Earn, Save and Invest your crypto from your checking account with OnJuno. 4% savings rate!
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?
Settlers evaluate the fundamentals. And the fundamentals remain strong: 💪
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!
🙏 Sponsor: Polymarket—Bet on your Beliefs & Harness the Power of Free Markets
Recap for the week of January 3rd, 2022
🎙️WEEKLY PODCAST EPISODE
Listen to podcast episode | Apple | Spotify | YouTube | RSS Feed
ACTION RECAP 📚
Execute any good market opportunities you saw in Market Monday
Try these 5 opportunities to use zkSync (wen token? 🤔)
Review our predictions for the year and see how well we did in 2021!
Ape into GMI, a basket index token for the hottest DeFi 2.0 projects 🔥
WATCH & LISTEN 🔊
🎙️ Listen to Endgame | Vitalik Buterin
📺 Watch Cooper Turley | Layer Zero
📺 Watch Eminem's Bored Ape | Markets | OpenSea Freezes Stolen NFTs
METAVERSAL 🧙♂️
Highlight the State of the NFT Market in 2021
Understand why Forgotten Runes Wizard’s Cult is mooning
BANKLESS DAO 🏴
Recap this week in BanklessDAO
Weekly Subscriber Perks 🔥
Bankless Premium Members get access to perks like these:
Full Access: What Jack Dorsey Doesn't Get about Web3 | Market Monday
30% Discount: Permissionless Conference | May 17th-19th, 2022
Go Bankless. $22 / mo. Includes archive access, Inner Circle & Badge—(pay w/ crypto)
State of the Nation
We’re now live streaming State of the Nation—join us at 2pm EST every Tuesday!
🗞️ 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!)
Full Stack Engineer at Utopia Labs (✅ technical!)
Analyst: Smart Contract & Web3 at Bitwise Asset Management (✅ technical!)
Senior iOS Engineer at SmartDeFi (✅ technical!)
🙏Thanks to our sponsor
Polymarket
👉 Use code "bankless" to get up to $100 reimbursed on your first day of trading!
Polymarket may not be available in all jurisdictions
Polymarket is an information markets platform that lets you trade on the world’s most highly-debated topics. On Polymarket, build a portfolio based on your forecasts and earn a return if you are right.
When you buy shares in a market, you are weighing in with your own knowledge, research, and view on the future. Market prices reflect what traders think are the odds of events happening, turning trading activity into actionable insights that help people better plan for their future.
Tag Bankless on twitter and tell us how you’re going bankless for 3 x 🔥
There’s no wrong way to listen to a Bankless podcast… but there is a right way.
Want to get featured on Bankless? Send your article to submissions@banklesshq.com
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.
Create your profile
Only paid subscribers can comment on this post
Check your email
For your security, we need to re-authenticate you.
Click the link we sent to , or click here to sign in.