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It's just another week

Markets tumbled but fundamentals remain unchanged

Ryan Sean Adams
Jan 8, 2022
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It's just another week
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Dear Bankless Nation,

So…it’s one of those weeks, huh? 📉 Crypto asset prices took a dive

  • BTC peaked at $47,900 and fell 15% to a low of $40,700

  • ETH peaked at $3,900 and tumbled 20% to a low of $3,120

If you’re one of the many new entrants in this space, perhaps you’re confused, fearful, or even spiraling into confirmation bias, “Ahhh I never should have bought crypto, I knew this would happen!”

To this, I say:

Major market corrections are part and parcel of our fledgling industry. We always joke about being early to crypto, but this is proof. Yes, ETH and BTC are blue-chip crypto assets, but relative to other markets, mature assets don’t fall 15-20% in a week.

Take solace anon, the road ahead stretches far.

But, let’s take a step back. What caused this plunge? Sometimes, market corrections happen when overleveraged whales cause a cascade of liquidations and value gets erased from the market. Other times there’s no apparent cause.

But this time, we can look to off-chain events. Perhaps the most telling was the release of the Federal Reserve’s latest meeting minutes. In the meeting, the Fed signaled their intent to aggressively shrink the US Central Bank’s $8.3T balance sheet in response to rising inflation.

“… given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.” - Meeting Minutes, page 11

Let’s translate: They printed too much money and need to slow down or else the prices of food, groceries, and shelter will continue to rise.

  • By March, they’ll stop purchasing government bond

  • Somewhere between March and June, they start hiking interest rates

Higher cost of capital 😲

The Fed sets the cost of capital and asset prices to tend to rise when the cost of capital is low. Why park that money you borrowed at 0.01% in a low-yield investment vehicle when you can invest in a risky asset?

Even if your risky asset sees no price appreciation, you can pay back your loan without losing anything except opportunity cost. That’s why asset prices go up in low-interest-rate environments. Risk-on!

But given the right conditions (e.g. fiscal stimulus) all the fresh money entering the economy can bleed into consumer price inflation as we’ve seen recently. This is when voters really notice… and mid-terms are coming!

So the Federal Reserve is increasing interest rates, making it more expensive to borrow new capital. When this happens “risk-on” assets like stocks and crypto tend to fall as a category as market participants rotate money out of volatiles assets and into assets that may be lower yield, but are more stable. After all, they now need to see returns to pay off higher interest rates.

Just see how Bitcoin’s price chart mirrors a NASDAQ composite index:

Summing up: With the Federal Reserve signaling an increased cost to borrow capital, market participants are moving money from high-risk-high-reward assets into low-risk-steady-reward assets.

So what does this mean for you crypto investor?

I think that depends on your character class. What’s your time horizon for crypto?

Are you a tourist, a mercenary, or a settler?

Twitter avatar for @RyanSAdams
RYAN SΞAN ADAMS - rsa.eth 🦇🔊 @RyanSAdams
Three types of people in crypto: 1) Tourists 2) Mercenaries 3) Settlers Tourists will come and go. Mercenaries will do what makes them money. Settlers will build a lasting economy...this digital land is now their home. Know which type you're dealing with.
3:29 PM ∙ Mar 17, 2021
217Likes40Retweets

Settlers evaluate the fundamentals. And the fundamentals remain strong: 💪

  • Developer activity is at an all-time high

  • Ethereum making steady progress towards the Merge

  • New users flocking to Web 3

The market environment has changed, but the fundamentals have not.

Don’t panic! WAGMI.

Here’s what’s lined up next:

  • A fantastically fun and surprisingly deep conversation with crypto trader Cobie on what it takes to survive in crypto

  • How to use StarkEx

  • Ethereum Q4 Report (check out our Q3 report!)

Have a 🌈 weekend,

- RSA

P.S. GMI launched yesterday and has already seen 2.6M in trading volume in 24 hours!


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Recap for the week of January 3rd, 2022


🎙️WEEKLY PODCAST EPISODE

Listen to podcast episode | Apple | Spotify | YouTube | RSS Feed


ACTION RECAP 📚

  1. Execute any good market opportunities you saw in Market Monday

  2. Try these 5 opportunities to use zkSync (wen token? 🤔)

  3. Review our predictions for the year and see how well we did in 2021!

  4. Ape into GMI, a basket index token for the hottest DeFi 2.0 projects 🔥

  5. Share your crypto resolution for 2022

WATCH & LISTEN 🔊

  1. 🎙️ Listen to Endgame | Vitalik Buterin

  2. 📺 Watch Cooper Turley | Layer Zero

  3. 📺 Watch TribeDAO - The Biggest Protocol Merge Ever

  4. 📺 Watch Eminem's Bored Ape | Markets | OpenSea Freezes Stolen NFTs

METAVERSAL 🧙‍♂️

  1. Highlight the State of the NFT Market in 2021

  2. Understand why Forgotten Runes Wizard’s Cult is mooning

  3. Catch up on drops, releases, and what 🐋s are buying

BANKLESS DAO 🏴

  1. Learn what it means to work for a DAO

  2. Explore the most expensive NFTs of 2021 and WTF is OpenDAO?

  3. Recap this week in BanklessDAO


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State of the Nation

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🗞️ Latest Weekly Rollup. Download the week in crypto to your brain in this 25 min show.


Jobs opportunities 🧑‍💼

✨ See all listings on the Bankless Job Board ✨

  • Senior Fullstack Engineer at Syndica (✅ technical!)

  • Senior Software Engineer at Gilded Finance (✅ technical!)

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  • Community Ecosystem Lead at dYdX Foundation

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🙏Thanks to our sponsor

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Twitter avatar for @nanexcool
mariano.eth ✨ᕙ༼ຈل͜ຈ༽ᕗ✨ | 🦇🔊 @nanexcool
Latest @BanklessHQ podcast is so good 🚀 youtu.be/b1m_PTVxD-s
Image
8:13 PM ∙ Jan 3, 2022
190Likes14Retweets

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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.


Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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