With newly minted public crypto unicorns laying off a good chunk of their staff to various coins plunging to more than half of their value since last summer, this over-leveraged correlated asset class should expect a bumpy or possibly unseen road ahead.
When working at a startup, it’s best to keep one eye open at all times, even when asleep. Romanticizing big bundles of equity compensation and founder status seems appealing but in reality, it is hard to sleep at night and stay awake during the day.
If you are in this boat or looking for more stability and tax-efficient income, having real estate make up a larger portion of your net worth is the way to go. With tax hikes in effect, paying marginal short-term capital gains tax on your earnings at your hot flashy startup isn’t so appealing after all.
At one point in 2021 when inflation started to spike, we predicted crypto would be a perfect replacement while cash depreciated and our purchasing power became dismal. This asset, or so-called intangible gamble lacking an IRR, wasn’t even un-correlated to the markets let alone the dollar falling alongside the markets by double digits.
The greater exposure and attraction it gets, the less valuable and more speculative it became. Speculation, memeification, and gamification are a dangerous mix. It caused a cascade of outcomes, highly sensitive to all factors we once thought it could be, or dare I say, a store of value, possibly safe haven if it could last that long.
But low and behold, crypto investors left and right are liquidating, divesting, and not risking their play money funds that have turned to 0 by now. Many of my colleagues in their early twenties who were heavily invested in crypto just realized there’s nothing stable about a stable coin (pegged to USD) after all. Luna and Terra are in the same boat worth negative dollars at this point. Thousands of employees, many of whom own crypto, on the other side of the pond at high-flying unicorns are also evaluating how they will get out of this layoff mess.
Bundle Up
So what do we make of the uncertainty with this nascent asset?
Unlink equities where dips are more common (every 2 decades, S&P500 averaged 4 bear markets) even as we officially crossed the bear market territory line on June 13th, no pun intended, there’s no real indication on how long this crypto winter will last.
Given that crypto is a baby investment that was founded in 2008, it’s hard to tell where it is headed next given this is its first bear market like mine so I thought there would be no better way to forecast crypto and other coins’ (Ether, etc.) outcomes than asking my closest crypto fanatics about their thoughts on the wild swings of the Wild Web known as the blockchain.
Age 48 Net-Worth: ~$24-$30m Prior Commodities Trader now Car Dealer
“Any investment is for the long haul. I dipped into crypto when it wasn’t even hot and at this very moment, it is exactly where it started. In fact, even worse. I’ve made a decent living for myself and this mantra has seemed to work in my favor so I’m continuing to stick to it for as long as I can until the market zigs when I zag. I’m not Jordan Belford so I don’t need to worry. When others are greedy I’m fearful and vice versa. With no more than ~30% of your capital in 1 investment, you have to be willing to take some sort of risk otherwise might not live!”
Age 21 Net-Worth: ~$230k E-Commerce, Podcaster, and GrubHub Delivery Driver
“I don’t know about you but I’ve quickly found out nothing is permanent in life — especially in the markets. If pain is temporary so are the discounts and the peaks. Although I’m not an expert in investments, I can confidently assert crypto isn’t a horrendous move to make right now. I have a long way to go and if the winter is prolonged for a few more months, at least I’ve learned my lesson to lessen my exposure before a contraction and do more logical thinking beforehand.”
Age 24 Net-Worth: ~$1–2.5m
“Whatever world crypto is trading in, we shouldn’t be afraid to be a part of it. It is finding its course. Just like a company learning how to walk, crypto is feeling all the feels as a lonely teen. No investment is worth keeping if it is for such a brief period of time.”
Age 31 Net-Worth: $6.5–8m Investment Advisor & Real Estate Agent
“I’m at the stage where crypto isn’t bruising me as much as it could be. Since I’m in Miami, ironically, winter is never here, even in the markets since I spend time in the markets, never time the markets. If you’re a true crypto investor, no brief ‘economic Jamie Dimon hurricane’ will stop you in your tracks. Embrace the cold and ride the waves.”
Well, there you have it.
If I’ve learned one thing from these crypto holders and skeptics it’s:
-Risk whatever willing to loose
-No more than ~10% of your invested capital into more than 1 investment
-Be in it for the long-term (less than 5 yrs = not worth it due to marginal short-term capital gains taxes incurred)
-Treat your portfolio like an investment vehicle with a time horizon, not Las Vegas late-night
With traditionally bi-polar temperatures in NYC, my suggestion for crypto holders (not myself included) is: keep that parka, cash and gold, and most importantly emotions at bay.
If you can outlive a drawdown, a market cycle will feel less heavy no matter what side of the coin you’re betting on.