.

The positive news flow never seems to ebb even amid all the doom and gloom we are being fed for instance the other day by the European Central Bank calling “Bitcoin on the road to irrelevance”. Might this be the perfect contrary indicator inducing the bear out of its hibernation cave? According to the press, Bitcoin has died 466 times since its first death nailed on December 15, 2010 by The Underground Economist at a BTC price of $0.23. Well…

A report published by MarketsandMarkets™ clearly supports the incredible future of the blockchain market projecting its size to grow from $4.9 billion in 2021 to $67.4 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 68.4%. Add to this some responsible regulatory activities and above figures could well be dwarfed.

What gives our immediate price enthusiasm some pause is it the fact that Bitcoin dominance has not risen during this bear as it had in all previous downcycles. In fact, it has fallen slightly from 40% to 38%. This leaves us with two possible scenarios: Either the end of the bear is not yet upon us, or the entire market, i.e. including altcoins, has reached a higher state of credibility. Perhaps a bit of both.

The World of Commodities

Fears of an impending worldwide recession took down oil prices for the month. Apart from oil (-10%), wheat (-14%) and coffee (-6%), most other commodities were in bullish territory during November, though.

This coincides with a major reversal of the US Dollar Index falling over 8% from the multi-decade highs printed in September, moving from around $114 to $105.

Commodity prices as well as crypto currencies might profit handsomely should the US Dollar continue its slide. The strong US Dollar unearthed manifold dangers to the world’s economies as it exported inflation to the rest of the world, made it hard for other countries to maintain their US Dollar peg, and rendered US Dollar denominated debt harder to repay. Seeing this, and endeavoring to avert widespread currency and debt crisis’, might leading world countries have already agreed upon a Plaza Accord revival to curtail the US Dollar’s continued rise?

The Rest …

The inverse 10/2 year yield curve hiked another 36% to -68bps clocking in rates not seen since the early 1980s.

Despite being one of the strongest indicators for an impending recession, stock markets worldwide jumped — led by China. Now, many pundits qualify these advancements as nothing else but another bear market rallye.

Might we have seen a lasting bottom, though? After all, the current market downturn has about perfectly hit the average bear market duration of 353 days.

Be this as it may and coming back to China, Citadel’s founder Ken Griffin is upholding his plans for Asia expansion, encouraged by China President Xi Jinping’s renewed focus on the economy.

Beijing’s recent moves to support its massive property markets “indicates that Xi’s team is committed to, once again, re-accelerating Chinese economic growth,” Griffin said in an interview at the Bloomberg New Economy Forum in Singapore.

Faced with increasing opposition to his Zero-Covid policy, China could tip the scales to prevent a global recession by bringing international supply chains back online to pre-Covid levels.

Good things sometimes take time though, as seen with the release of the sixth studio album of US hard rock band Guns N’Roses. After ever new delays and 15 years of waiting it finally hit the market in 2008. Fittingly, it bears the name “Chinese Democracy”.

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The Fund keeps outperforming while demonstrating lower volatility. So par for the course.

Fortunately, the Fund never had any exposure to FTX or the fallout liquidations ensuing SBFs borderline criminal activities. Let’s think positively that governments don’t use the FTX implosion as an excuse to impose draconian and industry stifling regulations so that they can more easily implement their own plans to introduce central bank digital currencies (CBDCs). CBDCs will undoubtedly come, the question is how much impact they will have on everyone’s privacy. Fortunately, we are convinced that the mathematical nature of free cryptocurrencies will prevail avoiding an Orwellesque future for us all.

A quote we came across on bitcoinmagazine.com comes to mind: “For thousands of years money has been backed by trust and gold and, protected by ships. However, in this millennium, money will now be backed by encryption and math, and protected by chips.”

Zooming out, the overall trend is still incredibly bullish. In 2016, the crypto market was worth as much as $16 billion. Throughout 2019, it had grown to as much as $369 billion. And on November 30th, it was worth around $861 billion. So cryptos have grown exponentially in a short time.

To give a bit of perspective, it took 25 years for virtually risk-free, yield-bearing money market mutual funds to accumulate $861 billion in market cap. And it took 443 years for listed equities to accomplish the same…

We have seen nerve-wrecking volatility and this will probably continue for some time. However, Amara’s Law, coined by the futurist and engineer Roy Amara comes to mind: “We tend to overestimate the effect of a technology in the short run (aka creating price volatility) and underestimate the effect in the long run.”

Wherever we are in this cycle, an astute investor will want to be positioned in some form or another for the mid- to long-term.

Thank you for your time and attention.

Sincerely,

Philipp von Gottberg