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| "Crypto musicology is taking over all of me Utopia is zeros and ones." - Cory Wong, "Power Station" (Click to listen) |
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| Our official playlist: High-powered music to help you stay invested in crypto for the long term.
Our Blockchain for Everyone playlist is available for free on Spotify. Click here to listen. |
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| The Jenga Tower Collapses: We've been warning about the dangers of "algorithmic stablecoins" like TerraUSD (UST), which try to maintain their peg to the U.S. dollar without actually being backed by dollars.
As we wrote in our Investor's Guide to Terra, stablecoin investors will ultimately want to know there's "money in the bank," as with fully-backed stablecoins like Tether and USDC.
In the meantime, algorithmic stablecoins like TerraUSD are creating dangerous incentives for people to put in a lot of money, only to have the whole system collapse if the stablecoin loses its peg.
It's not just UST investors at risk: it's the whole crypto ecosystem, as the "building blocks" of crypto begin to topple.
It's worth re-watching this clip from The Big Short to understand what's happening right now in crypto: |
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| Instead of "mortgage bonds," replace "algorithmic stablecoins." Instead of "U.S. housing market," replace "crypto market."
It started earlier this week when TerraUSD lost its peg to the dollar, and investors rushed to pull their money out -- a modern-day "bank run" -- while the Terra team tried to keep enough money in. |
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| The current price of the TerraUSD "stablecoin" (red = bad).
Because crypto is built on "money Legos" (though "money Jenga" is more accurate), this affects everything, as smart contracts automatically sell and liquidate crypto loans, taking down the entire market.
Even the price of bitcoin has hit fresh lows, dipping to $30K.
Investor takeaway: While other crypto newsletters were hyping TerraUSD's 20% interest rates, we told you "if it sounds too good to be true, it usually is." Now those investors are scrambling to get out, while Blockchain Believers are on a firm foundation.
We stick to our basic investing philosophy. We buy and hold bitcoin, plus a small number of high quality digital assets, for 5 or more years. And we avoid algorithmic stablecoins.
(In the meantime, buying bitcoin at $30K could be quite a deal: it's a 50% discount off its price last fall.) |
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| Hi Everyone,
Over the past several years, the phrase “buy the dip” has become a mantra for legions of investors. While not a new concept, it has become increasingly popular with individuals who have not invested through an extended downturn, otherwise known as a “bear market.” |
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| While markets have experienced several downturns, the last bear market in stocks was from 2007 to 2009, notwithstanding the two-month COVID-19 bear market.
A bear market is frequently defined as a decline of at least 20% from a peak. Bear markets have varying durations, but on average last close to a year.
Bear markets should not be confused with corrections, which are typically shorter and involve a drop of 10% in an asset class or security.
While there have been several corrections, the last bear market (outside the brief, aforementioned Covid bear market from March 2020 - April 2020) has frequently been called the Great Recession, the second-worst bear market in U.S. history.
One of the major causes of the Great Recession was debt. But while policies were enacted to prevent another such event from happening again, the level of debt—both on an absolute and percentage basis to GDP—has climbed. |
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| The federal debt, multi-decade high inflation and persisting supply chain issues, all while the Federal Reserve is on a rate-hiking campaign, have sent the major indices tumbling.
Year to date, the S&P 500 is down over 16%, while bitcoin is down over 31%.
But it's not just federal debt. Consumer debt is also rising at a rapid clip, up 1.7% in the first quarter—$1.7 trillion higher than at the start of the pandemic. The increase in debt was mostly due to mortgage and auto loan balances.
Notably, while credit card balances declined in Q1 2022 from Q4 2021, they are $71 billion higher than in Q1 2021.
With the Fed's benchmark rate already 75 basis points higher than it was at the start of the year, and given that the central bank's policymakers have stated that they plan on continuing to raise rates until the end of 2023, this debt will only continue to grow. |
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| So back to the topic at hand. Should you buy the dip?
El Salvador seemed to think it was a good idea yesterday to stock up on bitcoin on sale, adding 500 more coins to its current horde at a cost of close to $15.5 million.
And individual investors still appear to be looking for sales. "Bitcoin price" is one of the top trending Google searches today.
But beyond "should you buy the dip," investors should probably take notice of their finances and the impact of rising rates.
Individuals have been chasing market dips, but it remains to be seen if they will be able to withstand a consistent level of negative returns. A long-term, well-researched investment plan might be a better option in the current market. I appreciate all your likes, follows and comments! As always, thank you for reading.
Make it a great day!
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| Evamarie Augustine Market Analyst |
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Remember, Terra means "Earth." As in "quake." |
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| Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It is created by Evamarie Augustine, Charles Bovaird, Mati Greenspan, John Hargrave, and Alexandre Lores.
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