‘We really do believe, while we are in a massive slump right now, that the three revolutions around crypto trading that we set forth in our big ideas for 2022, and you can find that on our website, that they are underway and they will not be stopped.’ – Cathie Wood.
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The crypto market is in a bear market as bitcoin is currently trading for $20,081 and ethereum is trading for $1,093. It’s not only the top two currencies and altcoins that have taken a beating, but the institutions have shown extreme vulnerability as well. Terra Luna wiped out billions in equity, with many believing it was a Ponzi scheme from the start, despite CEO Do Kwon claiming ignorance.
Celsius was next to show it had been a house of cards when the crypto lender reportedly made significantly under collateralized loans and illiquid investments, leaving only a small buffer in case of a downturn. Celsius froze accounts and took to twitter to announce. It was halting withdrawals because of extreme market conditions.
Then, Coinbase, the largest and seemingly most stable exchange in the United States, showed signs of vulnerability when it first rescinded job offers. The publicly traded company announced it was laying off 18% of its workforce. The publicly traded company’s stock is down 80% year-to-date and JP Morgan just downgraded Coinbase from neutral to overweight, saying in a note to clients that the slide in bitcoin and other digital assets will make it difficult for the exchange to make money.
Despite all of this. Cathie Wood piled into Coinbase, making it a top 10 holding in her portfolio, and declared on CNBC that crypto is here to stay and it won’t be stopped.
‘The money revolution that’s bitcoin’s first global digital private rules-based monetary system. DeFi really came of age in 2020 and 2021, and while the reach for yield went way too far and the leverage in some protocols way too far, and the algorithmic stable coins, well, as an economist myself, I didn’t understand them. It makes sense that they’re not going to exist, but to DeFi logic, they have taken off.
We’re impressed at how robust the ecosystem has been. A lot of people expected the Terra Luna meltdown to cause a systemic chain reaction. We’re seeing a little bit of that, but so far, the Ethereum blockchain upon which DeFi is built has held up very well.
Then the third revolution, which is the most in its infancy, is probably where the token uh revolution was in 2017. That’s NFTs but we do believe that digital property rights, which is what NFTs represent, are going to become incredibly important. I know from my economic background that property rights lift people and countries out of poverty. We think that the opportunities that digital property rights will provide for creators, as creators and many others, we’re going to find all kinds of utility and we can’t even think of it right now, just like we couldn’t understand quite what DeFi could be when tokens first came around.
We’re believers, and we think the ecosystem, if it consolidates, that’s not a bad thing. We do think that digital wallets are going to be one of the most important outcomes here at the effective bank branches in our pockets. We are trying to figure out who’s going to be the digital wallet. It’s going to be winner take most or there will be two or three of them.
So is it a Cash App? So the block is in our top ten. Is it Coinbase? Coinbase is in our top 10. These are going to be huge opportunities again. You’ll find them in Big Ideas 2022. Is it going to be Robinhood FTX? We don’t know. All we know is that the opportunity is huge.
There’s a cleansing process. We’re going to see it regularly. This is very early on in these technologies. You know, we were looking. You can see in the traditional asset management world the reach for yield there. You know, we’re wondering if you’re looking at spreads gapping out in the high-yield market. You’re looking at credit default swaps in the market. If you use the MARKIT metric, we’re now above where we were in the fourth quarter of 2018, which was a terrible period for the stock market moving into coveted territory.
This is true for money center banks as well. We wondered just as much what the reach for yield did in the traditional markets that are now being flagged by credit default swaps. It could be associated with the leveraged collaborative collateralized loan obligations associated with private equity, and so your comment suggests that we are a generalist portfolio manager making asset allocation decisions.
The most important thing we need to do is stick to our knitting. The worst thing that could happen is style drift. When people invest in ARC, they know they’re getting a truly disruptive, transformative innovation. That’s what we offer, and we don’t pretend to offer anything else. So, when it comes to risk management, as I previously stated, we focus our portfolio on our highest conviction names. That means we are, with the weight of evidence moving us. We are, in some measure, from our point of view, exercising risk control.
What do you think of Kathy’s thoughts here? Is this a goodbye right now or a falling knife?
[This article is a transcription of a video made by Only The SAVVY]
Original video: https://youtu.be/ssjbfPMnSOQ]
