Current Performance of the Moby.co Crypto Winter Portfolio:
Total Change: -22.2%
Now that crypto winter has fully set in since our narratives post (read it here), let’s look into how we’re making adjustments to maximize our long-term gains and take advantage of this constantly shifting market.
If you look at the start of this post — we’re showing you that our bear market portfolio is down a collective 22% since we published it in August.
Since we’re long on all those coins over a multi-year period, we really don’t mind that we didn’t hit the exact bottom of crypto winter. If the market keeps hurting due to inflation, this portfolio stands to go down even further in which case we’d only add to our existing positions and cost average down further.
That said, there have been some updates in the market that give us a little more confidence about hedging this portfolio for the long term. Specifically: a successful Ethereum merge is giving us the confidence to stake 50% of our assets while a growing derivatives market has catalyzed the addition of one more speculative asset to the portfolio.
The crypto winter may be cold–but we sure love all the developments happening in the industry now that the scammers are being frozen out!
Let’s nerd out a bit 👇
Why Winter is Deepening:
Real quick before we start out though–take a look at the charts above. We’re deep in a nearly year-long downturn for the crypto industry. Bitcoin is down nearly 70% from it’s highs in Q4 of last year. Why did the portfolio keep slipping after going down even further?
The answer is simple: we deployed this portfolio right as a bear market rally started falling apart before the Ethereum merge. Crypto as a whole is down for the exact same reason the rest of the market is: inflation and Fed policy.
If we get good CPI data this week, we anticipate a few days of heavy bull sentiment before earnings season potentially injects a little more volatility. Until the market feels really confident that the Fed can stop pumping the brakes on the economy, money is going to flee speculative and high-growth spaces like crypto.
Ethereum is down a little more simply because a lot of folks were staking extra ETH before the merge and are simply taking profits. We’re still committed to dollar-cost-average on our positions throughout the remainder of this bear period.
Remember this game is played in years — not months. If you can’t handle the heat (e.g. price volatility) then stay out of the kitchen (e.g. crypto markets).
But anyway, here’s how we’re “shifting” our allocation:
Staking Through Winter:
So far, the Ethereum merge has gone well. I mean, it hasn’t gone well for prices, but it also hasn’t caused the catastrophic collapse of the Ethereum ecosystem. And that’s all that really matters to us.
Now ETH is a proof-of-stake system and its blockchain can scale without emitting enough carbon to boil the Atlantic Ocean.
More importantly, the continued success of the merge has given our analysts confidence about holding our Ethereum, Polygon, and Solana assets for the long term. We are therefore converting half of each of these lines into staked ETH, MATIC, and SOL.
But of course, what the heck does that mean?
There are a million explanations out there for what staking actually is, but here’s the easiest takeaway on it: check it out here.
In a nutshell though, staking basically means you trade transaction fees and the liquidity of your asset for really decent interest. It’s like the crypto version of a CD (certificate of deposit) except instead of signing a set contract — the length you stake your assets is dictated by how much transaction fees eat into your returns.
And now that the merge has gone well, most major exchanges have been incentivized to offer staking as a core part of their platform. You can stake anywhere from Binance to Coinbase.
For us, we’re staking our ETH, MATIC, and SOL, on Binance because their rates are competitive, and we have concerns about keeping our assets on Coinbase in the first place:
Binance is clearly making a big move to stay competitive while Coinbase and FTX fight it out over other parts of the crypto market.
These staking rates are really awesome, and since we anticipate being multi-year holders of our stakeable assets, putting them into long-term storage like this is just a no-brainer.
Staking is just a way to hedge your portfolio long-term. Instead of just earning based on price appreciation, you gain more of those assets based on how long you hold them on the staking platform.
You’re not getting paid 95 dollars for every year you stake $1,000 worth of Polygon on the platform — you’re getting that value in Polygon deposited into your account during that period.
If you’ve been playing crypto for a long time, you might scoff at APY numbers like this — calling it way too low compared to the gains you get from straight-up speculation.
But as the crypto industry continues to mature, the volatility and massive price swings we’ve seen in this space will gradually mellow out.
But we’re not staking the totality of our holdings in each of these coins though. Only 50%. We want to maintain some liquidity in the market in case there’s any severe volatility that may present an opportunity.
Meanwhile, we still have 2% left in our overall portfolio which is uncommitted. Let’s start to change that.
The Emerging Derivatives Market:
We aren’t just de-risking during crypto winter, we’re actively hunting for massively speculative opportunities for the final 2% of our portfolio.
And this month, we’re ready to commit half of that remainder (1% of the total portfolio) to $GMX.
GMX is the governance token of GMX.io, a rapidly growing decentralized exchange for crypto derivatives.
Okay, let’s cut the jargon real quick: GMX.io is a dedicated platform for trading options in the crypto space. We like this place because while several exchanges allow you to buy and sell call and put options for various coins, GMX is a dedicated exchange for these contracts and their liquidity structure is built entirely for options.
GMX has quickly grown to 120,000 users and has a strong liquidity foundation powering the exchange. It’s one of the few coins that has actually gone up in value during crypto winter.
But note, GMX was just recently listed on Binance. Historically, the moment altcoins hit a major exchange like Binance, they’ve dropped significantly in value while initial whales take profits and leave. We’ve seen the start of that happening in GMX’s daily charts, but since we anticipate being long-term speculators in the project, we don’t mind dollar-cost-averaging through this price action.
We like GMX because, well, traders like derivatives. In stocks, the derivates market is estimated to be significantly larger than the size of the actual stock market.
Meanwhile, crypto derivatives are a drop in the bucket compared to the pure-play crypto industry. That market could take off during a future bull cycle as the crypto market continues to mature and more institutional money enters the industry.
But, as more conservative investors, we absolutely do not encourage you to engage in crypto derivatives contracts yourself. The space is way too volatile to make any coherent strategy outside of high-stakes day trading.
Instead, we can take profits from an emerging industry as it grows by holding the governance token of a player set to be a dominant part of said industry. GMX is very much a risky play, but we like the market they’re in and the fact they are dedicated to a single service for the crypto industry.
And that’s the spirit of crypto winter. It’s all measured positions and a sober accounting of a down market before that mania of bull season takes hold again. With inflation continuing to wreak havoc on the market potentially into late 2023, we’re excited to find opportunities like this and shore up our positions so that we have a big pile of gains to ride once the winter truly begins to thaw.
The Updated Bear Market Portfolio
So with that being said, let’s take a line-by-line look at what our portfolio looks like now:
Our long-term HODL wallet consists of the following weighted positions, in order from biggest to smallest:
- Bitcoin (50%)
- Ethereum (10%)
- Staked Ethereum (10%)
- Solana (5%)
- Staked Solana (5%)
- Polygon (5%)
- Staked Polygon (5%)
- ICP (8%)
- GMX (1%)
- Reserved for future speculation (1%)
So, again the portfolio hasn’t really changed that much. We’re hedging our gains in half of the portfolio while assigning half of our remaining liquidity to a truly speculative altcoin.
Stay warm during the winter folks! Maintain your positions–but keep your additions small until it looks like the worst has passed.
It’s much better to miss the bottom by a few weeks than to get tricked by a classic bear market rally. We’ll check back in on this in a few months–but don’t expect any big updates until we see signs the winter is truly thawing.